Everyone must learn to pay their way

 
Allister Heath
BRITAIN as a whole is spending much more than it raises in tax – that is why there is a massive budget deficit and the government is being forced to borrow so much. But what if the various parts of the UK were all independent countries, including the English regions? Looked at in this way, the figures are striking: the London and South East regions would boast a budget surplus – and would be able to slash taxes and still maintain current spending levels. Every other region would face a massive budget deficit in the absence of transfers and handouts – and in many cases would face immediate bankruptcy. The public finances of some UK regions would make Greece’s look good.

The statistics are illuminating. The taxes paid by Londoners are equivalent to 45.2 per cent of London’s GDP; public spending is just 34.9 per cent of London’s GDP, making a huge surplus of 10.3 per cent of GDP in 2010-11. In the South East, the tax burden is 41.1 per cent of local GDP, against spending of 40.3 per cent, equivalent to a surplus of 0.8 per cent. In both cases, the difference is sent to the rest of the UK. These regional surpluses compare with a UK-wide deficit at that time of 10 per cent of GDP. These two regions are much wealthier and less dependent on public sector jobs; they host the City, which pays a fortune in tax, especially via the tax of its staff; the bulk of stamp duty land tax is also paid in London and the South East. The 50p income tax rate is also largely a London and South East tax.

Taxpayers in London especially, and also in the South East, are subsidising the rest of the UK to an astonishing degree, laid bare in research from the Centre for Economics and Business Research (see p12). Every other region of the UK spends more than is generated locally in tax receipts.

Because, tragically, there is so little high-value private economic activity in these regions, the North East raises just 29.7 per cent of its GDP in tax yet spends 61.9 per cent of GDP; the North West raises 37.5 per cent and spends 55.9 per cent; Wales raises 30.3 per cent yet spends 66.3 per cent; Northern Ireland raises 27.7 per cent and spends 67 per cent. The picture is grim nearly everywhere in the UK. An independent Scotland’s budget deficit would be 10 per cent of GDP, thanks to oil and gas – the UK average, a less bad performance than most other regions.

The first, overriding economic challenge in the UK today is to try to make the economies of all regions as prosperous as those of London and the South East – not to hobble and cripple the City and make everybody equally poor. The second challenge is to wean UK regions of their dependency on public spending and make them once again places where free enterprise and capitalism can thrive and create opportunities for all, jobs and wealth. So far, the government is failing on both these points; more tax, regulations and attacks on the private sector are not the answer, though its welfare and schools reforms will help.

Last but not least, there are lessons for the EU: citizens put up with intra-national transfers, though taxpayers in London and the South East are increasingly fed up with the extra burden. But such tolerance – even if it is waning – doesn’t exist for transfers to other countries, and never will. Greece’s angry protesters are wasting their time. Their supply of free money from Germany will eventually end; everybody, eventually, must learn to pay for their own way in this world.

allister.heath@cityam.com
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