SO INWARD-looking has been the debate on Scottish independence that it is often assumed marked differences of wealth, output and performance are confined to comparisons between Scotland and the rest of the UK.
In fact, such differences across the UK are becoming increasingly marked.
Last week, the Capital Economics consultancy circulated research by Eurostat showing just how dramatic these differences have now become. Indeed, the UK that emerges from the figures is one that ranks it as the most imbalanced country in the EU.
In 2010 (the latest year for which data has been released), the UK had by far the greatest regional income variation of any EU country.
The difference between the best- and worst-performing regions in the UK was equivalent to almost 260 per cent of the EU average per capita GDP. No other country came close.
“Economic imbalance” has been a major theme of the independence campaign. But it is by no means confined to Scotland versus the rest of the UK. For decades, politicians of all hues have spoken of the need to redress “the North-South divide” and reduce regional imbalances.
Only last month, Business Secretary Vince Cable declared there were “worryingly high disparities” and those areas that had become highly dependent on the public sector faced particularly difficult challenges. But the challenges facing attempts to rebalance the UK and reduce economic disparities are even greater.
While the Eurostat figures show that the UK’s huge imbalance was mainly because inner London had by far the highest income per head in the EU (GDP per head in the capital’s central boroughs was equivalent to 328 per cent of the EU average) just as significant is that, even if each country’s best performing region is excluded from the analysis, the UK still has the largest variation in per capita GDP of any EU country (the UK’s second best region was north-east Scotland, due to North Sea oil- and gas-related activities).
The report also found that no fewer than 27 of the UK’s 37 regions were below the EU average for GDP per head. Large parts of the UK have poorly performing economies, underneath those ‘average’ UK statistics flattered by a small number of exceptional performers. These worked to lift the overall UK GDP level above the EU average (11 per cent above, to be precise).
That’s not to say that all regions outside the gilded few in the south-east are failing to improve. Research released last month by Capital Economics showed Scotland and Wales enjoying the strongest activity indices in March, with notable improvements in Scottish employment data and more buoyant Purchasing Managers Index confidence data. “Overall”, it concluded, “Scotland has probably been one of the better performing parts of the UK with employment and output both up and unemployment both down.” These trends look to have continued into April and May.
However, major imbalances persist. These, of course, have long been known. But the scale of them – and their persistence – is daunting. Vince Cable himself appeared to hint that the coalition government was struggling to achieve any re-balancing. “I do not believe in managed decline for regions that are underperforming,” he declared, before admitting: “Even after the major crisis and contraction in London’s banking sector, the south-east maintains a more buoyant economy, reflected in property and retail markets for example, than most other parts of the country.”
One of the most recent detailed studies of the divided UK has been provided by the Centre for Geographical Economic Research in its paper on Spatially Unbalanced Growth in the British Economy by the economists Ben Gardiner, Ron Martin and Peter Tyler published last year.
The historical analysis is particularly outstanding. In terms of Gross Value Added per capita, the south of the UK began to pull further ahead of the north (comprising for this research Scotland, Wales, Northern Ireland, the East Midlands, the West Midlands, Yorkshire-Humberside, England’s North East and North West) during the 1980s, achieving a cumulative output growth advantage of 6 per cent over the decade.
But it was from the early-1990s onwards that the gap grew dramatically. Between 1992 and 2007, the south’s cumulative growth advantage over the north increased to 20 per cent.
Over what former prime minister Gordon Brown frequently and famously described as the “longest period of non-inflationary continuous expansion on historical record”, the cumulative growth gap between the south and north increased more than threefold.
By the end of the 1990s some commentators claimed that the “North-South Divide” was no longer an issue, and that the economy had become much more spatially balanced. But this claim, says the CGER paper, “was incorrect at the time it was made, and events since then have merely rendered it even less accurate as a description of the geographical pattern of economic growth in the UK.”
The pulling away by London stands out sharply, reflecting the boom in banking and financial services. Between 1971 and 1992, London’s growth in output lagged the UK economy as a whole, seriously behind the remainder of the south, and even behind that of the north throughout the whole period.
But from 1992, there was an abrupt change. London became the fastest growing region in the country, with a growth rate ahead of that in the rest of the south, and twice that of the economy of the north. In the “long boom” of 1992-2007 it was London that powered the growth of the economy of the south and, to a large extent, the national economy as a whole.
The report goes on to observe that, had the northern economy grown at the national rate over the period 1972-2010, it would have been £43 billion richer in output terms. Put another way, over this period a cumulative growth gap of more than £80bn had opened up between the north and the south, including London.
“The challenge,” it concludes, “is not just that national growth has become far too dependent on financial and related services, but that the expansion of these sectors has itself been spatially skewed. Whereas in 1971, the south accounted for 56 per cent of national output in financial and business services, by 2008 this had risen to 67 per cent.”
Given the size of the City of London as a global financial centre, this was inevitable. “But what the banking crisis and the economic recession this triggered have done … is to expose a fundamental problem of uneven regional development. It shows quite clearly that if a nation becomes relatively sectorally unbalanced that this process will perhaps inevitably exacerbate its regional imbalance.”
Calls by Michael Heseltine to bestow billions of pounds on regional agencies have met with a cool reception, and it is not easy to see how present government policy will substantially narrow the economic divisions across the UK. For now, we are more than ever dependent on the work of Scottish Development International, our skills agencies and the Scottish Government’s capital spending programme to help narrow the gap. But it cannot be other than a long haul.