London’s tax support for the wider UK has risen again. What should be done?

London’s tax support for the wider UK has risen again. What should be done?

Further enlightenment for subscribers to the crude “London Versus” thesis. New figures published by the Office for National Statistics show that the sum of money raised in taxes from London and redistributed elsewhere totalled £34.3 billion in 2017-18, the most recent year for which the stats are available. That’s an increase of nearly £2 billion compared with the previous year and around £9 billion more than the year before that. To report this is not to indulge in Londoncentric bragging. It is to underline a blunt reality that cannot be ignored by any project to “rebalance” the UK economy at the capital’s expense in the cause of closing the so-called “north-south divide”.

David Smith, economics editor of the Sunday Times, has written with welcome clarity about this issue. As well as spelling out that “taxes raised in London exceeded public spending in London by a very large amount” – the £34.3 billion was our “fiscal surplus” – he reminded us that, apart from the east and south east, every English region as well as Scotland, Northern Ireland and Wales run fiscal deficits. The taxes raised in many parts of the UK fall far short of the public money spent in them. Or, as Smith sums it up: “The taxes raised in London and the south east make possible higher spending on public services, and on benefits and tax credits, in the rest of the country”.

He also notes:

“The challenge is to spread the success of one economically and fiscally successful part of the country, London and the southeast, without damaging it. It is a challenge with no easy solutions, as successive governments have found.”

Indeed, such governments go back decades. Digging in this territory recently, I found the Labour Party manifesto for the 1964 general election, which outlined a “plan for the regions”, in which Wales, Scotland and Northern Ireland were included (it wouldn’t happen today…). Redeeming itself, the manifesto said:

“For these three nations, as for the regions of England itself, control over the location of new factories and offices, inducements to firms to move to areas where industry is declining, the establishment of new public enterprises where these prove necessary – all these measures will be required to check the present drift to the south and to build up the declining economies in other parts of our country.”

The subsequent Labour government, led by Harold Wilson, introduced a policy whereby all new government organisations would be set up outside London, favouring designated economic development areas. That’s why Bootle has a tax office and the driver and vehicle licensing agency is in Swansea. No doubt these institutions are valued centres of employment and expertise in those places. Yet the “drift to the south” has continued anyway. It would be good to alter that, but punishing London is no way to try to achieve it.

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