Three Britains – private, public and poor performance

David B Smith’s latest figures show the following shares of government expenditure in the economies of differing UK regions:( the characterisations are mine)

Very high spenders, low overall incomes and performance

Northern Ireland 80.9%
Wales 76.9%
North East 73.5%

High spenders, better incomes and performance

North West 64.6%
Scotland 61.4%
Yorks and Humber 60.5%
East Midlands 53.9%
South West 52.8%
East 44.3%

Lower spenders, higher incomes and world matching performance

South-east 40.0%
London 39.1%

(General government expenditure as a percentage of GDP at basic prices derived from HMT sources)

It is not surprising that the regions with the highest proportion of government spending to GDP are the poorer regions. They get more government subsidy because they are poorer. What is depressing is the order of the lists has remained very static over many years, despite the large extra sums routed into the poorer regions to try to make up the gap. Indeed, in the Labour years, London, the richest region receiving the least public money as a proportion increased its lead in average earnings and general prosperity substantially.

Regional policy needs to be thought through anew. Labour proved beyond doubt that hurling ever larger sums of taxpayers money at people, Councils and businesses in the poorer regions did not enable them to catch up with the more successful parts of the country. Meanwhile the areas starved of the public spending bonanza did well throughout the last decade apart from the 2008-9 period when the Credit Crunch did universal damage.

The aim must be to build bigger, stronger and more successful private sectors in those parts of the country that are still well behind London in income levels and growth. There is only so much the state can do. It can help educate people. It can ensure good communications and the supply of the planning permissions and permits to those who want to run businesses in those areas. It will then find that lower taxes and a sensible level of regulations make better recruiting sergeants than a fistful of subsidies.

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44 Comments

  1. P H
    Posted October 8, 2010 at 8:27 am | Permalink

    One might ague that the poorer regions remain so not, despite the higher government spending in these regions, but as a result of it. It diverts clever people into secure government jobs rather than wealth creating ones. The setting of national rates for things like benefits, some wages and the minimum wage when living costs vary so much is also a big negative influence.

    Also the usual over regulation and taxation of everything from employment, energy, waste and the rest.

    One should not assume that London is doing that well just because of incomes.
    In what sense is some one who takes home £4,000 PM with a mortgage of £2000 PM and higher living cost all round more prosperous than someone in the regions taking home £2500 PM with a mortgage on a similar size home of £100PM and lower general living costs. The first has a much lower standard of living and pays far more tax too.

    • StrongholdBarricades
      Posted October 8, 2010 at 11:48 am | Permalink

      If the people actually refused to the high prices for houses in London, then apparently according to the markets the prices would fall.

      It is only your logic which continually inflates house prices.

      Maybe also if your company took the opportunity to relocate to these suburbs you would effectively get a substantial increase in your standard of living.

    • Sally C.
      Posted October 8, 2010 at 6:08 pm | Permalink

      Quite right. I absolutely agree about the problems a national minimum wage can cause for people living outside the South East. There would be plenty of employment in the poorer regions if local employers were free to set their own wage rates without having to worry about National Insurance payments, which are also organised on a national basis. In other words, no National Insurance payments would be the best scenario for businesses, but failing that, the rates should probably be adjusted for businesses setting up in poorer regions.
      This got me thinking about national grade pay levels in the Civil Service and in particular in the NHS. It makes sense for pay levels to be subsidised in those regions that would otherwise find it difficult to attract staff, doctors in particular, but salaries for doctors say, in other more affluent parts of the country, should be set on a free market basis. Hospitals in most areas should be allowed to set their own wage levels. They should be able to pay up for staff with particular specialisations, but pay less for staff where there is an over supply. Recently, there were articles in the press complaining that there may not be enough hospital places for newly qualified student doctors. This is ridiculous and simply demonstrates that the initial grade pay levels for student doctors are far too high. Of course, no-one in that economic fantasyland known as the NHS will acknowledge this simple truth because of the implied threat to their own very high wage levels.

