“Whitehall’s last colonies” is the title of a report on the regions which was written by Professor Nick Bosanquet and two colleagues and published on Monday by the think tank “Reform.” It studies the difference in regional economic performance between, on the one hand, London and the surrounding areas, and on the other, what the report calls “challenged” regions such as the North East and North West of England.
In London and the South East, economic activity, population, the number of new businesses and average income are rising. In Scotland, the North East, North West, and Northern Ireland, population is actually falling while economic activity, business starts, and income growth are all lagging behind.
Bosanquet and his co-authors argue that regional differences are becoming more accentuated and that “certain regions are, in effect, becoming client areas dependent on state employment and state funding.” They believe there is a serious danger of a vicious circle in which outlying areas of Britain become more and more dependent on the public sector, with fewer opportunities for new small businesses, and an increasing proportion of the most talented young people and modern industries will move to London and the South East. The report suggests that outlying areas of the UK such as Northern Ireland, Wales, and the North West and North East are in danger of becoming Whitehall’s last colonies.
About the only respect in which I would take issue with this report is that it understates the extent to which this is the inevitable consequence of a deliberate policy by Gordon Brown and John Prescott to force the London, South East and East of England regions to grow even faster than they might otherwise. As David Davies once put it, their policy has been to “bulldoze the North while concreting over the South.”
As someone who now lives most of my time in West Cumbria but still spends the remainder in the St Albans area where I am coming to the end of my time as a councillor, I can see this happening at both ends of the country. The government as been encouraging authorities here in the North West to bulldoze houses and restricting the number of new homes which counties like Cumbria would like to build. Meanwhile in the South East counties like Hertfordshire are being forced to plan for many more houses than most elected councillors believe local infrastructure can support. The latest mad idea to emerge from a government panel is to try to force St Albans and Dacorum councils to allow thousands of houses to be built on Green Belt countryside in the vicinity of the Buncefield Oil terminal which blew up earlier this year. That idea is being incorporated into proposed housing targets now even though the inquiries into why the explosion occurred and what the future of the terminal should be have yet to produce their final reports.
In West Cumbria the extent to which the local economy is dominated by the state has been hidden by an even more extreme dependence on the nuclear industry. But the majority of local large commercial employers other than the nuclear industry have closed or greatly downsized during the life of this government and the pattern of employment is one which we very much need to diversify. After BNFL the next three largest employers in Copeland are the NHS and the County and Borough councils. Similar patterns are repeated over much of the North East and North West – for instance in the North East the ratio of public spending to the wealth created in the area is 54%. In the South East the comparable ratio is 29%.
Most people have heard of “Parkinson’s Law” which stated that “Work expands to fill the time available for its completion” and similarly that “Expenditure rises to meet income.” Some 35 years ago the creator of that law, C Northcote Parkinson, wrote a book called “The fur-lined mousetrap.” His argument at that time was that in attempting to create a society where state spending could solve all economic problems, we had entered a cul-de-sac – a society which appeared at first sight to be comfortable but where there was no dynamism, no ability to respond effectively to outside challenges, and no ability to improve things.
As Parkinson wrote at the time, “Our industrial landscape is still littered with useless debris from past periods of enterprise. Equipment is still in use which ought to be on the scrapheap, or in a museum.” If anything he was understating the case. I can recall at the beginning of my career discovering that equipment was still being manufactured which was two generations out of date and should have been in a museum. By the end of that decade even the Labour prime minister, James Callaghan, made a speech to Labour conference pointing out that the policy of relying on public spending to solve the problems of unemployment had failed.
However unfashionable it is these days to say anything nice about Margaret Thatcher, the fact is that her government restored incentives to work and save, reduced the burdens of tax and red tape, and democratised the trade unions, reducing the ability of old-fashioned Scargill-style shop stewards to wreck the economy. By so doing she enabled Britain to escape from the “fur-lined mouse-trap.”
At a national level, some of the measures which took us out of that trap are unlikely to be reversed. No Labour minister has dared contemplate repeal of the laws requiring ballots before a strike, halting the sale of council houses, or wholesale re-nationalisation. And giving independent power to the Bank of England to set interest rates subject to a fixed inflation target, just about the only New Labour decision which really was as beneficial as they claim everything they do is, has ensured that the economy as a whole will follow a much more stable path.
However while Labour’s top level economic policy has been successfully subcontracted to the Bank of England, their detailed policies – what economists call Microeconomics – has often been far more harmful. Stealth taxes, starting with the £5 billion a year raid on pension funds have caused increasing distortion of the economy, particularly the destruction of incentives to save. More and more bureaucracy has been imposed on individuals and on the public and private sectors alike.
Because London’s economy is plugged into the world economic system, it has continued to roar ahead, almost regardless of economic conditions in the UK, and acts as an engine of growth which pulls the economies of much of the South East with it. But in those parts of the UK which are further away from this source of growth, gradual increases in bureaucracy and stealth taxes, combined with disproportionate growth of the public sector, have begun to drag the economy back.
It used to be orthodox wisdom that public spending would stimulate the local economy. However, “Whitehall’s last colonies” produces evidence for an inverse relationship between local public spending and local business activity. There is more than one possible explanation for this, but the results are consistent with the possibility that public spending is sometimes “crowding out” business activity and private employment. The “fur-lined mousetrap” has re-emerged, except that now it is a regional rather than a national problem.
This problem is much easier to identify than to solve. I entirely agree with Professor Bosanquet that the level of education and training in the local and regional workforce of an area is likely to be critical to that area’s success. Partly this must be addressed through improving local educational facilities, partly it is a matter of attracting and retaining skilled people.
One point that is not made often enough during the debate on student loans and tuition fees is that the level of student debt which will be inflicted on those who complete Higher Education is likely to further denude the regions of young graduates. People leaving university with £10,000 or more of student debt are much more likely to head for London where they can earn enough to pay it back faster, and consequently less likely to seek a job near where they grew up, especially if that is an area of lower incomes. Hence the policy of top-up fees will help denude regions like the North East and North West of their brightest young people and exacerbate the vicious circle which is in danger of turning those regions into client areas of Whitehall.
As “Whitehall’s last colonies” argues, re-establishing a low-tax economy must be an essential part of any strategy to promote regional revival. We also need new partnerships between the public and private sectors, measures to encourage highly qualified young people to see their futures as being in the regions, and an innovative and pro-business approach to development by local councils.