The UK transfer union


               Recent figures revealed the extent of transfers between the regions in the UK sterling area.  It reminds us that the Uk is far from a perfect economic area for a monetary union, and reminds us that monetary unions are in practice expressions of nationhood. If we were only thinking of economic sense, London maybe with the South-east would have its own currency to reflect the very different financial position of that part of the country.

                As Alastair Heath of City AM has already pointed out, only London and the South east are in surplus, sending large transfers of tax revenue to the rest of the UK.  London is required to raise 45.2% of its GDP in tax but only spends 34.9% on public sector activities. The large surplus is sent elsewehere. Meanwhile the North East runs a deficit of 32.2% of its GDP, Wales 36% and Northern Ireland 40%. This extra public spending is paid for from London’s taxes and from UK wide borrowing.  London and the South east pay most of the 50% Income Tax and the high Stamp duties. Scotland is said to be in balance, but still borrows 10% of GDP for extra public sepnding.

                  It serves to remind us why the Euro is struggling. German taxpayers do not want to send anything like those large sums to Greece and Portugal that London sends to the north and west of the UK, as they do not feel they belong to the same country.

                 The huge imbalances between London and the western and northern parts of the UK are usually seen as a problem for London. The reaction of many in  the political classes is to see how London can be punished more for being so successful. Most of the higher taxes being talked of or imposed are mainly taxes aimed at London, as they aim at financial services and banking, at high incomes and high property prices. Much of this is concentrated in the capital.

                     The politics point in the direction of being anti London, as the tax base is very concentrated in the richer parts of the capital whilst the recipients of the extra tax revenues are widely spread around much of the rest of the country. For Labour it is a no brainer, as they represent areas in receipts of the transfers but do not represent many  of the places making the payments.


                   These underlying transfers account both for the brutality of rhetoric about public spending in much UK political debate, and for the prevalence of spenders over taxers. The tax base is highly concentrated and therefore vulnerable to political attack. The only question is how far can they push it until it emigrates on a large scale? Greece shows what can happen to the tax base if you push too far. Their income tax revenues are plunging as the rich and successful take their deposits, their assets and their businesses elsewhere. Meanwhile the UK sits back and discusses fairness and banker bonuses, confident in the knowledge that as most  parts of the country are in receipt of transfers many electors just want the government to raise more in tax and send the money.


PS: Some have asked about the sources. These figures come from the Centre for Economic and Business Research, and have been picked up by City AM. In the case of Scotland, for example, they do include North Sea tax on one side and Scottish levels of public spending on the other via the Barnett formula.


  1. lifelogic
    February 17, 2012

    Taxes on ordinary earners living in London are also hugely unfair. Someone living in the north might have a same size house and similar disposable income earning perhaps £30,000 where the person in London might need £100,000 to have the same house & standard of living. The Londoner (with the same standard of living) might be paying £45,000 in income tax and NI the other just £7,600. In any year when the Londoner moves house he will perhaps pay more in tax than his total earnings due to 5% stamp duty.

    London is only really suitable for the very rich with good accountants, preferably being non dom. Londoners also have poor state schools and services to contend with and huge parking/commuting charges/childcare costs too.

    1. Electro-Kevin
      February 17, 2012

      Being half Geordie I’ve known that for at least 40 years our relatives in Newcastle enjoyed a higher standard of living than we ever did in London.

      1. Rebecca Hanson
        February 17, 2012

        Why aye man. Neet oot doon the Spanna?

        1. Electro-Kevin
          February 17, 2012

          Why nooo, Pet. I’s now a southern softee an’ I’s canna handle it.

          1. Bazman
            February 18, 2012

            T -shirt weather in the Toon. Tropical.

          2. Rebecca Hanson
            February 18, 2012

            Would you like large fries with that? (I started working at the MacDonald’s at the top of the Bigg market just after I turned 16 – now you see a bit of life there…!!)

            By the way – is it still the case that everyone who work in the public sector but not for local council has their tax accredited to London? Like everyone at the DSS in Longbenton for just a tiny start.

    2. Disaffected
      February 17, 2012

      And Cameron has agreed to a left wing Czar to help Mr Cable so only the rich, poor and EU students can attend university. The squeezed middle being squeezed out od higher education. Well done Dave another shinning success for people to work hard and pay tax.

      Please will the Tory MPs wake up and get rid of Cameron to force an election. If they wait until 2015 it will be too late, Labour will be back in power possibly with one or two Lib Dem MPs to form coalition. Lib Dems will not have a choice because they will be nearly wiped out and only the really left wing Lib Dems will be elected.

    3. Alan Wheatley
      February 17, 2012

      The person living in London could always move north!

      Or is it that London has an appeal not available up North.

  2. Andy Man
    February 17, 2012

    You’ve just described a nation of parasites. That is what high government spending on welfare and useless bureaucrats produces. I certainly wouldn’t blame the better off for leaving, if my situation was different I would too for my son’s future. There are still places where enterprise is valued and not punished, sadly not in Britain, the EU or America.

  3. Kevin Ronald Lohse
    February 17, 2012

    That assessment for Scotland. Doe it take into account the monetary transfer carried out under the Barnett formula?

    Reply: Yes

    1. Disaffected
      February 17, 2012

      But Dave is offering them more to stay in the union. I would not hold your breath for a good outcome for England.

  4. Paul Danon
    February 17, 2012

    The message to the provinces shouldn’t be “clobber London for more subsidy” but “compete with London”. The Manchester stock-exchange should open for longer than London and offer cheaper trading. Manufacturers in Devon and Yorkshire should cut their prices and lengthen their hours. We should phase out regional subsidy so that those parts of the country have some dignity. They need to understand their parasitic status. They’re people like us so should work as hard as us, and not sponge off Londoners who are squeezed into tube-trains, stuck in traffic-jams and paying too much for housing.

    1. Mactheknife
      February 17, 2012

      If the regions recieved a fraction of the inward investment of London us “parasites” would not need any subsidies. As for manufacturing, successive governments have allowed it to die through ill-founded and short sighted policies. The Conservatives tell us they now want to develop our manufacturing base but it seems words as opposed to actions is the name of the game. This combined with EU interference with rules, regulations and red-tape are killing the regions.

    2. Yudansha
      February 17, 2012

      Average wages in Devon are £20k pa but few realistically earn much above £15k.

