Thursday, 21 November 2002

Does the South-east sudsidise the rest of the UK?

Well, Mike Denham writing in the Spectator thinks so:
Economically, this area is ahead of every other region. It has 35 per cent of the country’s population, but produces 42 per cent of its output. Average productivity per head is a whopping 35 per cent higher than elsewhere. If the rest of the country could match this, Britain would be the most productive of all the major European economies.
I'm not sure it's as simple as that. The UK is probably the most centralised of all modern countries. Even after devolution, 87% of our taxes are levied at the national level. In the US it's 18%. In the rest of Europe taxes are levied roughly half by the national governments and half locally. Where the taxes are collected goes economic and political power. I remember reading some years ago that Washington DC had the highest per-capita wages in the US and that most of them were dependent in some way on the federal government. That's in a country levying a mere 18% of taxation at the centre.

A very large part of London's economy is there precisely because it is the capital city of a country whose government spends some 40% of our GDP and whose London-resident ministers channel almost all of that expenditure through the London-based civil service. This in turn means that London hosts the national press (English, not British actually), the BBC, commercial TV, media-associated industries like advertising and PR, the political parties, almost all lobbyists, charities, trades unions and professional organisations. This centralisation of decision makers and influencers in turn makes London the natural location for the head offices of companies whose operations are spread throughout Britain. All of this is why the South-east dominates our economy and why it is impossible to solve the imbalances in housing and transport.

If we want to see a more economically balanced Britain we can either reduce government expenditure to, say, 10% of GDP, or we can spread government more evenly throughout the country. I support the first option. I suspect that neither will be implemented.