    • Bazman
      Posted October 8, 2010 at 7:27 pm | Permalink

      Making desperate people more desperate will not work. Do you seriously think anyone is sympathetic to a person 'struggling' along on 45k a year? Are arguing they are 'hard pressed' in some way? You have highlighted the point that many people are trapped where they live though. The difference in housing costs is subsidised by the government to some extent. The prices of everything else is not. A monkey could get work in central London hence high house/prices. Middlesbrough the opposite hence low/prices. Basic food, petrol and utilities are about the same.

  2. A.Sedgwick
    Posted October 8, 2010 at 9:53 am | Permalink

    Call centres in India?

  3. Iain Gill
    Posted October 8, 2010 at 9:58 am | Permalink

    This one is a bit more complex than that though
    For a start lots of folk from say the North East work in London, the London workforce is far from being all from or living in London, the way folk dip into the London jobs market and then back out is hard to understand unless you see it all the time. Plenty of households in the North East funded by family members working in the South East.
    The jobs in the North East have been manipulated by Government policy, mining and ship building became uncompetitive for many reasons but many of those were government policy driven.
    If we can subsidise wind farms so heavily there is no reason we could not have subsidised coal a little, there was great strategic merit in using an energy resource from under our feet. Sure the unions needed bringing into line but that’s a whole different issue.
    Nissan let’s face it is only in the North East because of regulations which limit the car imports into Europe from Japan, and lots of complex “incentives” were given, so again the market is heavily distorted by Government policy.

    • Iain Gill
      Posted October 8, 2010 at 9:59 am | Permalink

      Post not allowed as it made allegations about an Indian company which the company has strongly resisted.

  4. a-tracy
    Posted October 8, 2010 at 9:59 am | Permalink

    If there is a factory in the Midlands but the Head Office and accounts centre/registered office is in London where does the incoming revenue from that business get allocated to?

  5. Iain Gill
    Posted October 8, 2010 at 10:00 am | Permalink

    Then let’s look at a few other issues, let’s see a table of proportionately where our dead in Afghanistan come from, I’m fairly sure there are heavily disproportionate numbers from say Scotland and the North East. London and the South East does not pull its weight in all regards.
    Then let’s look at the prejudice against North East accents in all levels of British business, so bad that often folk give up and move abroad to get a fair crack at a career. Its self fulfilling that the South East will win when there is such inbuilt prejudice for their accents in the system.
    Then we look at immigration and visa policy, floods of workers from India mostly using uncapped visas, given large tax dispensations, allowed to compete unfairly with the workforce from the North East, again Government policy is distorting the market.

    • Barry
      Posted October 9, 2010 at 11:50 am | Permalink

      See Johnny Williams, below.

      So far as the military is concerned, it depends which branch is involved in theatre. Infantry may be largely Scotland/North East – although South Eastern accents are not difficult to find.

  6. Alan Jutson
    Posted October 8, 2010 at 10:03 am | Permalink

    You only have to look at the Billions of aid that has been given to Africa and other parts of the World over generations, to see that throwing unlimited money at any one Region is never the answer.

    You have to change the mindset of the people involved to think, act, and take responsibility for themselves.

    Give Regions a structure yes, give them Education yes, give them an infrastructure of Law yes, give them a basic Health Service yes.

    Just give them money NO.

    • Johnny Williams
      Posted October 9, 2010 at 1:11 am | Permalink

      I totally agree – Do not just give them money! I moved my fledgling Dot.com to the North East in 2000 as I could not get Office space and staff in Sussex at the prices I could afford. It was a huge jump for us but we felt that the Universities and Newcastle would provide the right sort of people to help me grow an Internet based Company. I found the "Mind Set" there terrible. The Public Servants pay lip service to Entrepreneurs but they neither understand "Risk Takers" nor do they respect us.

      Once you get beyond 50% of GDP supplied to an area by the State, the people are lost, fundamentally flawed and can never take consequences for thier own lives. They do not start businesses or companies. The North East spends 60% of GDP from State Funds and can never get out of that " inferiority complex " regarding London and the South, until the people give up their huge Public Sector and the political payroll vote it brings.

