There’s a war on, you might have heard. The Russians are coming. The Americans are going. Britain is bent on re-arming. Meanwhile, the government’s grail of greater growth keeps on receding, as tariffs are threatened and the productivity puzzle goes unsolved.
Where, then, will a big boost to the nation’s economy come from? From London, stupid. Where else? The capital’s 607 square miles produce 22 per cent of the gross domestic product of the UK’s 94,000 square miles.
They generate almost the nation’s only annual “fiscal surplus”, meaning that more billions in taxes are raised in Greater London than are spent on it – £43.6 billion more, according to the most recent Office For National Statistics figures.
Apart from the South East, whose surplus is much smaller, every other English region, together with Scotland, Wales and North Ireland, runs a fiscal deficit, meaning they receive more in tax than they raise. London provides most of it.
This isn’t bragging. This is reality. It’s a reality that means when a government invests a pound in London, it gets its pound back more quickly than it would have had it invested it anywhere else, then sees it produce another pound more quickly too.
A stock grumble is that London receives more expenditure per head of population than anywhere else. This is true (though Scotland is close behind). But it is also true that Londoners per head produce far more revenue than they receive (and by this measure Scotland is a long way back).
London is by far the most productive part of the UK, with output per worker a massive 26.2 per cent above the UK average per hour worked. Again, this isn’t a Londoner bragging. Neither is it him carping about the taxes he pays subsiding public investment almost everywhere else in his country, be it in transport, policing or health. It’s called progressive redistribution. It’s no bad thing.
Again, this is reality. It is reality, even though the increase in London’s productivity rate has been small since the global financial crisis of 2008. What then, should a government in desperate need of greater national economic growth do?
Surely, you might think, it would seek to accelerate the productivity growth of its most productive region by investing more – in skills training, transport, housing, whatever makes most sense – in order to get more productivity bang for every buck, and more tax revenue to spend across the whole of the UK, including on defence. But how keen is it to do that?
Last week, it emerged that the government’s Plan for Neighbourhoods funding, a rebranded version of a Conservative policy would – like the Conservative policy – exclude neighbourhoods in the capital, despite Greater London having some of the highest rates of poverty anywhere.
At the weekend, Cabinet Office minister Pat McFadden made a point of saying he wanted to see more civil servants working outside of London. He framed this as a way for the state to get better value for money. Well, maybe. But his words still carried an echo of the Tories and their London-bashing “levelling up” message.
Then there’s the English devolution white paper, published in December. This pledged to “ignite growth in every region” by ending the pitting of towns and cities against each other and putting a stop to “micromanaging from the centre”.
Yet when it comes to “deepening devolution” the white paper is only “considering” how that principle can can apply to London, the part of the UK with the greatest growth potential of all – a potential whose fulfilment the whole of the country would benefit from financially.
It hasn’t all been discouraging. For example, Transport for London, following years of egregious top-down penny-pinching during the pandemic, has received an increase in capital funding. The Met has done better too. A bunch of boroughs have had their buckling budgets propped up. And let’s not underestimate the change of attitude – the Tories’ unending knocking of London is no more.
That said, Sir Keir Starmer’s administration still seems wary of being kind to the goose that lays the nation’s golden eggs – certainly of being seen to be kind.
Rachel Reeves, in her “kickstart” speech in January mentioned London five times, but in three cases preceded by the word “outside”, most notably by stressing that 60 per cent of the GDP increase would, according to one analysis, result from expanding Heathrow would benefit areas other than London and South East.
If there is reticence about acknowledging the massive importance of London’s economy to the UK’s, there may be depressing reasons for it.
Hatred of immigrants and loathing of “liberal elites” have long fuelled anti-London sentiment, a force that helped bring about Brexit and continues to feed the parasites of the populist Right.
Labour nerves appear jangled by the post-election opinion poll ratings of Reform UK. The need to defend Runcorn & Helsby following the resignation of Mike Amesbury may not have a calming effect. Some Labour MPs in the north of England are agitating for a more Farageist approach, seemingly persuaded that this would be the best way to repel Farage.
That seems a questionable thesis. Politicians should be mindful of the mood of electors, something Labour politicians have too often eschewed. The ones currently running the country are doing so because they dispensed with that bad habit. But wouldn’t it be wiser to drain the swamp from which Reform draws strength than to wade into their mire, trying to beat the enemy in its noisome natural habitat?
Far better, surely, to play primarily to your strengths, rebuilding the National Health Service, investing in better public transport, improving skills and education, increasing affordable housing, nurturing new industries and so on, and doing it in all parts of the UK that need those things.
That will cost money. That will take growth. Sidelining London won’t help.
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