      The disparity between housing costs and wages are the highest in the UK. This is largely because of second home owners from London and London retirees cashing in their equity after years of commuting – so I guess Devonians are doing their bit.

      As for water bills ? £1000 per year is usual for a medium sized semi. It’s certainly not all beer and skittles down here.

      I hadn’t realised that London was such a centre for manufacturing btw.

      1. Yudansha
        February 17, 2012

        Living in the provinces is just so … sooooo undignified.

    3. uanime5
      February 17, 2012

      Since when has London had any manufacturers?

      Perhaps if the Government didn’t give so many subsidies to the City the rest of the UK wouldn’t be in such a dire state.

      Reply: London has a long tradition of manufacture

      1. Yudansha
        February 18, 2012

        We wish our manufacturing had been regarded as ‘traditional’.

  5. john
    February 17, 2012

    Maybe Londoners should also be given a vote in any Scottish Referendum, because let’s face it, Londoners must pay a fortune in additional tax to maintain the Scots lifestyle. While we’re at it perhaps we could let the Welsh go too, transferring subsidies from Scotland and Wales to the South West and the North would go a long way to securing conservativism in England, whereas the Celtic socialists would perhaps find a better home with their like minded comrades in Europe.

    1. RDM
      February 17, 2012


      What about Celtic Conservatism/Libertarianism?

      Do you know what the Celtic Socialist/Federalist are trying to us?

      Please cut the Transfers, and Taxes, but ensure we, the British People, have a means to be independent within the Regions! Not as easy as the Westminster politicians relies! As JR knows, I suggest that HMG guarantees access to the British Banking System, hope you’ll support Celtic Conservatives?



    2. David Fraser
      February 17, 2012

      You could get rid of Scotland and Wales but you would still be in a situation where London and the SE are subsidising the rest of the country. That is JRs point – throwing money to the north and the west would mean that those regions would still be net tax recipients and still leave London and the SE vulnerable to political attack.

  6. lojolondon
    February 17, 2012

    It is very sad, John, without a proper, strong Conservative or preferably Libertarian PM, you have made it clear that we WILL kill the goose that lays the golden egg.

    1. RDM
      February 17, 2012

      How much do I agree with this!

      Libertarian PM! Someone who puts things into terms of the British People.

      DC (or is it NC?) is to busy making deals with the Regional Politicians! He needs to rely on the British People more! If he did this he would state the benefits the Scots should be getting, things like access to the British Banking system, and not transferring more money to the Regional Politicians.



  7. Electro-Kevin
    February 17, 2012

    Now that the industrial heartlands are largely gone I suppose London is left propping up the rest of the country.

    If high tax is enough to cause emigration then what of the argument that businesses are here because Britain is stable and trustworthy ?

    In this age of internet technology I don’t really understand why there need to be financial bases as such.

  8. Brian Tomkinson
    February 17, 2012

    JR: “…many electors just want the government to raise more in tax and send the money.”

    Sadly, this government has done nothing to try and change this mind set as it continues to spend more than it collects and is relying on increased taxation to reduce the structural deficit.

    1. uanime5
      February 17, 2012

      Well the best way to change this mindset would be to increase the number of jobs, rather than reducing them.

  9. JimF
    February 17, 2012

    Hold on.
    To be fair, you also need to look at this over a longer time span, and to analyse these figures more closely, and less myopically.

    Point 1. The balance sheet for the whole of the UK was on standby when the banks which should have gone bust were supported through their difficulties by UK-wide taxes. It would be interesting to know the result, in your geographically split world, of the effect on both the great powerhouse cities of London and Edinburgh when major banks would have gone bust. They are now being kept alive on high interest rate margins being paid into London from mortgagees across the Country.
    Point 2. The fact that London was such a great tax-generator necessarily hamstrung the rest of the UK economy via a too-strong Pound between around 1985 and 2008. Without London, and with a weak £, the rest of the UK would have had to pull its proverbial finger out and probably would have, under Thatcher. Instead we falsely believed that we were on a one-way trip to bountiful welfarism and voted in a bunch of idiots to spend London’s tax money around the Country in the period 1992-2005.
    Point 3 Back in time, and maybe forward in time, indigenous production of food, textiles and defence products, to name but a few, has kept Londoners safe, warm and fed.

    1. Bill
      February 17, 2012

      Don’t agree with these points and doubt they can be established credibly without an enormous amount of complex historical research. That fact is that the large centres of population, in an age when personal income is taxed, must support the more sparsely populated areas. The only way in which this would not be the case would be where government spending was vastly lower than it is today.

      Agree with John’s analysis and with those who worry that the goose that lays the golden egg (i.e. the City) will be killed by Labour, the EU or the neo-radicalism we see in the tents of Occupy.

      1. uanime5
        February 17, 2012

        It’s because politicians have invested so heavily in the City that we have this problem. Had politicians invested in manufacture rather than finance London wouldn’t need to assist the rest of the UK.

        reply: The politicians did not invest in the City – it was b rought about by private capital. Mr brown foolishly “bailed out” banks, which was a grave mistake and a bad injustice.

        1. Yudansha
          February 18, 2012

          So our governing classes seem to do little to protect our industries.

          They do even less to protect our borders … and even less than that to protect our national identity our values for the sake of the sensitivities of newcomers.

          One question.

          Why should we pay tax ?

        2. uanime5
          February 18, 2012

          While the Government didn’t invest in the banks with capital they did prove a lot of other support and encouragement, for example reducing a lot of the regulations.

          1. Robert K
            February 20, 2012

            Banking is highly regulated, which is why it ended up being the disaster it turned into. Banking needs only one rule – if a bank goes bust it will never be bailed out.

  10. JimF
    February 17, 2012

    The point is that there isn’t the history between say Greece and Germany of that co-operation. How many German-owned factories are in Greece, so how dependent are Greeks on German industry for their livelihood? How dependent is Germany on Greece’s production of olives?

    Until these interdependencies are generated and understood, this rushed botched single currency scheme won’t work.

    1. NickW
      February 17, 2012

      It is a nice idea, that instead of just sending money to Greece, the rest of Europe should work out what goods and services the Greeks can produce and commit to buy them at a fair price, whilst at the same time providing the assistance to get those enterprises going.

