JLast week, City of London raders were hitting the Kwasi Kwarteng mini budget. It was a small wonder. He had awarded some of them hundreds of thousands of pounds. On the other hand, the hearts of the conservative MPs of the “red wall” sank. Kwarteng’s new tax measures could have had one objective in view: to benefit London’s economy at the expense of the rest of the country. His former boss Boris Johnson’s only sensible political ambition, to narrow the income gap between the capital and the north, was in shambles. London exulted.
Soaring bankers’ bonuses and lower rates for the UK’s richest 5% will overwhelmingly go to residents of the capital and surrounding areas. The £45billion package is aimed at the wealthy, corporate profits and the rising price of land and the private housing market. Of the 48 English Enterprise Zones to take advantage of the largesse of the Treasury, only 16 are in the north.
More serious is that while the cost of the tax cuts is not to be recouped through future tax hikes alone, £35billion must be found in the next four years through public spending, according to the Resolution Foundation. With Scottish and Welsh budgets protected by the pro-union Barnett formula, this means a return to savage austerity in parts of England heavily dependent on public funds.
Kwarteng and his boss, Liz Truss, clearly believe that Britain’s economic growth depends on London and its main industry, finance. In the quarter century after the Big Bang of the 1980s, that was largely true. London’s wealth rose to European preeminence, and its taxes funded the depressed northern provinces. As of 2008, that wealth stuttered. While the South East of England has remained among the wealthiest parts of Europe, the gap between it and other parts of the UK has widened, making the country the most geographically large unequal economy in Europe. At least Johnson acknowledged it.
To assume that pouring even more money into London will reverse this divergence by “trickle down” is intellectually absurd. Yet Kwarteng’s budget is glaring. He wants to make London ever more attractive to wealthy newcomers. He wants to inflate his banks, overheat his house prices, build on his campaign and satisfy the developers (and party donors) who are turning London neighborhoods into miniature Hong Kong. He has yet to stop the toxic expansion of Heathrow or end the HS2 railway, which is now just a massively subsidized commuter line to London. Such extravagances are unthinkable in the North. When a British chancellor waves money in the air, it’s instantly ripped off by London.
Provincial Britain’s lame productivity is the greatest structural weakness of the British economy. Insurer Legal & General now estimates that cities like Manchester, Newcastle and Sheffield contribute less per capita to their country’s economy than even the cities of the former East Germany.
It is clear that we must help them retain their talent and preserve their quality of life. They need creative urban hubs rather than bleak improved investment areas. They must become attractive places to live and travel, not dreary places to flee. Capital is not the problem. Britain’s economy needs the rest of the country to reverse decades of decline. For once, London must take a back seat.