The English question is analysed today in a Think Tank Report, who warn that if the government does nothing to tackle the injustices to England the problem will worsen.
Part of the problem is economic, and the economics of the problem are worsening by the day. Between 1998 and 2006 the UK grew by 27%. London grew by 41% and Scotland by 16%. Throughout the Labour years the richer parts of the country in London and the South East increased the gap between their incomes per head and the incomes further away from the capital. A higher proportion of the population took jobs in London and the South-east, and a higher proportion of those jobs were well paid. London and the South-east attracted in talent from around the country, and grew more of its own talent, creating a virtuous circle of the kind the government would like everywhere â€“ better achievement at school, more university graduates, more well paid jobs, more entrepreneurs creating jobs.
During the good years for the world economy London and the South-east grew quickly enough to accept the higher taxes it was required to pay to send money to the rest of the UK to help them. The combination of easy money around the world, with the relatively low interest rates and the Basel banking regulation which encouraged it, and the price cutting activities of the emerging giants in Asia meant people felt reasonably well off. Many taxpayers did not resent the taxes creeping up to pay for the rest, so they voted Labour or abstained.
In recent months this has all changed. As I warned in August last year in the Foreword to â€œFreeing Britain to competeâ€:
â€œWe should not rely on these two very favourable trends (low interest rates and Asian competition) continuing to allow us an acceptable rate of growthâ€¦there is considerable uncertainty in world markets about how far the Fed, the ECB and the Bank of England may go in raising rates to squeeze inflation out of the system. They must know there are huge pyramids of debt throughout the system, and inflation will not be killed unless the appetite for more debt is blunted. They also know that if they push rates too high for too long they could bring the debt structures crashing down, as we have seen with the sub-prime mortgage collapse in the USA, leading to falling asset prices, rising unemployment and even recession. â€¦. We should also recognise that China and India will not continue to exert strong downward pressure on prices to the extent that they have in the last ten years. Their workforces are now expecting better rewards. Raw material prices are being bid up by their large demands. The price of transport rises when capacity is stretched by their needs. â€œ
Instead of reasonable growth, low interest rates and low inflation, we are entering a period of slow growth, relatively high interest rates in the UK and worrying inflation (the result of past monetary mistakes). In other words, people are feeling the pinch. This is exacerbated in the UK by the impact of higher taxes and more regulation, squeezing peopleâ€™s income and time to earn money from serving customers and clients. Real incomes are going to fall.
The government seems to have targeted the very successful London economy to pay more tax in particular. The Non Doms (foreigners as some tax raisers see it) were a politically attractive target â€“ a tax increase imposed on people who do not vote. The danger of the governmentâ€™s approach is it might send lots of people and some businesses packing, to places with lower taxes or a less hostile Revenue service, which will take some of the gloss off Londonâ€™s economic success. Council Taxes are set to go up by more than the CPI or wages, as the government heaps more public spending obligations on Councils without offering the funding to pay for them, and as some Councils join in the public sector spending spree.
Squeezing people with higher taxes, when they are already feeling the strain from higher fuel bills, high house prices, penal Stamp duties if they wish to move, congestion charges and higher Council taxes will only increase the feeling of English injustice. As people come to see they are worse off, they naturally resent waste in public spending, and look carefully to see what they are getting for the extra money they are paying tax. They ask where the money is being spent, and on what. The English see more money per head being spent in the UK outside England and ask Why? The Scots with their nationalist government claim the UK government is short changing them compared to past settlements. The worse performance of the economy, and growing imbalance between London and the rest and between England and the rest will cause more frictions.
Politically this will fuel demands for â€œEnglish votes for English issuesâ€, and for the more radical English Parliament proposal. This, however, will not tackle the underlying problem â€“ that the UK is really three different economies. There is a successful London economy, growing quickly, open to the world, with huge talent. There is a moderately successful rest of the South-east economy â€“ with similar performances in some other suburban areas in England â€“ and there is a slow growth high public sector economy in Scotland, Wales, and parts of the north of England. Instead of improving the slow growth lower income areas, the Labour approach of sending more and more public money to these areas has not solved it. The gap has got bigger. All the time good world growth and easy money gave some momentum to all parts, it could work. Now there are strong headwinds from the global economy and growth will be slower, the injustices and the deep set problems will become more important to people.The Irish example (up 76% whilst the UK managed only 27% overall) shows that lower taxes provides the way to make an economy really motor.