      The present situation is that the measures the EU have imposed have made it impossible for Greece to export or make anything because there is no export credit available, and currently no -one will invest in Greece because of the expected default.

      If Europe removed its head from the sand, there are policies which would assist the Greeks in rescuing themselves.

      Perhaps a new and different French President will have the courage to speak out and provide the necessary leadership?

      1. Alan Wheatley
        February 17, 2012

        The consensus down the pub the other day was that if Greece defaults and devalues we are all going there for our holidays.

  11. Brian A
    February 17, 2012

    The desire to penalise the successful parts of the UK is only politically feasible because so many subscribe to the economic delusion that the ‘wealth of the rich causes the poverty of the poor’. Wealth is created by the application of savings, investment and human capital to the creation of goods and services that people want to buy. In a free market (the UK is, of course, only an approximation to this notion) an individual’s/company’s wealth will be determined by the extent to which they satisfy their customers, failure to do so leads to a rapid loss of wealth (Ratner, for example). The extreme wealth created by, for example, Richard Branson, James Dyson and Steven Jobs arises from their success in satisfying customers and they should be applauded for the jobs and other benefits created, not criticised for being rich.

    Politicians who believe that free markets provide the surest path to long term prosperity should be tireless in combatting those who believe that success is somehow unfair.

    1. uanime5
      February 17, 2012

      Unless there’s an infinite amount of money people can only become rich as long as many other become poor. As the free market doesn’t work in reality you’re claims that wealth will be lost due to the failure of a company to satisfy their customers does not occur.

      Also most people object to business leaders paying themselves huge salaries because the employees who generate this wealth receive only fraction of the business leaders’ salaries. Any CEO who is paid 10 times more than the lowest paid employee deserves to be condemned for their greed.

      1. Electro-Kevin
        February 18, 2012

        That depends on the personal risks taken by the business leaders, Uanime5.

        No one resents people taking a big cut when they’ve built a business themselves having staked their own money and creditworthiness on them.

        Nor should anyone resent true talent which has turned around an organisation.

      2. Richard
        February 18, 2012

        You dont really believe that “people can only become rich as long as many others become poor” do you?
        If that were true we would be poorer now than centuries ago.
        You need to think that idea through…Firstly it assumes a finite amount of money, fixed levels of population, products, savings, investment, consumption etc and plainly history shows us that is not true.
        Wealth can be created, there isn’t one lump of money created by God at the beginning of time.
        If you started your own business, for example if you were to invent a new product, employed people to make it and made a profit by selling it you would create wealth for yourself and others.
        New jobs, new money, not stolen off the poor.
        Progress I think its called

  12. lola
    February 17, 2012

    Or, to put it the other way about, Sterling is overvalued as a currencies for Scotland, Wales and NI. De-nationalising The Money and returning the freedom to the Scots, the Welsh and the Northern Irish to make their own money would allow them to make their economies competitive. We could do the same intra-England and return the freedom to the NE for it to issue its own money, for example.

  13. oldtimer
    February 17, 2012

    Although ministers have, in the past, acknowledged the points you make about the dependency of so many parts of the UK on the state, thay have made little progress in changing the circumstances that cause it.

    The remedy lies in creating the circumstances in which private enterprise and competition can flourish. Yet the prevailing culture appears to be too anti-business, anti-profit, and pro-monopoly if it is a state monopoly. The NHS is a current example of a state monopoly where the introduction of more competition is anathema to the producer interest. More widely the tax regime is a curious mixture of inefficient subsidies (eg windfarms), a few highly selective incentives coupled with a broad based tax regime which penalises high earnings and discourages long term investment and savings. Energy policy and energy pricing is another powerful disincentive to remain for any high energy user as we have already seen with the closure of the Alcan smelter, and the threat to the chemical industry. It is difficult to see a broad based recovery while the present tax regime remains in place and current public attitudes that keep it there.

    It probably needs a well run business like HSBC to declare it has had enough, decides that the UK should remain only a branch operation, and relocates its HQ elsewhere to wake people up to the reality of the UK`s situation. The UK must compete globally to have any hope of sustaining its current standard of living – let alone grow it. So long as the UK continues to spend £4 for every £3 it earns it is on the slippery slope of decline. The political class needs to get a grip before it is too late.

  14. Iain Gill
    February 17, 2012

    Capital cities generally have a different economic profile from the rest of their nation, it’s not unique is it. There is also a tendency for the ripple effect from major hub airports, business folk arrive at the airport for the first time and want to setup business within a taxi ride of that main airport – a lot of the M4 corridor is built on that affect rippling out from Heathrow.
    Your dissertation kinda ignore large numbers of folk from the North East working in London but keeping their main residence in the North East, and similar. No doubt their earnings go through the books of London but who is actually doing the work to generate that money – different question.
    We do have a messed up housing market, the levers the governments have pulled have led to strange affects and all sorts of folk living in places which left to their own devices they would not, and often counter what’s best for the economy.
    The rest of the country also suffers from being run by a London elite who frankly don’t understand life outside the capital, not many people in the metropolis really understand manufacturing or so many of the other things that the rest of the country could succeed at if not burdened by rubbish leadership from London.

  15. Mactheknife
    February 17, 2012

    I’m afraid when looking at the economics of the UK you make no reference to past government policies. Here in the east midlands a recent economic survey for the local authority in our town has calculated that since the mid eigthies some 25,000 jobs have been lost. These were skilled relatively well paid jobs in mining, steel, engineering, chemicals and associated support services. These losses all started with the Conservative governments focus on destroying the coal industry for political reasons and its been downhill ever since. We have allowed foreign competitors to come in and buy our industries and close them down a couple of years later with not one single protest or intervention from government.

    Even now if we look at current government policies, we are sat on billions of tonnes of coal yet government policy in the grip of the green movement and wont allow any new coal fired power generation. Those fossil fuel stations still generating are using imported coal, probably highly subsidised bythe suppliers national government.

    I have been involved in export business for years and I can tell you that our EU partners generally ignore any EU legislation and support their own industries “on the quiet”. I’ve seen it numerous times when bidding for contracts. But look at our own government and the Bombardier Trains affair – we hand it over to the Germans – and please dont tell me they were more competitive etc. My experience tells me there will be some “help” in there from the German goverment.