      I have now retired, sold up to a French Company and moved to the Scottish Borders. I shall not be returning.

      • Alan Jutson
        Posted October 9, 2010 at 10:49 am | Permalink

        Johnny Williams

        Your experience mirrors that of one of my suppliers who moved to South Wales due to a skill shortage in Oxfordshire (Compay expanding at the time), after many promises that many, many local skilled workers in Wales were looking for work.

        Result Company went into liqidation after 18 months due to lost orders, lost customers, due to poor quality of work.

        I visited the Company on a number of Occassions to try and see why a previouse excellent product and service fell away so badly.

        Reason: Workers had no skill at all, were not interested in bettering even basic skills, and simply did not care what they turned out. Owner tried everything (carrot and stick) to try and correct the situation but to no avail, He has now reset up a smaller operation back in Oxfordshire.

  7. Mike Wood
    Posted October 8, 2010 at 10:05 am | Permalink

    Instead of subsidy in the form of handouts how about varying business taxes by region? Or alternatively; regional variability in employer's national insurance contributions? Could also look at lowering VAT in those areas, after all sales taxes in the US vary between neighbouring cities.

  8. waramess
    Posted October 8, 2010 at 10:28 am | Permalink

    Depressing that we have a Conservative government who might still consider their actions could reinvigorate or otherwise, a region of the UK.

    Already the newspapers talk about the private sector depending on the public sector for their growth and another bout of QE being necessary to stimulate the economy.

    Was Keynes really the only economics taught over the last two decades and did nobody encourage good old common sense to take over?

    Well here is your answer: the only way government can stimulate the regions or indeed the economy is to get out of the way. Get smaller and then even smaller until your take of wealth from those who create it is miniscule.

    You know all this, however your front bench does not, and one might hope that you will be able to very gently tell them that clumsily taking a billion away from families in order to waste it by spending it on stimulating the regions is not a very good idea.

  9. John
    Posted October 8, 2010 at 11:16 am | Permalink

    Socialists talk about the redistribution of wealth, but by sleight of hand what they do is redistribute money. Wealth is added worth, and money may be the result, but money does not automatically equate to wealth if it is merely spent rather than used to generate more wealth. Wealth then leaches away, which is what Socialists want.

    The Socialist aim is to accumulate all wealth to the centre and remove the right of individual wealth ownership. Redistributing money from those who generate wealth to those who just spend it, eliminates wealth, impoverishes all who then must become dependent on the State and the enlightened ones in charge.

    How well this project has advanced under Socialist Labour. It was not so long ago unimaginable that households on high incomes would be benefactors of State welfare, and it shows how well the propaganda has worked that there is widespread resistance and outcry that people who do not need welfare, might actually have it taken away from them.

    Toss even a good natured dog a bone and it is not so easy to get it back.

    I just do not think the people in the UK realise how far down the road to a Socialist – thence Communist – Republic they have gone.

  10. Peter T
    Posted October 8, 2010 at 11:38 am | Permalink

    I live in Wales, about as far West as it is possible to go, Pembrokeshire to be precise. We have very poor rail services, poor road connections (the M4 finishes 50 miles to the East and the dual carriageway terminates before it even gets into the county, a mainly agricultural economy but with, of course, tourism – but mainly seasonal tourism. Much of coastal and mid Wales are similar. Oh! I nearly forgot – and slow, slow Broadband.

    Cardiff, however, has been transformed. Private capital has poured in and there now can be few cities in the UK which match Cardiff for excitement, vibrancy, culture and shopping. Cardiff is a delight.

    When I was a kid, my mother taught me to butter bread. She said look after the edges and the middle will look after itself. Wales is like that. The edges have not been looked after but the middle (Cardiff) has by far received the most butter.

