Would penalising London help close the ‘north-south divide’?

The view that a wounded, disunited UK would be better healed if national government took steps to lessen London’s economic dominance seems to get aired a lot lately, revving up the decades-old “north-south divide” debate and informing both the “left behind” Conservatism of Theresa May and the wish lists of the populist Left.

It is only 18 months since the Tory election manifesto pledged that “significant numbers” of civil servants would be relocated from the capital along with Channel 4, while Labour’s document, whilst promising London far more, cited “historic underinvestment in infrastructure” as “a major contributor to the disparity between the south-east and the rest of the country”.

Meanwhile, commentators ranging from former Evening Standard editor Simon Jenkins to Grace Blakeley, recently signed up by the New Statesman, to Oxford economist Paul Collier have argued for a government-led “rebalancing” of the UK’s economic scales away from London so that North of England can recover the lost glories of its industrial prime. There seems no lack of public support for this sort of argument. “London gets everything”, social media pundits rage.

But while successful northern cities are to be desired and the plight of “forgotten” northern towns should be addressed, is giving less to London so that more can be given to everywhere else the best way to make everywhere else better off?

The bit often missing from “rebalancing” theses is that London’s economy is also the enabler of a major wealth redistribution process. Blakeley has taken exception to the capital being characterised as “subsidising” the rest of the country, but it’s just a terser term for the same thing.

The Office for National Statistics has calculated that London provides the lion’s share of a huge tax export to everywhere north of Watford, as well as to Northern Ireland, Scotland and Wales, with each Londoner on average contributing £3,698 more to the exchequer in 2016-17 than they benefited from in public spending, helping to fund schools, hospitals, libraries, parks and policing everywhere from Sunderland to St Ives to the tune of £32.5 billion in total (that’s up by around £7 billion on the previous year, by the way). When Sadiq Khan, like the previous two London Mayors, says that when London is doing well, the rest of the country does too, he isn’t wrong.

What would happen if the government – any government – decided that London does indeed receive too much investment and decided to direct much more of it northwards instead? Look at it this way. There are reasons why London pumps out some 30 per cent of the UK’s total tax yield, and one of them is the billions sunk into it.

Investment in London is a safe bet, perhaps especially when the purse strings are tight. Put a taxpayer pound into the capital and you get your pound back in taxes of assorted kinds quicker than if you put in anywhere else: you know it will help London to keep growing, help its economy grow, help its housing supply grow, help it attract private investment and do so rapidly. It means you will get another pound on top of the first pound quicker too, and a chunk of those two pounds can be helping out Burnley, Dudley or Tintagel all the sooner. It would also help Manchester. Would putting that first pound into Manchester instead of London help Manchester more? Would it be more use down the line to Bolton or Kilmarnock?

The answer might depend on how you do the sums and much else besides, but the point is that if you want a government to embark on a public investment “rebalancing” programme, you can’t avoid those questions and the conundrums they present. It also depends on what you mean by “better off”. Even if investing more in Manchester (or Nottingham or Sheffield) and less in London didn’t assist Manchester as much financially, it might still be better for Manchester in other ways – in terms of civic pride, perhaps. But if by giving less to London you ended up with a national tax cake that’s smaller than it might have been, Manchester’s gain, however defined, might end up being pretty limited.

London’s dominance and the rest of the UK’s dependence on it is not a good thing. But reducing it might take rather more than reductive assertions that penalising London and rewarding other places will automatically help those places thrive.