London’s economic success has generated a fiscal surplus while the rest of the country is in deficit, but we need strong regional economies as well, says Peter Williams
This article was first published in the July/August 2017 UK edition of Accounting and Business magazine.
Figures from the Office of National Statistics (ONS) shout that London should become a city state. Maths recently showed that the UK’s capital had a fiscal surplus while the rest of the country was in deficit. So cold-hearted analysis would suggest the rest of the UK sponges off London’s economic success. The capital’s wealth is distributed by central government to poorer regions, contributing to keeping public services going across the nation.
London’s economy generated a £26.5bn surplus in financial year 2015/2016 which translates into every Londoner paying £3,070 more in tax revenues than they receive in public spending. The south-east contributed about half that per person – £1,670; the east of England had a £242 surplus per head; while the rest of the country saw public spending outstrip its tax contribution.
It was the first time that the ONS had calculated the numbers in this way; it is doing so after a consultation that showed a demand. But fascinating as it is, the maths doesn’t tell the whole story.
We already knew what the ONS has told us: that the UK contains two distinct economies. A vast and rolling building site is a constant physical reminder of London’s position as a job-creating behemoth, attracting talent from all over the world.
London has become a place that grows by what it feeds on; its population is rising twice as fast as the rest of the UK. London may currently pay more tax and produce more wealth, but few can see it as a sustainable proposition for the rest of the country or for the city itself.
Many argue that for decades, government policies such as exchange and interest rates have unjustly favoured and so enriched London and the Home Counties compared to other parts of the UK. For instance, in early 2017, research for a northern thinktank found that more than half of the UK’s total spending on transport networks was happening in London. Is this fair because we all need London to keep moving, or unfair when the regions cry out for updated infrastructure?
But success should not be binary; the whole country works better with strong regional economies offering contrasting industries and opportunities to those that thrive in London – most notably the financial sector.
A train journey of under two hours takes me from London back to Cheshire East where I spent my formative years. Accents may change but you would be wrong to think that economic aspirations are any different. As an economic migrant from the north-west of England to the capital decades ago, I am one of the millions who stand testament to the wondrous power of the vast metropolis. But it is not enough: we now need to see that success replicated more often and more evenly across the whole of the country.
Peter Williams is an accountant and journalist
"The whole country works better with strong regional economies offering contrasting industries to those that thrive in London"