Who's sponging now?

<em>New Statesman Scotland</em> - Londoners like to claim that their tax pounds subsidise Scotland.

There is a disconcerting strand in the London mayoral campaign and it is this: all the candidates seem convinced that the rest of Britain - and particularly Scotland - owes its living to London. Whether or not they actually believe it, Jeffrey Archer, Ken Livingstone and the others are putting it about that, were it not for the huge dynamism, efficiency, enterprise and all-round economic virtue of London and Londoners, the rest of Britain would be in a terrible pickle. This, they suggest, is especially true of Scotland, a society that only exists thanks to all those London-generated tax pounds that are diverted up the M6 and A1.

Now there is nothing new about this. Many back-bench Tories have been banging that drum for many years. It seems to be an unshakeable belief in the leafier stretches of the home counties. These have long resounded to cries of "whingeing Jocks", "ungrateful Paddies", "sponging Taffs" and so on. But it does sound distinctly odd coming from lefties like Livingstone and centre-lefties like Trevor Phillips (when he was still a contender). Some of it is simply flattering the local voter. But there is also a tenacious myth in there that deserves to be scotched.

Greater London and the South-east of England are by far the most heavily subsidised, tax-cosseted, feather-bedded regions of Britain, bar none. The array of public spending programmes and tax favouritism that is available in and around the Great Wen would, if it knew about it, turn the rest of this green and pleasant land even greener with envy. But the rest of Britain does not know. And the prospective mayors of London are not about to tell.

Take, for instance, public spending. There are two definitions of public spending: what the Treasury warlocks call "identifiable" public spending and what they refer to as "total" public spending. The gap between the two is enormous. At a recent count it was in the region of £30 billion. It may be more. Which raises the questions: what are these billions spent on? And where is the spending done?

The answers are that most of that money goes on defending Her Majesty's realm and funding the panoply of Her Majesty's government. And most of that is done in the South-east of England and, particularly, in London. Almost all the huge apparatus of the British state is concentrated in London and the South-east: the government offices, the government research centres, the government test centres and the government-funded research councils. None of this seems to be perceived by the wannabe mayors as public spending. Then there is the Ministry of Defence in all its ramifications. Sometimes it seems that the MoD is still peering over the Channel waiting for Napoleon. Naturally - and quite rightly - the MoD's headquarters is in Whitehall. But almost all the so-called defence agencies are scattered around London and the South-east (and to a lesser extent the South-west). Out of a total of 42 such organisations only two - the Army Personnel Centre and the Defence Codification Agency - are in Scotland. The Trident base on the Clyde may be the world's prime target but all the prime jobs are 400 miles to the south.

And then there are the varieties of public spending which are never talked of as such. The BBC is a good example. The BBC exists by a levy, a tax, on the 22 million households of the television-viewing public. In 1997/98 (the last year for which figures are available), that licence income amounted to £2.1 billion. By far the biggest slice of that money was spent in the BBC's great broadcasting centres in and around London. The rest of Britain - the part that the BBC calls the "regions and nations" - has to make do with £339 million, or 16 per cent of the total annual revenue.

Nor is that all. The London end of the BBC is the recipient of a direct government handout. The Foreign Office pays the BBC another £156.5 million to run the BBC World Service and to monitor foreign broadcasting stations. That work is done from Bush House in the Strand and Caversham in the home counties. So another huge tranche of public money goes unnoticed into London, while London complains about the "spongers" north of Watford.

It is interesting that these northern spongers have had no sterner critic than that home counties broadsheet the Daily Telegraph. Which is a bit rich coming from a newspaper perched in the very centre of London's docklands, the most subsidy-laden patch of real estate in Britain (if not Europe). Docklands only got under way when the Thatcher government designated it a tax-free, rates-free enterprise zone and then dished out huge sums of cash for new road and rail links. The cost of one mile of road under the Wapping Basin was at least £400 million. The true cost of the Jubilee Line extension has yet to be admitted (or even calculated).

And then there are the airports. Thanks to the policies of postwar governments, three of Britain's biggest and busiest airports - Heathrow, Gatwick and Stansted - are in the South-east. Two of the others - Luton and City - are growing fast. Together they employ thousands of people. The prosperity of hundreds of firms and thousands of families depend on the airports, both directly and indirectly.

But as the (privatised) British Airports Authority (BAA) has made plain in a succession of annual reports, the airports rely heavily for profits on duty-free shops. Without that essential tax concession (in effect, a subsidy) the big airports, they said, would be running at a loss. Which is why the sturdy private enterprisers of the BAA whined like a jumbo jet on takeoff when duty free within the European Union was scrapped. (So far the result has been noticeable without being calamitous: net retail income down 7 per cent to £242 million.)

And then there is the head office syndrome, which weights all the figures heavily in London's favour. Normally a company pays its corporation tax (and capital gains tax if it applies) through its head office. If that head office is based in London, then the South-east gets the credit. Which means that the London-based companies that make money selling Scotch whisky pay their taxes through London offices. So the wealth created by the whisky-makers of Scotland's distilleries is attributed to the pen-pushers in London. Which in turn has the effect of making Scotland seem economically weaker than it is - and London seem much stronger than it is.

Multiply that instance by the sheer number of British companies that, for a variety of political and financial reasons, have their headquarters in and around London, but make their money elsewhere in Britain, and a very different picture emerges of what the capital is really worth. Which is not nearly as much as the Livingstones and Archers would have us believe.