Is London and the SE a Boon to the Rest of the UK or a Parasite?

Fig 1 Major UK Metropolitan Areas, with Dublin as a comparison, adapted from the 2016 Cities in Europe Facts and Figures Atlas

London of course is the dominant city in the UK and, in terms of European cities, it only has Paris as a peer (the full map of EU cities is available by following the link in the figure caption). One can of course present many tables and statistics, but Fig 1 is quite nice in that the area of each city is the population and the height GDP per capita; hence the volume of each block is the total economic power of each city. What is obvious from Fig. 1, apart from the total domination of London, is that whilst Birmingham and Manchester rival each other as the second city in the UK (with Manchester a bit ahead), in terms of these islands Dublin is easily the 2nd city economically. Dublin of course has the advantage of being a capital city, but as discussed here in 1922 when Ireland became independent it was not even in the top ten (and even 2nd to Belfast on the island of Ireland). Indeed it did not enter the top 10 till the 1980s.

On leaving Dublin in 1981 for Britain, I have lived in Sheffield, Leeds and Newcastle and my impressions then were that they were similar if not ahead of Dublin. When I return, now 36 years later, (a few times a year), there is an economic vibrancy lacking in the UK apart from London and maybe the SE. It is not just statistics; Dublin feels in a different class.

Whereas it might be argued that the Dublin economy has done particularly well over the last 40 years, so indeed has London. Another successful city has been Portsmouth (more correctly the Portsmouth/Southampton or South Hampshire Metropolitan area), which is the only metropolitan area of sufficient population to make the cut in the South East of England. Indeed many people are surprised that Portsmouth/Southampton is now one of the major metropolitan areas in the UK.

For those who would argue that the Irish economy has been particularly well run over the entire past 40 years I would recommend Fintan O’Toole’s Ship of Fools: How Stupidity and Corruption Sank the Celtic Tiger and also to reflect on the fact that the 2008 financial crisis brought the Irish economy and political system to the brink of catastrophic collapse. On the flip side of the Irish economy has been much better run than the UK since 2010. Even so the question that needs to be asked is: Why have all the UK cities outside London and the South East done so comparatively poorly compared to Dublin over the past 40 years?

In the UK Northern cities there has been a persistent belief that the UK Government (particularly under the Torys) is only interested in London and the South East and just as with “trickle-down economics” (which increases inequality); government policies suck talented people and economic activity towards London and the SE to the detriment of the rest of the UK. Some go so far as to argue that in the absence of Colonies that the rUK is essentially being treated as a colony by London and the SE.

In the case of Scotland my perception until comparatively recently is that Dublin, Glasgow and Edinburgh were of a par and yet currently Greater Dublin has moved so far ahead economically that it is easily more powerful than than the combined cities of Edinburgh and Glasgow and possibly even the entire ‘Central Belt’ of Scotland. Indeed Fig 1 begs the question that if the result Scottish devolution referendum of 1979 had not been ignored by the UK government could the next 38 years have played out differently?

Of course the fact that there is an economic imbalance between London and the SE and the rUK has been recognised for many years. Some comparatively recent measures are George Osbourne’s Northern Powerhouse initiative and Theresa May’s Modern Industrial Strategy fit for Global Britain which will apparently: “drive growth across the whole country and create more high skilled, high paid jobs and opportunities as part of government’s Plan for Britain.” Economically however these initiative are like putting a sticking plaster on a major wound and are one, if not two, orders of magnitude too small to make a significant difference.

Fig. 2 Cumulative Gross Value Added for London, the ‘South’ and the ‘North.’ from Gardiner et al.

Gardiner et al (2013) explored Spatially unbalanced growth in the British economy using the Cambridge Econometric Database and Figure 2 is illustrative of just how far the ‘North’ has fallen behind the ‘South’. Of course this graph is now well out of date and it would be interesting to see more up to date figures covering the years of austerity from 2010 to the present time. Certainly the perception is that the gap has widened further.

The ONS GVA dataset (Income Approach) is however open source and data from the years 1997 to 2015 for London, the South East and the rUK (average of all the other regions and nations) have been used to create Fig. 3. It is clear that the regional disparity is becoming greater, particularly for London. The difference is stark with the average income in 2015 being £44k in London, £28k in the SE and £21k for the rUK. The difference between London and the rUK is over a factor of two or about the difference between Germany (one of the richest countries in Europe) and Turkey (one of the poorest)!

Fig 3 GVA for London, the South East and the remainder of the UK

This is a national scandal. Possibly it is not deliberate, but clearly there is a lack of will by successive Governments to tackle this issue. The fact that the income differential is now so high, means it is a draw for the most able and talented young adults to move from other parts of the UK to London, reinforcing what in Control Engineering terms is positive feedback. Without dramatic measures this disparity will only get worse. The Government response amounts to window dressing. The worry is that because the draw to London is so strong it is metaphorically sucking the life blood from the rest of the UK.

