Mike Denham

Freedom for the South-east!

Mike Denham says the region is being fleeced to pay for the rest of the UK

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I once got bashed up by the late John Smith. It was at one of those charm-offensive lunches in the City, and he had asked why London's booming financial firms kept all their jobs in the South-east rather than sharing them round the rest of the country. My mistake was to suggest that dispersing jobs like that might damage competitiveness and profitability. Such innocence. A couple of charming karate chops later, I was stretchered off and never asked back.

Afterwards, of course, I realised what had been required: regional empathy, some breast-beating about past failures, and a People's Pledge to forge a new ...er, well, partnership. I could then have settled down to the rest of my prawns.

But I would still have spent the next ten years brooding about it. Because surely the South-east already provides massive support to the rest of the country, without hobbling its most successful industries with some half-baked job-sharing scheme. I eventually decided to look at the facts.

It isn't easy. You almost might think that somebody doesn't want us to know. To start with, most of the government's regional statistics mix bits of the South-east into East Anglia. There are some EU statistics for the real South-east, but they go by the unpromising name of NUTS. You've got to settle for the South-east and East Anglia combined, a sort of Greater South-east (GSE).

Economically, this area is ahead of every other region. It has 35 per cent of the country's population, but produces 42 per cent of its output. Average productivity per head is a whopping 35 per cent higher than elsewhere. If the rest of the country could match this, Britain would be the most productive of all the major European economies.

How much does it contribute to the rest of the country? We need to know the net budgetary contribution; that is, taxes paid less public expenditure received.

The expenditure side is relatively easy, inasmuch as the government now publishes figures for identifiable regional spending. This covers about three-quarters of total expenditure but excludes national items such as defence and debt interest. Allocating these items in line with population, the region's total expenditure receipts in 2000-1 were some £120 billion.

Calculating the tax bill is more difficult because the government doesn't publish many regional figures. However, we do know that in 2000-1 the 35 per cent of the population living in the Greater South-east actually paid a staggering 50 per cent of the nation's entire income-tax bill. Allocating other taxes in line with regional GDP implies that the region's estimated total tax payments were almost £160 billion.

So, in round numbers, for 2000-1 the Greater South-east's net budgetary contribution, or transfer, to the rest of the UK is estimated at £40 billion.

Now that's some bashing, even for the prosperous South-east. In fact, it's a heartstopping 10 per cent of the region's GDP. It makes the UK's net EU budget contribution (less than 0.5 per cent of GDP) look like peanuts. It even makes the first world war reparations paid by Germany look small. And this has been going on for years. No wonder South-easterners are stressed out: they've been dragging around a giant lead weight called the rest of the UK.

Even worse, under Labour the weight is getting heavier. Apart from the general increases in taxation, which inevitably hit the South-east hardest, the government is increasing regional spending through both the new devolved assemblies and the Regional Development Agencies. These quangos were established to pump more public money into Labour's chosen English regions. As Labour's 2001 manifesto warned, 'Leaving regional problems to the market is not acceptable.'

Why do South-easterners put up with it? Well, partly because they haven't quite rumbled what's going on. As we've seen, the facts are hard to get and public debate tends instead to focus on the government's published measures of regional deprivation. Partly also because all those images of Jarrow marchers, rainswept industrial wastelands and grim sink estates have left most Southerners accepting that some kind of regional support is needed, if only to stop millions of Northerners surging down the M1 and taking over Guildford.

But £40 billion a year? Well, another reason is that although the South-east is the paymaster, it is seriously under-represented in national politics. Its average parliamentary constituency has an electorate of 71,000, compared with only 66,000 elsewhere. If the constituencies were evened up, the South-east would gain a dozen extra seats at the expense of elsewhere. Whole elections have been decided on smaller swings.

Representation in the ruling party is even worse. Only 23 per cent of Labour MPs represent the region. None of them occupies a major office of state, and only three are in the 23-member Cabinet. Despite their pads in Islington and all that guacamole, Labour certainly does not represent the South-east.

In fact, of course, the Greater South-east's voting pattern is very different from the rest of the country's. Even today, the Conservatives have 100 of the region's 213 Westminster seats, against Labour's 97. At most, South-easterners voted for a restrained Lib-Lab coalition, not the great Labour landslide twice foisted on them by the rest of the country. The disarray in the Conservative party means that there is no possibility of this changing in the foreseeable future. Talk about oppressed minorities. Did somebody mention taxation and representation?

Of course, for every loser in the South-east, there are gainers elsewhere. Take Scotland. As we know, Scotland is very well represented. With just over 8 per cent of the UK's population, it has 11 per cent of the seats at Westminster. One seat for every 55,000 electors compared with 71,000 in the South-east. Breathtaking unfairness, but Scotland's representation inside the ruling Labour party is even more skewed. Its 8 per cent of population is represented by 14 per cent of Labour's Westminster MPs, who include the Chancellor and four other Cabinet members. All this on top of the separate Scottish Parliament.

Needless to say, Scotland does superbly well in terms of its net budget position. Whereas in 2000-1 the South-east lost 10 per cent of its income, Scotland gained 10 per cent. No country even comes close to those sorts of transfers in the heated world of EU budget negotiations. Inside the UK it seems to go largely unnoticed. When did the South-east last get a thank-you note from Scotland?

What could be done? Secession is certainly tempting. As a stand-alone nation the South-east would have a population and economy a bit bigger than Australia's. Its GDP would rank in the global top ten and on a per capita basis would be the highest of any major European country. London would remain a dynamic world city, and the £40 billion budgetary saving would buy vastly improved public infrastructure. It could also fund pay rises for local nurses and teachers, as well as big tax cuts. A halving of income-tax rates would be quite manageable. The downside? OK, Michael Owen would be ineligible for the national side, but ...umm ...what else?

The reality, of course, is that nothing will be done. Taxation will crank up further and the South-east will remain Labour's unloved and undervalued Golden Goose. Bashed and bruised, those finance jobs may well relocate to other regions, but unfortunately they won't be in the UK.