Devolution of income tax – an inherent problem

Summary

The Prime Minister has suggested that local authorities could get a share of income tax receipts to use in their area. This proposal is promoted as a means of increased devolution giving local authorities more power over spending. An important and relevant question is how much funding could be derived from this source.

 

Data from HMRC provides estimates of the income tax paid in each local authority.  Using this data it is possible to calculate how much money could be made available.

 

Analysis of the data shows considerable disparities in the amounts of income tax by local authority.  More prosperous authorities in London and SE England could obtain a significant amount of funds based on income tax receipts compared to many other authorities.  Cornwall would be in a particularly weak position.

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Methodology

Data from the HMRC was used to create a table with the estimated income tax for the 2023-24 period for each local authority. Population data from the 2021 census was also obtained for each local authority.  Income tax receipts for each local authority were then divided by the population to obtain a tax per capita figure. 

 

The resulting data was then sorted by per capita receipts and population size.

 

Results

Analysis indicates that of the top ten areas in terms of per capita receipts 9 are in London with 1 in Berkshire.  Such a result is not surprising as such areas are those with higher average earnings and hence income tax receipts. 

 

When the data is ranked by population some interesting differences emerge. In the top ten we have Surrey with 1.18 million people with a per capita tax figure of £9,360 and Birmingham with 1.12 million people with a per capita tax figure of £2,180. 

 

Finally, turning to authorities with a similar population to Cornwall provides some useful comparisons. Cornwall’s population was 0.56 million in 2021.  Total income tax receipts were £1,370 million giving £ 2,440 per person.  Comparable areas are Buckinghamshire with £7,730 per person and Warwickshire £4,640.  Bradford fairs worse than Cornwall with £2,000 per person.

 

Conclusion

Any proposal to fund local government services through a % share of income tax receipts suffers from the fact that potential funds vary considerably by local authority. Areas in the SE of England and London have higher receipts and hence higher per capita receipts than areas elsewhere. 

 

Any funding of local government services needs to accept that to provide a good level of funding depends on transferring funds from the better off areas to other areas.  This does not constitute a subsidy from one part of the UK to another as the more prosperous areas often gain from their status.  London and the SE gain from having central government, business headquarters, a mass of universities and the financial sector, functions they carry out on behalf of the whole country. 

 

Data

 

 

1 Top areas for income	Total tax	Population	Per capita receipts
Local Authority	£ million	Thousands	£
City of London	626	8373	74760
Kensington and Chelsea	5480	141067	38850
Westminster	4940	199943	24710
Camden	4730	202702	23330
Richmond upon Thames	3090	193417	15980
Hammersmith and Fulham	2870	180589	15890
Wandsworth	4700	322998	14550
Islington	2610	211332	12350
Merton	2100	214115	9810
Windsor and Maidenhead	1440	149418	9640

 

 

 

2 Top areas by population	Total tax	Population	Per capita
Local Authority	£ million	‘000	£
Kent	6980	1549	4500
Essex	7140	1488	4800
Hampshire	6860	1380	4970
Lancashire	3410	1206	2830
Hertfordshire	8040	1184	6790
Surrey	11000	1175	9360
Birmingham	2440	1118	2180
Norfolk	2560	899	2850
West Sussex	4000	868	4610
Staffordshire	2810	862	3260

 

 

 

3 Areas with comparable populations to Cornwall	Total tax	Population	Per capita
Local authority	£ million	‘000	£
North Yorkshire	2460	603	4080
Worcestershire	2160	595	3630
Warwickshire	2730	589	4640
Cornwall	1370	562	2440
Somerset	1710	562	3040
Buckinghamshire	4220	546	7730
Bradford	1080	541	2000
East Sussex	2080	537	3870
Sheffield	1320	536	2460
Manchester	1260	530	2380

 

 

 

Sources

HM Revenue and Customs, (29th April 2026), Survey of Personal Incomes for tax year 2023 to 2024.

Table 3.14a:Income and tax by borough and district or unitary authority, tax year 2023 to 2024.

 

Office for National Statistics. Census 2021. NOMIS, TS001 - Number of usual residents in Households and communal establishments.