  11. Acorn
    Posted October 8, 2010 at 11:41 am | Permalink

    It would be interesting to know where Mr Pickles is going with the structure of local government in England. As he has done away with eight of the regions and left one – London, where is he going from here?
    It appears he has stopped any further moves for Unitary Council formation. As local government in England is a mess, does he have any plans for putting it right? We still have a two tier Shire Counties; Why? We got rid of Metro Counties but still have Metro districts; which are different to Non-Metro Districts. We have different management structures in all of them. We got rid of the GLC in London only to bring it back again as a two tier authority for London, with the Boroughs having the status of Metropolitan Districts!

    • Acorn
      Posted October 8, 2010 at 11:43 am | Permalink

      (PART 2) I say, it is time we converted England to an all Unitary status; like Scotland and Wales. There are currently 443 local authority units defined by ONS Geography under the NUTS system; that would be a good place to start. One MP each sounds good to me; as we are trying to reduce costs 😉 , We could even turn them into real companies with proper company accounts. The locals could then decide if they want lots of lovely green fields to look at, that generate no income to offset local taxes.

  12. forthurst
    Posted October 8, 2010 at 11:44 am | Permalink

    The primary problem is the movement to a "post-industrial society" or rather the loss of those industries which are now undertaken in other parts of the world including heavy engineering, mining and textiles. Deep shaft coal mining is an obsolete activity but textiles and heavy engineering are in greter global demand than ever although the proportion of manual work in tose industries is much reduced. Of course, heavy engineering in particular is under attack from warmist nutters who believe that performing the same activity in India will somehow 'save the planet' and carbon trading spivs who believe they can make a lot of money out of other peoples' misery. So what is happening is that people in these regions are purchasing goods in the shops, which they used to make themselves, transported in vessels that they used to build, paid for by taxpayers in other regions of the UK..

    The questions that need asking are: Is globalisation an unmittigated panacea?
    Should economic sabotage that destroyed much of our engineering industry be treated as akin to treason in the same way that deliberating altering the complexion of the country with unrestricted immigration ought to be? Are we going to allow the global warming cult to transfer all our 'carbon' generating industry abroad? How do you mitigate the attraction to the SE of bright people from the low performing regions? How do you get politicians to accept that the current arrangements are life-destroying and unsustainable when it is in the interests of left wing politicians to preside over large 'client' regions where most of the money spent comes from elsewhere?

    What could the attractions of these regions be? Education is probably the key; these areas held, at one time, grammar schools that provided the education and brain power that drove their trade and industry; middle class parents would struggle there now to afford private schooling so it is attractive for them to relocate and without bright people, nothing happens.

  13. StrongholdBarricades
    Posted October 8, 2010 at 11:46 am | Permalink

    The answer may yet lay in what the lady on the Today programme told an interviewer (I'm sorry I didn't catch her name). With six children, and no father to them, she is stuck in a cycle where getting a job means that her housing benefit and council tax rebate is cut.

    I believe that it is another legacy of the Brown years of mismanagement that allowed unbridled house price, council tax and rentals to inflate enormously basically out of the range of even those on minimum wage.

    The corrections are going to be enormous, and unfortunately the whole nest of vipers needs to be addressed before the country will be allowed to move forward

    • Bazman
      Posted October 8, 2010 at 9:01 pm | Permalink

      A single woman or a man for that matter, with six children cannot ever work in the normal sense. Once this is understood and accepted we can move forward.

  14. Rose
    Posted October 8, 2010 at 1:10 pm | Permalink

    We also need a table of local government expenditure – to see which councils are spending more than whole nations, as well as how this expenditure relates to their local economies. London's figures should be interesting.

  15. Tom
    Posted October 8, 2010 at 1:18 pm | Permalink

    Isn't it obvious – start with SIGNIFICANT tax cuts/holidays for setting up business in those areas.

    It is ALWAYs a good time to cut taxes.

  16. Paul B
    Posted October 8, 2010 at 1:59 pm | Permalink

    I remember during the election campaigns when cuts vs spending was being discussed, the Conservatives were saying "Labour think the Government is the economy, but it's not".