    Recent figures under the labour government show that for every £1 of public money spent in the regions to create jobs, there was £20 of private investment in London. Someone needs to find out why this should be so ? As has been pointed out by other contributors London is a high cost location to do business, so why do businesses want to be there?

    Before suggesting changes to tax distribution would it not be worthwhile finding answers as to why business, industry and commerce are not focusing on other parts of the UK and what government needs to do to change this mentality?

  16. Acorn
    February 17, 2012

    Hang about!!!!!! I thought we were going for an English Parliament and a federal four nation UK. It appears we are moving on to declaring UDI (Rhodesia style) for the nine counties of the south east. Are we including London (GLA), if so, make that ten counties. Whoopee, we could become another Singapore or Hong Kong.

    I suggest we call our new homeland the Kingdom of Sussex, (ie South Saxons). After we have got rid of Scotland and the rest, we will no longer be paying Danegeld (ie welfare) to the ungrateful buggers. Come to think of it the Danes have still got a hundred tonnes of silver Danegeld they nicked from us circa eleventh century. 😉 .

  17. backofanenvelope
    February 17, 2012

    The policy, under both parties, of shifting central government agencies out of London has just made things worse. We now have huge numbers of government employees living in the outlying regions. Paid on national scales they make everything harder for private enterprise.

    1. David John Wilson
      February 17, 2012

      Most of the government agencies moved out of London were to areas of high unemployment. These areas still have high unemployment in most cases. Surely the presence of people earning extra income in those areas helps rather than hinders private enterprise. Problems only arise if the moves cause a shortage of labour. Otherwise the extra cash flow available can only help other existing private companies.

    2. alan jutson
      February 17, 2012


      I agree national scales are a disaster, who would want to live in London for the same pay, when it is less expensive elsewhere.

      But then Benefits and Pensions are at a national rate as well !!!

  18. Neil Craig
    February 17, 2012

    I haven’t been able to find the original fugures for this but I suspect that these figures do not include all the headquarters spending of ministries within London spending but share them pro-rata.

    I am quite certain that no allowance is being made for the pressure on the largest companies to site their HQs near the centre of power, where they can schmooze with politicians and civil servants. With the best will in the world a big company whose HQ and lobbyists were located in Dingwall would not be at the front of the queue when Westminster is handing out billion £ contracts.

    Almost every capital city in the world is wealthier than the periphery (Shanghai may be richer than Bejing but even so Bejing is clearly richer than most of China so I would be interested to see if anybody can name ANY counter examples) so Londoners should not be self congratulatory about not being the exception.

    1. David Price
      February 17, 2012

      Perhaps the Thames Valley centred on Reading where a large number of IT and technology companies are headquartered (Oracle, Microsoft, Dell), as are BMW. Virgin Media, Vodafone and Sun are a bit further out towards Newbury.

      I think the key is critical mass around a technology centre and transport hub rather than being a political centre, other silicon technology companies were attracted here or nearby because of the number already here.

  19. S. Donald
    February 17, 2012

    Talking about the economy in general, surely it,s long overdue for the smoking ban regulation to be looked at again.
    How much has the blanket ban affected consumer spending?
    It will soon be five years since the ban was implemented. The fall out in the pub sector is well documented with I believe, almost 10,000 having closed. How many former bar staff are currently unemployed because of this and in fact how many people indirectly associated with the brewing industry, cleaners, draymen, taxi firms ect ect.
    But the net spreads wider. Talking to smokers, especially middle aged and older people, you find that since they,ve stopped going out to the pub, they need less new clothes, they visit hairdressers less, they have stopped going away for weekends as most hotels have no facilities for them and most apparently no longer take a holiday in this country.
    With approx. 12 billion smokers in this country, common sense would suggest that the blanket ban has left a massive hole in the government finances.

    1. Electro-Kevin
      February 17, 2012

      I see smokers out in the fresh air all the time and as there are still 12 billion of them the ban can’t be all bad.

    2. uanime5
      February 17, 2012

      Given that there aren’t 12 billion people in the world I doubt there are 12 billion smokers in the UK. If you meant 12 million then they would only account for 19% of the population so it would be wiser for a company to target the 81% of the population that doesn’t smoke.

      As pubs were closing down at a high rate for a variety of reasons before the smoking ban it is unlikely that this ban was major factor in the closing down of pubs.

      1. S. Donald
        February 18, 2012

        Apologies, of course it is something like 12 million, however the fact remains that marginalising so many people from society, it is bound to have a negative effect on the economy.
        It is very noticeable that staying anywhere overnight in this country, there are few smokers around. Compare that to staying in Spain/ Turkey / Greece, and there are always lots of English people smoking. It is also rubbish to deny that the ban has had very little effect on the pub trade or even to suggest that all pubs should only cater for 80% of the population. Which ever way you look at it, closed pubs produce zero tax for the exchequer, and in the long run that affects everyone.

    3. Bazman
      February 18, 2012

      Smoking is finished and unfashionable. Smokers need to be inconvenienced every step of the way. Anyone who defends smoking is a Herbert.

  20. Max Dunbar
    February 17, 2012

    “Scotland is said to be in balance” with the emphasis on “said to be”.
    I find that hard to believe. Almost everyone I know who has a job is in the public sector and even those who are not depend on it indirectly to an extent.
    It is said that whole families have never had a job for generations and live on benefits as a normal way of life. It can also be said that whole families have never worked outside the public sector here.
    Teachers who move from the state system to the private are on a one way ticket if they take the plunge and move on. They are treated as “class” traitors by the unions.

    1. uanime5
      February 17, 2012

      You do realise that you can be a member of a union even if you don’t work for the state sector. Most teaching unions represent state and private teachers.

  21. sm
    February 17, 2012

    Percentages only? Can we also have the real numbers please or some of the source data to read around your posts setup as a link?

    How much is the below a transfer as a % of GDP in the local region helping?

    The ongoing subsidy to the finance sector of +£100bn/year should be compared plus unlimited guarantees. QE = £325bn. ZIRP for 3yrs etc. Fed swap lines,ECB swap lines, special liquidity schemes etc.

    We joined the EU and CAP fishing policy ill suited to a commonwealth trading country.

    We eliminated subsidies for coal,shipping manufacturing etc and allowed the cold winds of capitalism to work as adjustments due to globalization and a high £ worked through. No oil wealthfund to sterilize the fx £ effect or similar.