Comments

  1. Jeni Parsons aka havantaclu -

    Hm… I’ve lived in the vicinity of Portsmouth for more than forty years – and it sure don’t feel vibrant to me! (Though I must admit – I visit very seldom, preferring Chichester or Winchester.)
    But I collected tax in the city for fifteen of those years, and saw much of the underbelly of the city. (I also taught English to immigrants for several of the remaining years.) There hasn’t been as much urban regeneration as I would have hoped – most ‘improvements’ outside the Gunwharf area of the city are cosmetic, as demonstrated by two Somerstown tower blocks which have failed the cladding fire tests, and I would expect others to do so when their results are known.
    The Gunwharf area does attract shoppers from outside the city (factory outlets), and of course, people crossing the Channel can do so from the ferryport. The ‘historic dockyard’ provides tourist revenues.
    But we’ve seen factories close and businesses disappear – both in Portsmouth and its satellite towns, of which Havant is one. There are housing developments, mostly buy-to-let – but the trains to London are usually full by the time they reach Havant, and it’s standing-room only for the commuters travelling by train. The M3 and A3 are usually heavily congested.
    In fact, Portsmouth is really only an outlying satellite of London – it has grown because of its easy communications with the capital.

    1. Sean Danaher -

      Hi Jeni
      I only go through Portsmouth occasionally when catching a ferry to France or Spain. The metric used in the analysis is just based on population and GDP per capita, so would be the same if Portsmouth was a dormer town with a high proportion of high salaried people working in London and the rest effectively a wasteland, or if it was a vibrant community with lots of local jobs on lower salaries.

      I think you are right; the prosperity and growth in the Portsmouth/Southampton area is due to the former rather than the latter sadly. I would vastly prefer a thriving local economy. Another problem with London of course is the extreme shortage of affordable housing (or almost non-existence) forcing people to commute longer and longer distances. Living in rural Northumberland I find the South East extraordinarily crowded; it almost seems claustrophobic and have no desire to move south.

      1. Jeni Parsons aka havantaclu -

        Sean, I thoroughly agree with you!
        My husband and I were in Wales last week – and intend to move there permanently, as soon as a couple of necessary operations on my eyes and my knee have been completed.

  2. Peter May -

    I agree Britain is far too London centric though I wonder about the GDP. If you took out financial services (and from Dublin and Edinburgh, too) I imagine the GDP would decline and as financial services are at least partly parasitical so they are in part just extracting money from the rest of us.
    That’s why I’m so in favour of local banking – if there’s money extraction going on keeping it close to home is better for prosperity!
    And if the Houses of Parliament do not burn down of their own volition (that would be ironic – and for the second time) I’m also in favour of government moving lock stock and barrel to somewhere else in England whilst they are refurbed. 5 years outside London might encourage Parliament to be less close to the City – in every sense.

    1. Sean Danaher -

      Agreed
      Banking is out of control. We should have followed Iceland and have thrown lot of them in jail after 2008. Local banking is the way to go.

      Ireland is also far too Dublin centric; indeed I think Greater Dublin accounts for something like 45% of the total GDP of the country. At least Scotland has two cities with Glasgow and Edinburgh being very similar in power. Germany does better of course with Munich being currently the richest city but it has also been Hamburg and Dusseldorf and Berlin is actually poorer on average than Germany as a whole.

      A move of the parliament to Manchester or Leeds would be a good thing aven permanently.

      1. Charles Adams -

        I agree. Government has an enormous distorting effect on regional inequality. May be the capital should be moved to the poorest region every generation (35 years)? I would at least settle for a move to somewhere more central like South Yorks/Notts, plus repurposing all those government buildings as social housing.

  3. Cat -

    Hi Sean,

    I think this is really important. I have long felt that in order to frame the debate better we need to understand precisely what might be the impact of laissez faire economics and the lack of a national economic strategy on the national economy (understood here to mean all parts of the UK and not as a whole). The map of GVA on the first page of the doc below is fascinating in this respect.

    http://researchbriefings.files.parliament.uk/documents/SN05795/SN05795.pdf

    I can’t access the journal article you cite unfortunately. I wonder if the London plus South East versus the rest argument encourages us to overlook what might actually be happening? The map shows that development in the South East is actually quite patchy with the parts immediately to the east of London and East Kent coast having a lower than UK average GVA and very poor levels of growth since 1997. (The ONS have an interesting interactive map showing changes in GVA on a regional basis since 1997.)

    It would be interesting to compare the UK with countries that have good national strategies and that have targeted poorer areas better. Ireland may be too small to make comparison with the UK meaningful. But it would be interesting to know whether it shows the same pattern as the UK.

    1. Sean Danaher -

      Hi Cat
      I think the image on the parliament document you refer to is very similar to the Interactive Eurostat Atlas which is very useful as you can explore most of Europe. I think in terms of scale Germany and France are probably better comparators to the UK. Ireland is too small but is a useful comparator for Scotland. I used Dublin as an exemplar to highlight how comparatively badly the UK cities were doing. The E/W split in Germany is still visible but the gap is closing. Have you a link for the ONS interactive map? In terms of Ireland, more fine grain data is needed i can find NUTS2 data easily but would want NUTS3 at least.

