A think tank has said mayors should be given a share of corporation tax raised by businesses in their areas.
The Centre for Cities claims about 2% of corporation tax – a tax some companies pay to the government on the money they earn – should be devolved to mayors as part of government’s plans to give leaders more control over tax revenues.
Announced on Wednesday, the proposal would give mayors more incentive to support high-productivity businesses and keep more of the tax raised by local growth in the region.
The think tank also claims corporation tax could help spread investment beyond city centres, allowing revenue raised to support suburbs and nearby towns.
Centre for Cities cites Germany as an example. Here local authorities receive income from a form of corporation tax known as trade tax.
The organisation says adopting a similar system in England, based on companies’ wage bills rather than the location of their headquarters, could provide a more even distribution between mayoral areas.
It also claims devolving corporation tax would bring the UK closer to other G7 countries, all of which devolve some form of business income or profits tax.
Ant Breach, director of policy and research at Centre for Cities, said: ‘The purpose of fiscal devolution is to stimulate local economic growth. The ultimate test of the entire devolution agenda is whether it increases prosperity for local areas.
‘The prime minister and his chancellor should not miss a golden opportunity to hand mayors a powerful pro-growth incentive in the form of corporation tax sharing. It is a double win for mayors and the economy.
‘First, it strongly encourages mayors to focus on their business base because they get a growing share of tax raised in thriving city centres. That means local profits stay local. Second, it allows mayors to redistribute the gains from their business base to places that are further away and in need of investment – think Oldham in relation to Manchester. That is good for fairness.’
The briefing comes ahead of Labour’s plans for fiscal devolution, which are due to set out in the autumn budget.
Image: The New York Public Library/UnSplash
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