    Maybe we should have built much better communication to the NE/Wales etc with more road capacity/bridges and national infrastructure like water grids/pumped hydro solutions. As long as the funds committed are used for contracting UK based companies and UK resident workers it would be positive even if not fully utilised immediately.

    We seem overly keen to intervene and prop up mal-invested banks. Time for breakup/splits and proper competition policy in 1) the big banks 2) energy sectors.
    and 3) elimination of NI labour costs and QE for the public proposed by Steve Keen. This should boost regions as they have lower mortgage debt and reduce subsidies (excluding the QE of course). Why not try it – £50bn or so from Merv might just start to work?

  22. Will J
    February 17, 2012

    What isn’t being accounted for here is the fact that England’s economy and political system have for centuries been skewed towards London. Of course London and its region are in surplus while the rest are dependent on handouts from it – that’s how London has always designed the system. The recent skewing of monetary policy towards the interests of the City is only one among many examples of UK Government policy being London-centric.

    The fact is that all the brightest and most ambituous of the whole country aspire to work in or around London. It is the only English city with any real political power, legal power, or financial power. It is where the most lucrative trades and most prestigious professions are based. The human capital, as well as the financial capital, of the country is drawn there like a magnet – and then people wonder why London is so much in surplus and everywhere else dependent on it?

    This isn’t a matter of London bashing, but of pointing out the reality of an economy and political system which have always been over-centralised. The only way this could be avoided would be for power and priviliege to be decentralised away from London, so that other cities had the same kind of powers over their own areas.

    But how expensive that would be, they will say! All these little cities making their own laws, raising their own taxes, skewing policy towards their own industries. How much unnecessary duplication! So much simpler and cheaper to let London do it all for you. There, now, don’t trouble yourself little provinces, don’t you see we’re all better off when London handles all that confusing, expensive paperwork.

    But do try to keep up!

  23. Rebecca Hanson
    February 17, 2012

    Do the Scottish figures accredit North Sea gas to Scotland?

    Could you give us a reference to the figures so we could examine them for ourselves?

  24. StevenL
    February 17, 2012

    I’m led to believe business rates (a land value tax) in Oxford Street are a lot higher than anywhere in Wales. Yet somehow, Oxford Street has not ‘migrated’ has it?

    If there was a residential land value tax, would the Duke of Westminster take Belgravia with him to Monaco?

    I can’t see why it’s so important to ensure lots of wealthy foreigners can park their cash tax-free in prime London property either. OK, so they spend a bit in the casinos.

    But then the vast majority MP’s and senior civil servants are long London property aren’t they – and often very leveraged.

    Reply: Most MPs have homes in their constituencies, and many now rent very modest accommodation in London.

  25. Magnolia
    February 17, 2012

    I think this post gets to the heart of the economic problem.
    London and the South East suck out the most able from the rest of the country.
    If you live in the regions and you produce a clever and able child, such as one that goes to Oxbridge, then it’s likely that they will end up earning a living in London and the HOP are full of such people who have followed this route.
    I believe that one answer to the lack of competitiveness in the periphery might be in giving the regions a tax advantage to try and make them more competitive so that they can sort out their own problems for themselves. I would like an effective local enterprise zone throughout the whole country with a tax free area for all producers and manufacturers within a radius of about ten miles to encourage start ups and job creation.
    How about reducing benefits in cheaper areas according to the cost of living in the region and using the savings to reduce tax rates in that same area. For example a ‘cheap’ area might have both lower benefits and lower taxes in equal measure to drive job creation.
    I also think that effective tax rates of 60% once income hits the £100K mark (because of the withdrawal of any tax free allowance) will result in less work and tax collected rather than more of both. An income of £100K is a large salary but the Oxbridge offspring who might earn it can move abroad almost as easily as to London.
    Punishing success will lead to less success.

    1. uanime5
      February 17, 2012

      Benefits are means tested so people won’t get the maximum level unless they can show they need it. So reducing benefits in the cheap areas is pointless as very few people can claim the maximum amount.

      Given how few people earn or need a salary of £100K the current level of taxation is fine. It’s not like they can easily earn a similar salary in other countries.

      1. Yudansha
        February 18, 2012

        They are talking about *reducing* the maximum a council house deweller can earn to £100k.

        Plumbers can earn that (I’m not knocking plumbers)

        Many a family’s joint income is £100k.

        Using the old formula of 3x salary + 1 that would afford a small mid terrace in a middling London street. Which is where you’d have to live if you wanted to earn that sort of money.

        You call that success, Uanime5 ?

        Something needs to be done about the rents landlords are paid to house benefit claimants. Welfare is driving up property prices and making it hard for workers and employers alike.

        1. uanime5
          February 18, 2012

          Magnolia never mentions council houses so it’s clear they aren’t talking about those who live in council houses.

          The salary of a city plumber can earn is up to £50K so it’s unlikely that they will earn £100k per year. They would need earn £1,923 per week every weeks of the year to earn £100K.

          Magnolia wasn’t talking about joint income but about a one person earning £100K.

          Welfare is not driving up property prices, if it was then the most expensive housing would be in areas with the highest levels of unemployment. As North England has high unemployment and low property prices, while London has lower unemployment and high property prices it seems that welfare is keeping the prices low.

          Also those who are working on low salaries can claim housing benefit. It’s not just for the unemployed.

    2. Bazman
      February 18, 2012

      What is cheaper in the North of England?

  26. RDM
    February 17, 2012

    “Meanwhile the UK sits back and discusses fairness and banker bonuses, confident in the knowledge that as most parts of the country are in receipt of transfers many electors just want the government to raise more in tax and send the money”

    Please don’t send anymore!

    The Regional Politicians will try and control our lives even more! Regional Labour are actively trying to stop an Enterprise culture taking hold, the unemployed should be supported when starting up their own Businesses!

    Cut Taxes, and Transfers, then gives us access to the British Banking system!!!

    Or a Central Government scheme that will allow long term loans to be taken out by individuals (unemployed) within the regions, these could then be leveraged by normal Bank lending.



  27. Alan Wheatley
    February 17, 2012

    It is helpful to have a factual basis for that which we thought we knew all along. We should not be surprised, as London has a built-in advantage, being the capital, and that advantage will naturally spill out into surrounding areas.

