Political Economy

Despite the protestations of the coalition government it is clear that they are not prepared to do anything substantive to help the North’s economy. A recent report showed that of a £5bn transport program some 80% was to be spent in the south and only 6% in the north. Recently the government announced an extra £1bn that has to do for all the regions of England!

A recent report in the Financial Times  (London widens gap with the regions, 4/1/12) shows just how far-gone things are and also shows why the continuing subsidies to Scotland  are at the expense of the northern English. Expenditures under the Barnett formula are:

At the same time data shows that Scotland is in the same league for wealth per head (measured in gross value added or GVA) as parts of the south.

Scotland is in fact a third wealthier per head than Wales and nearly 29% wealthier than the North East of England. Why does Scotland get  £8.3bn more than English regions with similar populations, all of whom are poorer than Scotland, when it is neither fair nor economically astute?

Scotland, Wales and Northern Ireland together get £15.8bn more than England. Would it not be fairer to allocate this excess between the regions on the basis of GVA and population leaving something over to use for the particularly bad spots that occur in each of the four nations?

If you allocate £24.42 per percentage point that the GVA per head is below the national average  then you get a much fairer distribution per head with Wales getting the most at £635 a head, Northern Ireland  next at £586, the North East £562 down to Scotland at £24 per head. Multiplying these figures by the population then gives a new, fair, and economically justified way of distributing the £15.8bn excess. The final figures are as follows:

The first point to note is that there is now an excess £1,386mn left over that can be allocated to poverty ‘hot spots’. There is no reason why less could not be allocated per point, say £22.00 per point, instead of £24.42 and more allocated to the hot spots. . If this is done in a transparent manner using criteria that can be understood by the public and using proper project management techniques to plan and monitor the expenditure against predetermined goals, then there is no reason why the regional inhabitant should object to getting less cash up-front.

The second point to note is that the English regions are allocated the funds on a fair basis. The £11.3 bn that is now allocated to England is done because of relative poverty levels and will do more to generate growth, jobs and wealth for all four nations than the current Barnett formula cash allocations has ever done.

Certainly giving Scotland, the third wealthiest region in the UK, £8.3bn more than much poorer regions is an offense to decency and democracy.