Should London leave the UK? Should the UK get rid of London?

The Business Secretary, Vince Cable, said recently that London “is becoming a giant suction machine draining the life out of the rest of the country” (see: http://www.bbc.co.uk/news/uk-politics-25444981).  This reignited the debate about whether London is good for the rest of the UK economy?

Not that anyone is seriously contemplating independence for London. But the issues at stake are significant. Does London get more than its fair share of investment, or does it subsidise the rest of the UK too much? Is our national economy and economic policy overly focused on London? What can we do about the north-south divide? Are the interests of the London-based financial services sector compatible with those of the manufacturing sector elsewhere?

I predicted in my post last week (see: https://citypolicy.wordpress.com/2014/01/01/14-to-watch-in-2014-part-1-of-3/) that the role of London in the UK economy would be one of the big issues for 2014.

David Smith’s column today in the Sunday Times looks at the evidence in what I think is a very thoughtful and balanced piece (http://www.economicsuk.com/blog/001978.html#more). Smith argues that interest rates have not been a problem, but the strength of sterling 1996 to 2007 (which was linked to overseas flows into the London-based banking sector) harmed manufacturing exports. Public spending per head is higher in London than elsewhere in England. But it is even higher in Wales, Scotland and Northern Ireland thanks to the Barnet Formula (a topic for another day!). This prompted a debate on twitter with Bernard Ginns of the Yorkshire Post, who argued that London gets more or less than its fair share of investment. But the London Finance Commission (http://www.london.gov.uk/sites/default/files/Raising%20the%20capital.pdf)

estimated recently that London typically pays (£10bn – £20bn) more into the exchequer than it takes out.

What is clear is that whilst, disparities in economic performance are as great within regions as they are between them, the north-south divide is widening.

Ten years ago I started working on a project on trends and forecasts for regional economic and population change. The report, Regional Futures: England’s Regions in 2030? (http://www.southwest-ra.gov.uk/media/SWRA/RSS%20Documents/Technical%20Documents/Regional_Futures_Report.pdf)

published in 2005. It argued that the strong economic performance of the midlands and north at that time was mainly due to increases in public spending. It concluded that, despite the strong prospects for Core Cities such as Leeds and Manchester, the underlying economic strengths of London and the South East meant that any future cuts in public spending would result in the north-south divide once again widening with a vengeance. This was not a popular view at the time, but it was proved accurate in the aftermath of the recession and the onset of public  spending cuts (which were of a scale few anticipated back then).

So does London’s booming economy suck life and competitiveness of the UK, and what can be done about regional disparities in economic performance? My view is that a rest of UK versus London narrative is unhelpful for a number of reasons, which I will explain in my next post. Watch this space!

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About citypolicy

Interested in what makes cities and regions dynamic, competitive and sustainable. I blog in a personal capacity. I work for Leeds City Council as Chief Economic Development Officer. Previously worked for Arup in their planning, policy and economics practice, and before that for London First.
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2 Responses to Should London leave the UK? Should the UK get rid of London?

  1. Pingback: London in the UK:economy: dynamo or Great Wen? | Kleinblog

  2. Pingback: London and the Rest of the UK: Better Together. | Tom Bridges

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