    The built-in advantage stems from the fact that certain things can only be done in the capital, and this shows up in various ways; Parliament and the Royal Courts of Justice, for instance. And there is the fact that the UK was given to understand it could only win the Olympics with a bid from the capital.

    Success breeds success. So, for instance, on the Antiques Roadshow a piece of silver marked with a London maker’s mark has a certain additional desirability, and higher value, than a similar piece made in another part of the country. There is probably a sensible basis for this as the best maker will likely get the best price for his craftsmanship in a location where there is most money, and so will prefer to do business in London. And then rich people prefer London because of ready access to the products and entertainments they seek.

    So the “capital” effect is self sustaining and reinforcing.

    This does not matter if the government governs to the benefit of the country as a whole, transfer payments included. The complaint against government is that their vision of the country becomes ever more clouded the further outside the M25 they look, and what is closest gets most favour. There are plenty of examples – here are some.

    I recall a North Yorkshire County councillor bemoaning the fact that the government were introducing a landfill tax because there was too much waste and too little available land to fill. While this was no doubt true in London it certainly was not true in North Yorkshire, where there are are plenty of very large and suitable holes capable of swallowing all the County’s rubbish for ever more. The notion of North Yorkshire’s holes taking London’s rubbish, at a price, of course, simply did not arise, but would have reduced the need for transfer payments.

    Take the National Parks. It is defined in statute that they must be administered primarily for the benefit of the nation, and local interest come second. Well, if that is what the nation wants then fair enough, but if this prevents local enterprise from exploiting local resources then the nation can not object if more transfer payments are a consequence.

    There has been the case of a large steel works in the North East being lost as a consequence of environmental legislation determined in London, where no doubt the negative consequences of their actions was not understood, the North East being so far away and remote from the thinking. Then there was a research facility that was operating perfectly satisfactorily in the North West that was moved to the home counties for no logical reason that I could fathom. As for broadband, why is it government policy that it should be rolled out to only a percentage of the population rather than the whole population, which means the high density areas, such as the capital, will benefit and far away rural areas will not?

    And lets not forget an old acquaintance of this blog, HS2. Why is it starting at London, when if it really was to help heal the North-South divide it could have started in Scotland?

    If the need for transfer payments are to be reduced, which seems to be a sensible objective, then you do not go about it by putting a dampener on that which is good simply in the name of equality. So government should look to the needs of all parts of the country and act accordingly – which does not mean handing out money but does mean enabling all areas to do well. A nationwide programme for broadband would be a good start.

  28. Keith Peat
    February 17, 2012

    JR has made some very good points here which do need to be remembered when studying UK economy.

    For me, yes my whole working life was in London, struggled to bring up a family by working all hours and shifts commuting too. Although I had a very well paid job, to do that, and we only had an end of terrace, I also did other jobs on top and ran a couple of extra businesses. I noted back then how the quality of life in the North East was far better than ours, although they moaned a lot, and their black economy, stuff on the cheap was a bonus too. Then came the Black Monday property collapse, 1988 just as I was to retire, so my losses, like other Londoners, were double or treble anywhere else. People only heard of negative equity but that was only on paper if not about to sell but for people like me in London, it amounted to real losses; about £200g. So I moved to one of the cheapest areas in the UK, a better house for a 3rd of the price I got for mine, a better but slower, cleaner, cheaper standard of living with money in the bank. So London is tough and I feel sorry for the pressures put on Londoners even now. Is it worth it?

  29. javelin
    February 17, 2012

    The BIG story for the day is the ECB holding out from a haircut from Greece. If they do this it implies that the ECB is a priority bond holder on the junk Greek they bought as part of the LTRO – thus making that LTRO junk bought for a carry trade even more worthless. With 500bn already bought and a further 1trillion on the cards, in the next LTRO, it looks like holders of EU soverign bonds are all about to be subordinated (i.e. screwed over) by the ECB. This will of course cause a fall in the value of all bonds held by the ECB and have lots of unintended consequences.

  30. Julian
    February 17, 2012

    Thanks John for calling wider attention to this.

    I’ve long stated that the 50% tax, and in particular, the Stamp Duty upon Home purchases are basically a tax on Londoners. Where asset prices, and living costs, and local taxes are hugely inflated over the rest of the nation.

    I’m in my late twenties, and have saved every penny I’ve earnt since starting work in London, taking no more than 10 days holiday a year and intentionally working weekends to raise my chances of a bonus – I spent all this saved money last year on the deposit for a flat in London. It is very small, in a rough area of east london, but was priced at around £800/sqf! But on top of that, I had to stump up an extra 4% on stamp duty because I suppose some clever fellow in Government who has never had a job outside politics has decided that I must be rich and can afford the extra 10s of thousands?!

    Comparatively, my friends who I went to school with in Rotherham, Yorkshire all have bought huge houses with front and back gardens for well under £150K just dodging stamp duty!

    I try not to be too bitter a person, but after having visted the fourth friend of mine who paid 200K for what I would call a sprawling mansion, I’ve decided to focus on getting out of London – there’s too much punishment for trying to make a success of yourself. I believe I’d be better off getting a 30K a year job in the north, working 9 till 5 and not a second more, and taking all my holidays.

    I’m truly starting to believe my quality of life will improve by doing this. Sad.

    1. Alan Wheatley
      February 17, 2012

      Sad though it may be, is this not another example of a free market in action?

    2. Keith Peat
      February 17, 2012

      Go for it.

    3. Yudansha
      February 18, 2012

      Seek professional advice on whether or not to sell your London flat.

      You may well be quids in keeping it and renting it out. You may also find that those green grasses aren’t so green after all and wish to return. On the other hand London may well prove to be the only game in town if the economy worstens and that rental income might prove useful to you – especially if it begins to exceed your mortgage.

      There seems to be a dislocation of London property prices and London pay from the rest of the UK and people are flocking to it for the simple reason that they can’t see a future elsewhere. The influx is unlikely to stop which may well prove to be to your advantage.

      1. Mark
        February 19, 2012

        It’s a classic bubble: the only question is when does it burst?

  31. Winston Smith
    February 17, 2012

    Annual subsidy to London museums and art galleries is about £200m. The number of regional museums that closed or part closed in 2010 was 40, many of them celebrate our industrial/agricultural heritage. Once again, the pretentious tastes of the London centric middle-class elite are put above the cultural/social history and identity of the English working-classes.

