When I wrote the Economic Policy Review with colleagues before the last election, one of the most striking findings we highlighted was the persistent outperformance of the London economy compared to the rest of the UK.
Indeed, we discovered that the further from London you went the slower the growth. We also reported that the regional economies in the UK that received the largest subsidies and the most government assistance and intervention performed the worst.
Some of you are ready to leap to your keyboards to say that you should not claim cause and effect when of course government spends more and intervenes more in parts of the country with poor prospects. Let me spare you the anger. Part of the reason the poorer parts of the country receive more government help is that they are poor to start with. That’s why governments of all persuasions send them more money. They are locked into a single currency with London, so they need transfer payments to survive.
The poorer places receive tax revenues from the succesful parts to pay the extra benefit bills for the higher levels of unemployment and disability. They receive larger grants per person for their local authorities, schools and health services, as the payments nationally are weighted to give more to disadvantaged areas per head. They are the main beneficiaries of regional policy, with a wide range of grants and public capital spending. Conservative governments treated them more favourably than richer areas. Labour then did it on an even grander scale, with large increases in public funding.
So one of the questions I wish to ask today, is why didn’t it work? Why didn’t thirteen years of large increases in public spending, with the poor areas the main beneficiaries, lift them into success? Why didn’t the preceeding twenty years of favoured treatment establish the ground work for the success of the last Labour government’s big bazooka approach to spending?
The left wing myth makers think Margaret Thatcher had a downer on Northern industry, deliberately closing heavy industry in the 1980s and leaving the communities without jobs and hope. As so often , this good story is ruined by a few facts. Much of the industry – steel, shipbuilding, aerospace engineering, car manufacture, railways and energy – was nationalised. In the 1960s and 1970s under Labour all these industries sacked a large number of people, confirming a trend which continued under both the last Conservative and the more recent Labour governments. Neither party intended to do that. It just happened. The industries were not competitive, and foreign competition stole the jobs. Monopoly or oligopoly nationalised businesses regarded politicians as their main customers, seeking subsidies, instead of concentrating on selling good quality affordable product at a profit making price.
As examples, the National Coal Board had over 700,000 employees in the early 1950s. This had fallen to 400,000 in1967 and to 235,000 by 1979, on the eve of Margaret Thatcher in Downing Street. British Rail shed more than 300,000 jobs between 1950 and1967 . The Electricity industry fell from 220,000 employees to 160,000 employees between 1968 and 1979.
The collapse of steel making and shipbuilding was pronounced in the 1960s and 1970s as well as in the 1980s. It was a progressive collapse, despite or because these industries were heavily subsidised and centrally directed for much of the time. Labour like to forget that much of the decline occurred on their watch between 1964 and 1970 and again between 1974 and 1979. Industry continued to fall as a proportion of the total between 1997 and 2010.
Labour and Conservative governments have tried a variety of responses to this de-industrialisation. Neither so far have succeeded in arresting the downwards movement. There have been Enterprise Zones, various tax incentive schemes for investment, inward investment promotions and subsidies, regional aid, EU programmes for the worst hit regions, and the large injections of public money for a wide range of programmes. They have tried education and training, apprenticeships, the construction of infrastructure, environmental improvements, direct subsidies and offers of public sector land.
Some companies have proved that you can make things in the UK to the highest world standards at a competitive price. Several leading motor manufacturers have come to the UK and set up world class factories. Aerospace engineering, pharmaceuticals , food manufacturing and a number of other areas show that the UK can combine excellence with innovation. Despite this, unemployment and lower incomes have remained obstinately persistent in some parts of the country where industry used to be central to employment.
London has pulled away from the rest, especially by concentrating on fianncial and business services, media and lesiure and other newer areas of activity. London’s industry has declined with the rest of the country’s. London’s landscape includes the husks of old power stations, the remains of old docks and wharves, and the reshaped profiles of old factories and warehouses. In London now they usually house people in new flats or smart offices, carved out of the remains of a former industrial heritage. London does not regret the passing of these old lifestyles. It moves rapidly on to a better tomorrow. One of my grandfathers made his living shoeing horses for the brewery trade. It was not a skill which could even see him out, and not something I ever wanted to do or thought I had a right to inherit as a way of life.