    At the time I agreed with this notion and I still do. The figures above also support this.

    However, I clearly remember Ed Balls on Question Time (during the campaigns) not understanding what this meant (either through choice or ignorance).

    Saying that Labour's economic policies were a failure is really stating the bleedin' obvious.

    The big question for me is will the Coalition deliver a private sector led recovery?

    I hope so and it better had, because the state of the economy will determine who resides in Downing Street in 5 years time.

  17. Lola
    Posted October 8, 2010 at 2:01 pm | Permalink

    Time for local currencies? And LVT?

  18. anon
    Posted October 8, 2010 at 3:01 pm | Permalink

    Us reprobates in places like Staffordshire and our neighbours in places like Shropshire and Worcestershire (and down to Gloustershire perhaps?) who are all roughly "to the west of the Midlands" have nothing to worry about then 🙂
    Or maybe the west midlands has been made independent and nobody told us? Whoopee!

  19. Nonanon
    Posted October 8, 2010 at 3:30 pm | Permalink

    Get Radical Dave to drop corporation tax by half and waive NI contributions for the first 5 employees for companies in areas that are struggling.

  20. Robert Peel
    Posted October 8, 2010 at 4:04 pm | Permalink

    John,
    It might help if the wealth generators were located anywhere but London and the south-east. The reality is that although certain industries outside the south-east are prospering, there are simply too few of them.
    It has always been in Labour's interest to generate spurious jobs willy nilly in the 'poorer' regions; it's generally where they get their votes from.
    The higher educated ones from these regions will also in all probablity move to the south-east due to the increased opportunities.

  21. Derek Buxton
    Posted October 8, 2010 at 5:15 pm | Permalink

    It's the aid wot dun it! Like all aid it goes via the local bosses but they still rip off their population and squander money left, right and centre. There is no accountability with these people.

  22. Bazman
    Posted October 8, 2010 at 7:07 pm | Permalink

    Most companies are in the south for a reason and what this post fails to mention is geography and infrastructure. London, the south east and the south in general have good roads and transport systems. whining Londoners complaining about the M25 and Underground system forget to mention they have an orbital motorway and a tube system. You can even get a bus or if you have to drive a car. London and the south east are also nearer to Europe and this is significant as the government would not be talking about high speed rail links there if it where not. If you turned the country upside down the results would be similar.
    A more specific example would be a place like Barrow-in-Furness, which is on a mountainous peninsula. In the 19th century this and the availability of good ports and local iron ore made the region prosperous. Later years saw the government use the shipyard for the procurement of submarines and other navel vessels.
    Without government money there is little real work. Wine shops are not viable and washing millionaires yachts is not real work. There is not enough available work and any amount of pontification will not change this. The motorway could be made to run into the town centre and tax breaks exploited until they are used up. Little would change.
    What should anyone who lives there do realistically? Move down south or live off the state in one form or another?

    • Barry
      Posted October 9, 2010 at 12:02 pm | Permalink

      You can't have both ways. You tell us London and the SE has the best infrastructure when it suits, and you tell us it's overcrowded and impossible to get around when it suits.

      Trams in Manchester, Nottingham, Sheffield and Edinburgh. New runway at Manchester. Investment still not making any difference.

      As for "whining" Londoners – try listening to yourself (I'm from the North, BTW).

    • waramess
      Posted October 9, 2010 at 12:56 pm | Permalink

      As the economy shrinks and in particular as the manufacturing economy shrinks the concentration of business in the South East is inevitable. No amount of government investment in infrastructure will change this because you end up trying to second guess business decisions.

      Growing business in the regions depends on growing the economy generally and the only way to do this is by lowering taxes generally through reducing the size of government. Twenty percent of GDP would do the trick nicely but there will be no chance of getting there whilst governments think they can reinvigorate the regions through spending

  23. Sally C.
    Posted October 8, 2010 at 7:37 pm | Permalink

    Subsequent to my comment (hopefully) above, I was amazed to learn that the NHS has spent £421,000 on modern art at Broomfield Hospital in Chelmsford. I was unaware that part of the NHS remit was to support modern artists.

