Regional investment, not taxes, holds the key to bursting the London bubble

Business Canada Health Science Tech UK World

For populist left-wing, typified by Jeremy Corbyn, there are few problems that can’t be solved by taxing the rich. But who exactly are they?

A new report by the Institute for Fiscal Studies (IFS) sheds some light on this much-maligned demographic.

To be in the top 10 per cent of income tax payers you need to earn a little over £50,000. To be in the top one per cent you need to bring home three times that, while the top 0.1 per cent earn more than £650,000 before tax.

The disparity is enormous. It is, as they say, the difference between the haves and the have-yachts. But the findings are clear on one point: the UK’s top earners are predominantly male, middle-aged and living in London or the south east.

Aside from the glaring gender disparity, the figures lay bare the country’s geographical imbalance. Boris Johnson has been keen to trumpet his credentials as a One Nation Tory, pledging to unlock the UK’s potential beyond the border of the M25.

But how will this work when high productivity and top earners are concentrated, by and large, in one corner of the country? This is the challenge for policy-makers.

Should we increase the tax burden on top earners and hope that Whitehall can successfully redistribute it? Or should we invest in and incentivise growth and innovation in the regions? Johnson, to his credit, favours the latter approach.

The £1.8bn NHS cash boost, along with regional infrastructure spending and an aim to roll out full-fibre broadband by 2025, demonstrate – in theory, at least – his commitment to life outside London.

As Brexit reverberates through British politics, the north-south divide is even more acute, and there’s no doubt the Prime Minister has northern Leave voters in mind when he makes his promises. But the IFS figures show just how important concepts such as the Northern Powerhouse could be for harnessing the country’s potential after we leave the EU.

Regional connectivity, infrastructure investment and greater devolution could all, in time, reduce our reliance on London’s top earners. Paul Johnson, director of the IFS, also warned of the pernicious effects of fiscal drag, where tax thresholds swallow earners for whom the 40p rate was never intended.

Johnson should act to tackle this, alongside his plans for regional growth.

Main image credit: Getty

Leave a Reply