      Sadly the Gardiner et al. paper is behind a paywall; I can get access through my University.

      I agree totally that a more fine grained analysis is needed and as my discussions with Jeni earlier there is a big distinction between a dormer town and a commercial centre. My crude London and SE vs the rest analysis is just a start.

  4. Richard Murphy -

    I declare an interest: I am a director of Cambridge Econometrics

    More importantly, I suspect the Dublin GDP includes profits from the financial services centre which only peripherally spills over into the City. I may be wrong, but given the ability of this flow to distort all Irish GDP data think this is a major factor here.

    1. Sean Danaher -

      Richard
      I agree, and there is a consensus in Ireland that GDP is a very bad measure of the real economy. GNP is definitely a better measure for Dublin and is about 20% lower. I know the Irish Central Statistics Office is putting a lot of work into getting better metrics. It was a real problem in 2015 when GDP increased by 26% whereas everyone believes that the “real” economy only increased by about 5-6%. There was even some worry that the Irish EU contribution would go up by 26%, but this did not happen thankfully! The central thesis I think however stands as by eyeball the Dublin economy is so large in comparison to Manchester (the no 2 city in the UK) that even a 35% drop would still leave it bigger. Even if it were in 4th place (after London, Manchester and Birmingham) it would still be an indictment of how badly the UK regional strategy was working, given Dublin was so far behind in 1980. Something has gone very badly wrong in the UK, possibly overzealous neoliberalism?

  5. David Malpas -

    I agree with the idea that London is in a very strong positive feedback loop, at least since I moved down to London 20 years ago and it’s going to be hard to break. Nearly everybody I work with has a similar background: PhD in a STEM subject and came to London via the same thought process. You leave academia but you’ve got no interest in going into UK industry. The perception is the pay is terrible, working conditions poor/inflexible, the management borderline incompetent. If you want to go into industry, you’d go abroad. The only options left are the tech or finance sectors and London is still a primary location for that. In fact you never really consider working in most of UK again. You’re completely globalized. You might take a job in Silicon Valley, New York etc but you wouldn’t even consider the West Midlands say (where I’m originally from) because there is simply nothing to do there.

    I’ve saw an aspect of this when I set up a business around 5 years ago with a few colleagues. Technology made our location increasingly irrelevant. We decided the main office could be located on the South coast. We thought that the opportunity to work in a quieter location (with a beach) and where property prices were lower (albeit hardly cheap) would be attractive to employees. Wrong! We’ve found it virtually impossible to hire the same quality of staff for the South coast (it’s not our pay, our starting grad salary is £45-50k) as our smaller London office. Graduates want the excitement of London. Foreign employees don’t want to live anywhere except London. Those with families didn’t want to live in a location where there were no other work opportunities, poor choice of schools etc. By comparison, if we put up the same vacancy in our London office, we get, literally, thousands of applications from around the globe. I must admit even my family didn’t like it so we ended up back in London/Surrey. End result the main office is now London and the South coast office is almost uninhabited.

    1. Sean Danaher -

      David
      Thanks for this.
      Its deeply sad. A few year ago I was examining a PhD (internal examiner) and the external examiner was from Imperial College. We got to discuss how he liked London and what he thought of the quality of life there as compared to the rest of the UK. I made it clear that I was from Dublin originally. His response was that the only other city in these islands he would be happy to live in was Dublin in terms of buzz, vibrancy and critical mass. He visited Dublin regularly apparently.

      His use if the term critical mass was interesting, but I think it is right. In the NE Newcastle is fairly vibrant but Sunderland and Middlesborough fairly grim despite lots of money being poured in. I think London and Dublin both have this critical mass, but it gets more difficult to replicate as the disparity increases.

  6. Cat -

    Hi Sean,

    Sorry for the delay in responding to your request.

    The interactive map I was referring to is in section 5 on this page https://www.ons.gov.uk/economy/grossvalueaddedgva/bulletins/regionalgrossvalueaddedincomeapproach/december2016

    It runs from 1997 to 2015 if I remember rightly. I’m guessing it’s most useful in flagging up areas that show interesting trends.

    I’m just a very amateur dabbler so you will know far more than me. But I was wondering about the commuting aspect you mentioned. I have a friend who is a geodemographer in another country and he’s done some interesting spatial analysis of catchment areas relating to a completely different subject area. But it makes me wonder if there are analyses of commuter areas and economic impact. If salaries being spent within the commuting hinterland of a thriving city is what is driving growth in some areas, is one of the reasons for decline in some areas the fact that they are too far away from viable centres and that there is no strategy to deal with that? It would be good to have graphic portrayals of the consequences of lack of central govt policy and put to bed the myth that some (Tory) councils are simply better managers.

    1. Sean Danaher -

      Thanks Cat
      very interesting. As Jeni hinted towards earlier Portsmouth’s and the SE’s apparent success may simply be because it is a dormer town/area for London and David’s experience with relocating away from London was very worrying. Its clear crude statistics don’t tell the whole story. Yours is a very credible thesis and further analysis is definitely needed

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