    • Rose
      Posted October 8, 2010 at 8:27 pm | Permalink

      And what does the Environment Agency spend on its new office architecture and landscaping, rather than on bridges and dykes?

  24. P H
    Posted October 8, 2010 at 9:09 pm | Permalink

    A typical problem of EU/UK regulations.

    Today I got quotes to replace a domestic oil tank a task that should cost about £400 and did until new "regulations" it now has to be moved to a new and very inconvenient position and have various new "improvements" so £3200 + VAT. Company tells me I can change the just tank myself and not move it but he the professional is not allowed to without doing all the "extras". Another company agrees with him.

    So first they take half your earning in tax, then they push up the price of things by say 8 times through "regulations" then they waste what time you have left to earn a living by making you fill in endless forms (unpaid) for PAYE TAX VAT Building Regs, money laundering, building control, planning control, deposit protection, energy certificates etc. and endless conversations with tank fitters and the like to find the best way to get round the maze of rules legally and more time ringing experts to find out what the rules really are.

    Why bother?

    • simon
      Posted October 9, 2010 at 12:03 am | Permalink

      More than any post I've seen , this sums up the blanket of bullshit which has become all-enveloping of the UK .

      Just goes to show how desperate they are recoup some of the money they wasted before they even got it .

  25. Alison Calp
    Posted October 8, 2010 at 10:45 pm | Permalink

    Actually only two Britains. The one that produces wealth and the one that consumes it. There are far too many of one and not enough of the other.

  26. Puzzled
    Posted October 9, 2010 at 8:15 am | Permalink

    Around here we are in a situation of one party government and it has been so for years. Rumours of corruption and appalling management abound. Things fall apart or are burned. Silly things get built in the wrong place. All the best buildings are either falling apart or are taken by do gooders that bring in no wealth. It gets quite dangerous at times in public places.
    How do you cope? How do you expose corruption? How do you even find out if it exists?

  27. Javelin
    Posted October 9, 2010 at 11:49 am | Permalink

    It's time for an experiment – with tax. Give companies who have a large majority of employees in Northern Ireland large tax breaks. Let's zero Employers and employees Nat Ins. Zero NI for NI. If we're not earning much tax from them anyway then where's the loss?

    It will be a chance for the left and right to prove that tax breaks do or don't work. I believe NI is a special case because of the troubles and ought to be given a break. Never even been there myself. Also ensure there is no house price bubble by keeping limits on lending ratios there.

  28. Robert
    Posted October 9, 2010 at 1:10 pm | Permalink

    Is the West Midlands still part of the UK?

  29. Richard
    Posted October 9, 2010 at 6:57 pm | Permalink

    It is perhaps useful in this discussion which seems fundamentally to be about wealth creation, to ask what would you do with your money if you won say, a Euromillions sum of approx £100million.

    Would you employ a clever fund manager to invest the capital worldwide and then relax, sit back and enjoy the returns or would you risk your winnings by either buying an existing business or perhaps starting up your own business either way creating many jobs for others and generating much needed extra taxes for the State.

    My point is, that many of us who are capable of running a business and employing others, currently feel it isnt economically worthwhile to do so and until the State changes their attitude towards entrepreneurs this situation will continue.

    Its not just the Unions who can go on strike and withdraw their labour.

  30. @Wyrdtimes
    Posted October 10, 2010 at 11:29 pm | Permalink

    And when were the people of England consulted on the balkanisation of England into "regions" other than counties? England one nation. Home rule for England.

  31. Kenneth
    Posted October 18, 2010 at 12:01 am | Permalink

    Scotland's figures don't include oil revenue. This is classified as "extra regio". If Scotland's figures included oil it would be closer to 45% – i.e the best performer after London and the South East.

    And to anyone who says oil shouldn't be included that's like saying that French wine shouldn't be included in France's GDP.

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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