  32. forthurst
    February 17, 2012

    I’m not convinced by this simile. There may be tax transfers from the SE to the rest, but what about the income from the rest which is paid to the SE.

    The BBC tax comes from all over but is spent largely in London. Large companies have Head Office staff in London, pay Corporation tax in London, yet derive their income from all over the UK. If it were not for the ‘City’, the whole country would not have become hugely indebted because of the foreign bankster perpetrated frauds there.

    London costs are very high, largely because it is full of people who are not English, many of whose rents are paid by taxpayers throughout the UK to non-English financial spivs in London. To that extent, the progressive taxes on income and property paid by English people in the SE are ‘unfair’; but is it ‘fair’ that English farmers may be paying rent to financial spivs whilst tilling the land and getting little return when it is solely their endeavour which sustains the nation and gives the land value. (How much are the ‘White Highlands’ worth now?)

    There may be a good argument for paying public sector wages according to the relative costs of living. Why not move all public Offices out of London? I’m sure you could have a more equitable distribution of tax and spend but would we be better off?

    Reply: The BBC has just moved to Manchester.

    1. forthurst
      February 17, 2012

      Not all of it, John. The big salaries, meetings and back stabbings are still London based. How would you be able to put out official untruths without ready access to the liars?

      1. forthurst
        February 17, 2012

        PS I didn’t mean ‘you’, personally, I meant the BBC.

    2. Alan Wheatley
      February 17, 2012

      Re reply, a part of the BBC has moved to Salford, which is a different city to Manchester. In fairness, you would be hard pressed to tell when you crossed from one to the other.

    3. outsider
      February 17, 2012

      Dear Forthurst, You have a point about company headquarters and taxes. I have not done the sums recently and may be out of date but I believe that if you compare the ratio of Government spending in each region to gross value added in each region (rather than tax), the league table is different with London near the top. The South East, however, is still near the bottom.

    4. lifelogic
      February 17, 2012

      The BBC tax comes from all over but is spent largely in Salford at the moment.

      I see that Quentin Letts has offered to do the Director General job at the BBC for 10% of the current incumbent’s wages of £650,000. I am quite sure too that he would do a far better job, as would many others on that 10% pay. I would even offer myself but I do not think I could cope with the lefty, arty, green, self righteous, Guardian reading loons without going totally mad.

    5. Winston Smith
      February 17, 2012

      A small part of the BBC is now based in Salford. 1,846 out of a total of 21,000 BBC employees. 220 are from Greater Manchester and just 26 from Salford. No doubt, the cleaners and the support staff. The vast majority have relocated or commute sporadically from London. My friend does just that, a few days a month. Such is the easy life, inflated pay and huge benefits offered by the BBC, few are prepared to sacrifice them.

      Note: these figures are from the BBC, and therefore should not be trusted. In 2010, their published staff numbers were 17k. A FOI request subsequently revealed them to be 21k.

  33. uanime5
    February 17, 2012

    Well the higher the taxes are in London the more businesses will move to other parts of the UK. This will be good for the UK as the main reason why most regions have a deficit is because there are too few jobs available.

  34. outsider
    February 17, 2012

    Two new items today help to explain why we have these big internal transfers:

    1) The humiliating Anglo-French civil nuclear agreement reminds that we can no longer build or run a nuclear power station. We depend wholly on companies controlled by the French state and have to plead for them to allow us a little more UK jobs than necessary. We cannot even build a large thermal power station. Over 25 years our world-leading, export-oriented power engineering factories, located in the Midlands, North West and North East, were sold to foreign companies because the City did not think them exciting enough and have been reduced to a small (albeit still valuable) fraction of their previous eminence, largely maintenance and refitting. The nuclear industry, much of it in the North West, was destroyed by governments’ on-off attitudes, leading to the ultimate rundown at the hand of the last Government just before we realised that we (and the rest of the world) needed a new family of atomic power stations.

    2) A shortage of diesel has sent pump prices to an all-time peak. Why? Because unusually high UK taxes led to minuscule refining margins and the closure of several refineries, mainly in the North East and Wales.

    Such examples, which are like selling our gold reserves at rock-bottom prices over and over again, also explain why ideas of dynamic “rebalanced” private sector growth round the regions are doomed to disappointment. SMEs are great but do not build refineries or supply and export the main equipment for power stations.

    1. alan jutson
      February 18, 2012


      Yes a once great nation of innovation and design, cannot now build its own power stations without help.

      This just about sums up what has gone wrong in the UK over decades.

      The scrapping of technical/polytechnical colleges where millions of people over decades were trained in engineering and construction skills and provided the seedcorn and brains of many new businesses.

      The mantra that it was better that blue coller workers/jobs were to be replaced with white coller workers/jobs by simply giving all students access to university, by the dumbing down standards, and allowing degree courses in useless subjects, which no employer thought worth the paper it they were written on.

      In short we seem to have taught the last few generations that graft and hard work is to be avoided if possible, much better to talk the talk, rather than walk the walk.

      With fewer and fewer really experienced and skilled trades people and designers left in any sort of industry, the omens are not good for the future generations. They will all be taught by theorists who have never done it themselves, a bit like ecconomists, and look were that has led us.

  35. Denis Cooper
    February 17, 2012

    Apologies for going off-topic, but the UK Taxpayers Alliance has publicised a scathing analysis of the ESM Treaty produced by the Taxpayers Association of Europe:

    The UK government is well aware of the contents of this monstrous treaty, but is nonetheless intent on ratifying the EU treaty change which is legally necessary before it can go ahead.

    That EU treaty change, formalised in European Council Decision 2011/199/EU of March 25th 2011, was touched upon in a Lords Written Answer on Monday January 30th, Column WA289 here:

    “Treaty change has been proposed to provide that euro area member states may set up the ESM.”

    “An Act of Parliament will be introduced to ratify the treaty change decision as soon as practicable.”

    If the TPA is opposed to the ESM treaty then it should campaign for MPs to vote against that Bill.

    1. Alan Wheatley
      February 18, 2012

      Off-topic it may be, this certainly looks like an issue that will overhang every topic.

      If the Eurozone is as important to the UK as the government repeatedly tells us it is, then something as momentous as would be implemented by his treaty change should trigger the promised referendum.

