Britain’s regional productivity gap has been laid bare by new statistics that showed London was 32 per cent more productive than the UK average in 2018.
The figures from the Office for National Statistics (ONS) also showed that the south east further pulled away from the north east and Yorkshire in 2018 – the most recent year for regional data.
Productivity – most commonly defined as amount produced per hour worked – pushes up salaries and profits and is the main driver of long-term economic growth.
Yet Britain has been mired in a decade-long productivity crisis since the financial crash, sparking fears that the growth potential of the economy has been severely limited.
Whereas output per hour expanded at more than two per cent a year on average in the run up to 2008, it has since only averaged roughly 0.5 per cent. Productivity is around 20 per cent below where it should have been according to pre-crisis trends.
There has been a strong regional element to the story, with London and its finance-dominated economy pulling away while the rest of the country has lagged behind.
London was 31.6 per cent more productive than the UK average in 2018, while the south east was 9.1 per cent above average, the ONS figures showed today.
Wales, on the other hand, was the least productive region at 17.2 per cent below average. Yorkshire and the Humber was 16.5 per cent below average.
The figures showed that the south east’s productivity grew 1.7 per cent in 2018. Meanwhile, the north east’s productivity fell 0.8 per cent and Yorkshire and the Humber’s fell 2.5 per cent.
Pledge to ‘level up’ spending
“The chasm in productivity across the UK’s regions and nations is holding back our economy,” said Tej Parikh, chief economist at the Institute of Directors.
“Without significant investment outside London and the south east, the rest of the country will continue to lag behind, eating into the UK’s overall potential.”
Part of the explanation for the divide lies in the clustering of finance in the City. The ONS figures showed that in finance and insurance productivity was about £69 per hour in 2018, while in accommodation and service activities it was about £17 per hour.
Chancellor Sajid Javid and Prime Minister Boris Johnson have pledged to “level up” spending across the country and focus on boosting the productivity of regions that have been left behind.
However, a government-commissioned report yesterday found that the regional productivity gap was as wide as it was in 1901 and warned that there are no quick fixes.
Many in London have cautioned against policies that could be detrimental to the capital, which drives the UK economy and provides a disproportionate chunk of UK taxes.
Mayor of London Sadiq Khan said at a speech to City grandees last month: “Clipping London’s wings is not the answer if you want to help other cities and regions to soar.
“The way to make our country more equal is not to make London poorer.”