Forget everything you know about the UK’S regional divide
Discussions about inequality have been all the rage in recent years, perhaps especially since Thomas Piketty’s best-selling Capital in the Twenty-first Century. Much of that discussion has focused on the difference in salaries between those with the highest incomes in a country, those on average incomes and those on below-average incomes.
More recently, however, perhaps especially with the growth of populist political movements and elections in which the regions have outvoted the metropolitan establishments (such as Brexit or the US Presidential election), there has been a greater recognition of the geographic dimension to inequality – how much wealthier people are in some regions than in others.
Up to this point, however, much of this analysis has been fairly crude, considering issues such as how the wealth of the capital city compared with the average national income. When considered that way, the UK is geographically unequal, with the difference between average incomes in London and the national average much bigger than in other large European countries such as France, Germany or Italy.
It is sometimes argued that this is the result of inadequacies in the UK’S regional policy relative to the much more extensive regional policies pursued elsewhere. Germany and Italy have constitutional commitments to equitable regional development. Thus in Germany, for example, there is a requirement for “equivalent living conditions” (gleichwertige lebensverhältnisse) supported by a formal system of “equalisation payments” (due to be reformed in 2020).
In the UK there is no overarching system, but merely a patchwork of implied transfers via local authority support payments, industrial policy grants, choices over the location of public capital investment, public sector salary weightings and the natural by-products of single national income tax. Although, UK governments of all stripes emphasise their efforts to increase transport links and to attract businesses to various geographic areas away from the metropolitan core around London, UK policy remains fairly limited and there is constant pressure to do more. In 2007 a notorious regional policy report by the think-tank Policy Exchange, characterised as proposing the abandonment of Northern cities, led to its lead author, Tim Leunig, being voted one of Britain’s 30 most hated people in a TV countdown.
Does this lack of an overarching policy mean the UK is more regionally unequal than similar European countries? Data is available that allows us to make a much more detailed analysis of this question than previous crude analysis. A colleague of mine, Dr Stefano Ficco of Europe Economics, has this week published some research he has done using official European data from Eurostat on the average GDP per person for 1,355 detailed local authority “regions” across the EU. So, for example for the UK there are 173 regions including for example “South Lanarkshire” and “Kensington and Chelsea”. Germany has 402 regions including “Aschaffenburg, Kreisfreie Stadt” or “München, Landkreis”.
Ficco has then used this data to analyse what proportion of the populations of key European countries, including the UK, France, Germany and Italy, live in regions with incomes below the average, below two thirds of the average, at more than 25pc above average, and so on.
When we consider this detailed data, the results are quite striking and contrary to much conventional wisdom. The UK is no more geographically unequal than other similar-sized European countries. Almost exactly the same proportion of the UK population lives in regions where income is below the national
‘Only 10pc of the population lives in regions where incomes are more than 25pc above the national average’
average as in Germany and France (70pc). Almost exactly the same proportion of the UK population lives in regions where income is below two thirds of the national average as in Germany (12pc) – a proportion that is higher in Italy (21pc) and lower in France (4pc). Italy’s case is particularly striking because Italy has less than 50pc of its population living in regions where average incomes are below the national average.
Higher up the income distribution, Germany is much more geographically unequal than the UK and France. Whereas in the UK only 10pc of the population lives in regions where incomes are more than 25pc above the national average (and France is very similar), in Germany nearly 20pc do so. (This is the exact opposite of what previous studies have suggested because they did not take proper account of population and were not conducted in such a granular fashion.)
The UK has two regions (Westminster and Camden & City of London) with extraordinarily high average incomes (£239,100 and £313,100), far above the average incomes in any equivalent-scale region in France or Germany (Germany’s highest is Wolfsburg, Kreisfreie Stadt, at £117,000). But these very-highincome regions comprise just 0.72pc of the UK population.
The story about the UK being unusually geographically unequal is not true. When we consider the data properly, the UK is a very typical large European country, a bit more unequal than France at the bottom of the geographic income distribution and a bit more equal than Germany at the top. That is perhaps particularly interesting given the extent of regional equalisation policies in France and Germany. Perhaps, in fact, the UK has much less of a regional problem to solve than is often assumed?