Tackle economic injustice with power for the regions
THE UK’S growing regional problem is fuelling a sense of economic injustice.
Two fifths of the UK’s output is now produced in London and the South-East.
Productivity, measured by output per worker, is 32 per cent above the national average in London and 20 per cent below the national average in Wales and Northern Ireland.
In fact, London is the only region with productivity above national averages; in the Midlands and the North it ranges from between 10-15 per cent below.
Such poor outcomes directly impact standards of living. Only in London and the South-East has GDP per head has recovered to the peaks recorded before the financial crash nearly a decade ago.
Median incomes in the North-West, West Midlands, and South-West are still more than 30 per cent lower than in London and the South-East.
This level of regional inequality is without parallel in the developed world. The UK is by far the most regionally unequal country in Europe. London is the wealthiest European region by a long way, but some regions such as Yorkshire and the North East have levels of GDP per capita on a par with transition economies such as the Czech Republic.
The UK is increasingly a country driving apart – London and the SouthEast, and everywhere else.
This economic decoupling is a severe drag on the UK’s economy.
The poor productivity performance of the regions is making our economy less efficient and restricting overall economic growth. But the social and political consequences of the UK’s regional divide are at least as important as the economic ones.
Perhaps the clearest consequence of the UK’s dramatic regional inequalities is that many people feel that the economy does not work for them.
In fact, the Interim Report of IPPR’s Commission on Economic Justice – released this week – has shown decisively that the economy is not working for the vast majority of people.
Only 10 per cent of the wealth generated since 1979 has gone to the bottom 50 per cent of the income distribution in the UK.
The bottom third have gained almost nothing from the huge levels of economic growth witnessed since the 1970s.
Meanwhile, the richest 10 per cent reaped almost 40 per cent of the rewards of economic growth over this period.
The increasing disconnect between headline economic statistics, which show a growing economy creating record levels of employment, and the direct experience of real people across the country is driving a sense of mistrust and alienation, and this is reflected in the electoral upheavals of the past two years.
There was a strong geographical dimension to the recent vote to leave the EU, with London and the South-East delivering 60 and 48 per cent respectively for remain, next to a 58 per cent leave vote here in Yorkshire and the Humber.
Many have responded to the concerns of those who have been left out of the growth of the previous decades by dismissing them as ‘uneducated’ and voting against their own interests.
They argue that these disparities are an inevitable result of globalisation, which allows capital to flow more easily from poorer regions into wealthier ones.
But globalisation on its own does not explain the UK’s regional problem, which is the starkest in the developed world.
It is not a coincidence that the UK is not only the most regionally unequal country in Europe, it is also one of the most politically and fiscally centralised.
Notwithstanding recent reforms, local government in the UK is still much less powerful than elsewhere on the continent, and regional governance structures are only now beginning to emerge. Local government raises only five per cent of total taxation, far less than most other developed countries.
But government does not just restrict the ability of local authorities to invest themselves, it also skews its own investment towards London over the regions.
IPPR North research has shown that the North receives around £1,500 less public transport infrastructure investment than London. Yorkshire receives just £190 – the lowest of any region in the country.
The recent announcement that London would receive yet more public investment to finance Crossrail 2 at the expense of greater investment in improving rail connectivity in the North was yet more salt in the wound.
The only way to counteract the effects of globalisation is to reverse this policy bias by giving real power to the UK’s regions. Strong sub-national institutions are in the best position to be able to support regions to rebound from economic shocks.
Together with greater investment from central Government, devolution is the only way to solve the UK’s regional problem.