  36. Adam5x5
    February 17, 2012

    Part of the problem is the minimum wage and the ‘equality of earning’ in the public sector (ie. a secretary is paid the same in the north and south).

    A direct result of the second is the government becomes the main employer in the northern cities as the private sector does not feel the need to offer higher salaries due to the quality of the available workforce and/or competition for jobs. The higher salary offered by the government means that private firms are forced to compete with an artificially raised mean, increasing costs and lowering competitveness.

    The minimum wage means that companies are more likely to locate in the south due to increased transport costs from locating in the north.

    If you want to reduce subsidies and fiscal transfer from London, let the market set the wages. After all, it’s much cheaper (and nicer) to live here in the north, so our wages don’t need to be as high for the same standard of living.
    eg. Went to southampton a couple of months ago, nearly fell over when the barmaid asked, with a straight face, for 3.80 for a pint of bitter in a pub. In my local in North Wales, it’s 2.75.

    1. Bazman
      February 18, 2012

      The market would set the wages so low making the work viable only for desperate foreigners living five to a room and five to a car. No British person would or should work for this.
      The minimum wage means that companies are more likely to locate in the south due to increased transport costs from locating in the north? What has this got to do with minimum wage?
      It is not cheaper to live in the north housing maybe a little cheaper, but rents are similar and everything else is about the same. A fantasy no less.
      You can buy a cheap pint in Soho, but walk up the street and the next pub can be a scam.

    2. uanime5
      February 18, 2012

      Perhaps each region should have it’s own minimum wage which is 60% of the median salary. This would ensure that those in London are paid a living wage, while those in other regions will be able to attract businesses by being low cost regions.

  37. sym
    February 17, 2012

    Tonight myself and my wife sealed the deal, so to speak, on moving to Switzerland.

    She was quite reluctant to leave the UK but now she’ll slightly exceed 100k a year and thus will start paying the 62 percent income tax, which really annoys her. We already have private health care so we feel we’re getting diddly squat for our money. I hear that schools are also much better there.

    I had my fill of “fairness” for the rest of my life. I never want to live in socialism again.

    1. uanime5
      February 18, 2012

      The top rate of tax is 52% (50p tax rate and 2% NI). She should ask her employer where the extra 10% is going.

      Also Switzerland is far more socialist than the UK, if you want to avoid socialist countries you should leave Europe and go to the USA.

      1. Mark
        February 19, 2012

        You forgot that personal allowances are withdrawn at incomes a little over £100,000, making the tax rate higher for that band.

      2. Julian
        February 20, 2012

        You also forgot to include employer’s side national insurance, which is another ~13%. The fact that the employer technically pays the money is never here nor there and is mere accounting trickery to make the employee believe she is paying less tax.

  38. Cayce Pollard
    February 17, 2012

    Transfer payments are hopelessly inefficient because they are centrally allocated, so they simply function as a slush fund to sent where they will deliver political, not economic, benefits. The solution for the UK is the same as it is for Europe: end the single currency. Start by giving Wales, Scotland and North Ireland their own currencies.

  39. pete
    February 17, 2012

    This is a complex argument. Like the EU setting conditions to suit Germany at the expense of other EZ states the UK has traditionaly been leaning towards financial services since Margaret Thatcher which happen to be mainly centred around the SE and de valued manufacturing and other industries which has led to where we are now.

    She did a lot of good but should have put far more emphasis on a balanced economy rather than eggs on one basket with the city.

    Labour really followed this on as they seemed incapable of inovation apart from copying other ideas, branding them as their own like as something that looks pretty with the help of Alistair Campbell then bleeding us all dry by taxing us to the hilt and building more red tape brigades so really we ended up with a one dimension economy.

    I heard it from Gordon Browns lips – ‘the UK does retail and banking, thats it’ what a t****!

    Banking makes the £s but also sucks huge amounts of talent from the rest of the UK, influences govt policy and why get dirty making things when theres large £ to be made shifting money around from a computer screen?

    Retail is dodgy at the best of times, it doesn’t take a lot for retail to go wrong so we need to make things what other people want, and that is what the rest of the UK need to do more of…..

    Succesive policies have led us down this path to where we are now. I totally agree it is unhealthy for one part of a country to live on handouts from another part but government policy has to make conditions acceptable for business so they can do something – were not seeing that at the moment.

    Lastly – theres been a big shift of manufacturing to the East hence businesses pulling out etc – we saw this under Labour in the ‘boom’ years. – how have Germany managed to hold on to their large manufacturing base whilst we have not?

    Reply: The 1980s government tried hard to help rebuild manufacturing. It had some success with car making, attracting in major new players with large factories, and with the growth of a very successful pharmaceutical and aerospace industry. Germany has done well with its big national brands, supporting a rich structure of small and medium sized component manufacturers.It has also maintained its strong presence in chemicals.

    1. Bazman
      February 19, 2012

      A large part of the economy must be the building and construction industry which must employ millions directly and indirectly using large and small private companies to build government and private buildings/structures. As well as companies supplying materials such as steel. I have been made redundant from the shipbuilding industry, indirectly the car industry and am now working indirectly for the building industry. Lets see how long this one lasts? Seems to be going OK at the moment and especially for the time of year my boss says, and true we keep getting orders albeit sporadically. Which must keep the local shops and pubs/restaurants in work. Especially the pub/restaurants as I would not go there if I did not have a job. Millions must do the same?

  40. NickW
    February 17, 2012

    Perhaps someone needs to keep a closer eye on what the City of London is actually doing.

    Share trading is now done by robots which can read news headlines, (hence the manipulation of the market by crude rumour) and the fact that the average length of time a share is held is now 22 seconds.

    It is now revealed that robots are writing the headlines too.

    Stock exchanges have completely lost their original function and are now automated casinos.

  41. Caterpillar
    February 19, 2012

    Although I found this article interesting I could not fathom what it was suggesting:-

    The need for Rand-ian capatilism?
    The failure of Coalition policy on rebalancing?
    The need for monopoly breaking investment (- OK I am biased by my pro-HS2 views and desire for the galleries & museums to move out of London)?
    Greenbelts limiting outward growth?
    The need for local currencies, fiscal and monetary policy (the inevitable policy bias towards London)?
    Cities not nations are the world’s future political bodies?
    The feedback of success to the sussessful?
    That prices may not price?

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