LibLink … Vince Cable: Economic recovery? It’s vanished into a yawning gap between a rich capital and the rest of the country

Over at the Mail, Lib Dem deputy leader Vince Cable examines the “trickiest problem” facing Government: “to rein in public borrowing without making recession worse or damaging the useful things government does”. Here’s an excerpt:

The grim news that the economy is still in recession makes this dilemma more acute. It also reminds us that Britain is a deeply divided country. In the inflated metropolitan bubble of the City, there is a lot of excited talk about recovery based on a bounce-back in the stock market, city bonuses and rising house prices in posher parts of London.

This is a different world from the communities hit by the slump in manufacturing and construction; negative housing equity is widespread in the Midlands and the North and depressed shopping centres can’t rely on an investment banker or Arab sheik calling by. We are back to a two-nation Britain. …

The monetary steroids keeping the country alive – low interest rates and ‘quantitative easing’ – have to be continued. It is also becoming difficult to see how the Government is going to manage a smooth return to budget discipline. Next year, the Government will run the only country of any significance (apart from Argentina) with a negative fiscal stimulus. The VAT cut will go into reverse in the New Year and the drop in capital spending will make the construction recession worse. The Conservatives opposed even the limited stimulus we have had.

It is only too easy to see how any insipid economic recovery next year could be stopped in its tracks by premature tightening of the budget, which will have an impact on jobs, especially in places more dependent on public sector employment. How, then, do we now tackle the dangerous assumptions that the streets of London are paved with gold and that little can be done to redress the balance?

It is essential that the economically weaker parts of the UK become less dependent on Government and attract more job-creating private enterprise. But an entrepreneurial base does not spring out of nowhere, and some Government activities are essential to support it. …

Tax policy can also work to offset geographical divisions. Raising tax thresholds to £10,000 would benefit millions of low-paid workers (and pensioners) and reduce the burden for those on average pay. The tax cut would be paid for by closing loopholes enjoyed by the relatively wealthy and by taxing their mansions.

The economy is in deep trouble. Perversely, the people feeling the least pain are the bankers who brought on the crisis.

There is a danger that the necessary correction of the public finances will be done in ways which further disadvantage the parts of Britain which are worst hit in every recession. I worry that the country is being slowly torn apart by a yawning gap between a cosmopolitan, rich capital and the rest. Without spending and tax priorities that are clearly focused, that division will grow.

You can read Vince’s article in full here.

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10 Comments

  • All of us should worry about the growing gap between North and South, and about the heavy reliance in many places in the North on public spending, given that public spending is going to be heavily constrained. The next decade could be awful for poorer regions. I don’t find it hard to imagine zero growth in post-tax personal incomes for the best part of a decade – which would be a tragedy for people in those areas.

    A £10k tax allowance paid for by the richest will clearly move money away from London, and should be supported partly for that reason, but it will not affect the differential trajectory that has now been going for 75 years or more.

    Given that productivity growth is huge in manufacturing, it is very hard to see mfg being a good source of **jobs** – we produce more goods in Britain (about 3x as many in volume terms as in 1950, from memory), with less than 25% of the postwar workforce.

    Nor is it easy to imagine infrastructure making the difference – indeed, one of the classic characteristics of slow growing areas is very high ratios of infrastructure to population. It isn’t that firms are leaving Sunderland for London because of congestion in Sunderland. Congestion is worse in London & the SE (followed by thriving parts of the N, such as the Manchester-Leeds axis). What distinguishes places such as Sunderland are relatively low skill levels (look at the ratios of people with degrees to those with no qualifications, a ratio that varies by more than 4:1 among major cities within the UK), and distance from large markets (Europe, the US, the South East). Better transport can help a bit with the latter, but realistically people are never going to commute to London from Sunderland in large numbers, and Sunderland can never be nearer to NY than Reading. There is also a danger from better transport – when I spoke about regen in the NE there was a lot of fear that better transport would suck the last good jobs out the area. One person said to me that if you could get to London in an hour, cheaply, all the kids would shop in London, and all the professional service firms would supply Sunderland from London.

  • Why do we want to move money and people away from the capital? The flow of history, from economic network benefits to transport infrastructure, is in favour of urbanisation and global hubs in particular. And it’s what people want. Look at internal migration – young people choose to move to and stay in the South, yet romantic notions inform government policy that seeks to spread everybody about the country evenly.

