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28 August 2014

Leader: The London question

The capital’s economic dominance ensures that investing in it will produce a higher return than in other regions and makes it difficult to justify investing elsewhere. This logic merely tightens London’s stranglehold. 

By New Statesman

The referendum on Scottish independence is not a vote about Scotland,” Danny Dorling writes in his essay on page 26. “It is a vote about London.” More than for any other comparable European country, the capital of the United Kingdom – Europe’s only true megacity – dominates national life. With just 13 per cent of the population, London produces 22 per cent of the UK’s wealth; through major projects such as Crossrail, it swallows a disproportionate share of its infrastructure funding. The Institute for Public Policy Research estimates that per-capita transport spending in London is 500 times as much as that in the north-east of England.

London’s economic dominance ensures that investing in the capital will produce a higher return than doing so in other regions. That makes it difficult to justify investing elsewhere. This logic merely tightens London’s stranglehold. Consequently, when the Yes Scotland campaign warns Scots of the dangers of voting No, it makes references to being ruled not by the English but by London. Indeed, in his New Statesman lecture in March, Alex Salmond likened London to a dark star, “inexorably sucking in resources, people and energy”.

On the question of the north-south divide, it is tempting to view the UK as a rich country in which only a few de­industrialised regions have fallen behind. However, it is London and its wealth that are the true outliers. New figures from Inequality Briefing showed that Britain has nine of the ten poorest areas in the whole of northern Europe. In parts of Wales and in Cornwall, the average income is less than £14,000 a year: once living costs are taken into account, this leaves residents poorer than many in the former communist states of eastern Europe.

Inner London, by contrast, is the single richest region in Europe. If our leaders and the deracinated plutocrats who gather in the capital seem unconcerned about the relative poverty of much of Britain, it is because they live within the walls of Versailles.

This is not only iniquitous; it is potentially disastrous for the rest of the country. It puts increasing pressure on housing stock in the south-east of England, driving up prices and leaving many of us ever more addicted to debt. It raises the cost of doing business in London, rendering the capital increasingly uncompetitive, while draining skills and expertise from other regions. It forces people to commute ever longer distances to work and leaves them captives of our train companies. Worst of all, it makes the national economy especially vulnerable to global financial shocks.

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The leaders of both major parties are belatedly discussing devolving power from Westminster to the English regions and additional powers to the other nations of the UK. The main cities, meanwhile, are being encouraged to follow London’s example and set up combined authorities: resurrected versions of the old metropolitan counties, back from the dead to plot grand regional infrastructure plans.

However, all these plans are built on the assumption that the Treasury will retain ultimate control of the purse strings. New powers would be exercised only on sufferance from Westminster. It is unclear, too, whether political devolution will be enough to solve the problem of London’s dominance, without incentives to encourage private investors to invest in the regions. That might require some kind of regional banking system such as exists in Germany.

Professor Dorling proposes a different path: a return to the sort of government intervention that has been unfashionable for a generation. He favours more regulation of private rental markets; more publicly funded housebuilding; and changes to land use rules, such as the greenbelt. It would require having a plan for London. “The free market does not co-ordinate spatially and temporally. It reacts rather than instigates,” he writes.

If we are serious about reducing London’s stranglehold over the United Kingdom, trusting to the free market will never be enough.