Richard Brown: Higher spending in London reflects its Covid sickness, not favouritism

Richard Brown: Higher spending in London reflects its Covid sickness, not favouritism

Levelling up has stalled, according to IPPR North’s latest analysis of public expenditure figures. The think tank’s press release highlights a 25 per cent real terms rise in spending per person in London between 2018/19 and 2020/21, compared to 20 per cent across England and 18 per cent in northern regions. IPPR North Research Fellow Ryan Swift said, “Our analysis suggests that levelling up was, in many ways, business as usual.”

These expenditure comparisons are a regular feature of regional inequality discussions, and are a pretty poor measure at the best of times. In every region, they aggregate places of great wealth and poverty. They also mix expenditure that represents investment in public services and infrastructure, with expenditure on welfare payments and support where local communities and economies are struggling. Everybody would want more of the first, but to need less of the second.

Transport spending figures are particularly contentious. While IPPR North research has repeatedly pointed to higher transport spending in London when arguing for more funding, Greater London Authority analysis from 2017 argued that, while London’s public expenditure on rail is high if compared to its resident population, it is much lower than the Midlands and North if compared to the number of journeys taken on it (with similar comparisons for expenditure on roads).

The pandemic has made such comparisons even more problematic. As both IPPR North and the Office for National Statistics (ONS) note, 2020/21 expenditure figures include huge sums spent on coronavirus support schemes such as furlough, self-employment support and business loans, all of which saw very high take-up in London, which has a bigger economy and many more jobs than any other region. But even when you take these costs and health spending out of the equation, IPPR’s analysis still shows London with eight per cent growth over three years, compared to three per cent across England and two per cent in the North.

What accounts for the rest of the increase? Welfare and transport primarily, according to the ONS analysis. Unemployment-related benefit claims shot up much faster in London than in the rest of England as the economy went into hibernation in 2020, as reported by Centre for London. And the capital city’s public transport system saw a devastating loss of fares revenue, relying on short-term government handouts to remain solvent. Far from being a sign of favouritism, this boost to spending in London is a symptom of a capital city on life support as the pandemic laid waste to its economy.

Extraordinary responses to extraordinary circumstances should be temporary, so the expenditure gap between London and other UK regions should narrow in coming years. But it is the other side of the fiscal balance sheet that should worry us all in the longer-term. Alongside increases in expenditure, taxes raised in London fell by £6.7 billion in 2020/21, with business rates accounting for nearly half that reduction, followed by VAT, stamp duty and air passenger duty. In 2019/20, London made a net contribution (total revenues minus total expenditure) of £40 billion to the UK; in 2020/21 London had a net deficit of £7 billion – the lowest deficit in the UK, but still a dramatic change in fortunes.

From this perspective, the pandemic has in fact closed the gap between the UK regions, but only by levelling London (and the South East) down. So we should be careful what we wish for as we emerge from the coronavirus crisis into a new age of economic instability. Yes, London should be arguing for the government investment in green jobs and neglected infrastructure that will help northern regions realise their potential. But all of us should also be making the case for supporting London’s economy, so that the UK’s premier global city can once again generate the revenues that will help turn these aspirations into reality.

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Categories: Analysis

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