  • Martin Land 25th Oct '09 - 4:10pm

    I think Vince is right, but he’s still missing a trick. The Pound is going to help the regions far more than any fiscal measures. The current minimum wage is £5.80. At the exchange rate at the end of last week, that equates to €6.30.

    Not all countries in the EU have a minimum wage, but employer / union agreements often create them . However, our closest neighbour France, does have one. It’s currently €8.82.

    That’s 40% higher than hours. As the rest of the EU, already recovering, looks to increase investment, they will be looking closely at our regions. It’s not often you get such a massive wage differential on your doorstep.

    Meanwhile, the government and the Tories in the best British traditions will continue to help equip our youngsters to take advantage of these opportunities, with brilliant measures like making foreign languages optional after 14. I despair sometimes….

  • The regional debate has got to move to concentrating on helping the development of the private sector in these areas. What spending there is has to be focused on helping those surviving businesses to export, invest in R&D and improve the local skill base. Until now, a lot of spending has been on “nice to have” but non-essential projects like art galleries and museums. Using the money cut from benefits to take lower paid workers out of tax will make them more affordable to employers as well.

  • Matthew Huntbach 25th Oct '09 - 10:34pm

    Vince is assuming that everyone in the south of England is some rich person working is financial services. This is wrong, and very insulting to the many people in London and elsewhere in the south who are poor and finding it extremely difficult to get work.

  • Matthew: where does Vince say “everyone in the south of England is some rich person working is financial services”? I don’t see any insults to the many people in L&SE who are poor and finding it extremely difficult to get work. What I see is a pledge to cut taxes on people who are poorer than average, and to ensure that govt support for the economy is not withdrawn too soon.

  • Malcolm Todd 26th Oct '09 - 8:28am

    Martin: You’re probably right about the effect of the minimum wage differential, but there’s no connection with making languages optional after 14 (a reform which has already been introduced, by the way). The kids who drop languages are not generally the ones who are much good at them, and minimum wage jobs are unlikely to depend on an ability to talk to head office in some rudimentary form of the local language. I’m a language nut myself, but I don’t believe that forcing young people to stick with subjects in which they have no interest or much ability has any real impact on their skill levels or employability as adults.

  • Matthew Huntbach 26th Oct '09 - 11:33pm

    Tim

    While the smallprint does say “posher parts of London”, the headline reads “a yawning gap between a rich capital and the rest of the country”. My experience is that many people from the north really do think London and the south consists entirely of rich people, and the headline is basically saying that. The millions of poor people in the south seem to be almost invisible, and their interests can get forgotten when politics gets simplified into “rich south v. poor north”.

    This was one of the prime motivating factors for me getting involved in the Liberal Party years ago when I was growing up in a poor family in council estate in southern England. It seemed to me there was just no-one in public life who looked like us, sounded like us, cared about us or even knew about us. All our local MPs were posh Tories who said nothing at all about us and simply did no job at all representing us. Labour MPs from up north were no better. Could you imagine a Trade Union MP from oop north speaking up for a non-unionised manual worker in the south like my dad? No, in those days it often seemed to be northern workers who seemed to me to be very well paid compared to my dad going on strike for more. I could see part of the blame was the electoral system which distorted regional representation, so giving the false picture that everyone in the south voted Tory without exception because all southern MPs were Tories. Labour didn’t give a toss for us, because it was happy that the system over-represented it in the north. So I became a Liberal.

    Sometimes it seems to me in this country we don’t like acknowledging class differences and wealth differences, so we say “north” when we mean “poor” and “south” when we mean “rich”.

    I’m happy to acknowledge what Vince was trying to say, but I think the way he put it did suggest he was saying life was all now wonderful for people in London and the south and we were all enjoying jobs and prosperity. Had my younger self heard a Liberal politician saying this when I was at the stage of deciding where my political allegiances would lie, it probably would have pushed me right back to Labour.

  • sheila preston 4th Nov '09 - 12:56pm

    Well said Matthew! People just don’t seem to realise that being poor in the South is made worse by the usual political mistake of ‘North=Poor, South=Rich’ Being poor in the south means being even poorer, for example, higher property prices, people earning the minimum wage do not get a supplement for living in an area where most prices for goods and services are geared to a wealthier population. Poor people can become alienated. I could go on…

    Sheila Preston

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