by Colman
Tue Mar 21st, 2006 at 05:00:46 AM EST
Bad news for the UK economy from the
FT.com.
...few economists would disagree that Britain’s performance has been broadly impressive since 1997. Growth has averaged 2.7 per cent, a touch higher than the UK’s long-term 2.5 per cent average. The International Monetary Fund praises the economy’s “remarkable” stability. After falling steadily, unemployment has stabilised at close to 5 per cent.
But dig a little deeper and the picture is not so rosy. Often-cited weaknesses include a failure to improve productivity growth, described by the Organisation for Economic Co-operation and Development last year as “mediocre”; a reliance on a surge in public expenditure since 2000 to sustain growth; and a miserable transport infrastructure.
So the last five years of high growth in the UK are, as Jérôme has pointed out before, due in large part to public spending not wonderful labour flexibility or the free-market magic applied to the economy. This is in the Analysis section of the paper, not the Comment section. Even worse? It's not working - the poorer regions are hugely reliant on public spending and are still falling behind the richer south where the business and financial services industry - where "Britain's comparative advantage" lies - is mostly based.
Mr Brown has long trumpeted closing the regional gap as a key goal of public policy. In 2003 he wrote: “Improving the prosperity of all our communities is the government’s main priority.” Yet Mr Brown rarely lists statistics showing how Labour has created dynamic economies in parts far from London. The reason is that the evidence points in the other direction.
...
Mr Brown started his term in 1997 determined to end a previous boom-and-bust pattern in the economy. The government also wanted to spread economic opportunities away from London and the South-East of England to Scotland, Wales and northern England, the regions dominated by Labour voters. After an initial two years of austerity, the public expenditure taps were turned on full. The effect was to boost poorer areas, which depend on the public sector more for economic activity.
Public-sector workers comprised one in five employees across the UK in the year to last June but in poorer regions that proportion is much higher. Some 30 per cent of employees in Northern Ireland work for the government and the proportions are also high in Scotland, Wales and the North- East of England. In contrast, only 18 per cent worked for the public sector in the prosperous South-East of England.
Reasons Ireland doesn't want the North: we can't afford it. 30% employed by government? Welcome to the Anglo-Saxon economy. This is part of a long-standing policy to bribe the North into peace.
What the surge in public expenditure masked, however, is that the private-sector economies of poorer regions were performing particularly poorly under Labour. The average annual private-sector growth of the North-East of England, a Labour stronghold including the parliamentary constituencies of Tony Blair, prime minister, and many of his cabinet, was only 1.3 per cent between 1997 and 2003.
The problem is that the dispersion in private-sector performance has been so great that even the splurge of public expenditure since 1999 has not stopped the regions and local areas diverging.
London, the richest region of the UK, enjoyed more than 50 per cent faster growth in economic activity than the poorest regions between 1997 and 2004, the most recent data show. And prosperous areas close to London – the South-East of England and East Anglia – also enjoyed faster than average overall growth rates. Growth in the poorer regions – the North-East of England, the North-West, Scotland and Wales – fell below the national line.
Most of the gap arose in the first term of the Labour government, between 1997 and 2001, but there has been no narrowing since. Troubles in the London financial services industry in 2001-04 merely prevented a further widening of the gap for a few years.
[...]
Prof Andrew Henley of Swansea University studied the figures up to 2001 in great detail. He found that the economy under Mr Blair and Mr Brown was diverging faster even than it had under the then Mrs Thatcher in the 1980s. “It’s shocking, really,” he says. “Despite EU structural funds [for poor areas], we had more dispersion between 1995 and 2001 than between 1977 and 1995.”
What? The UK gets money from Europe? That can't be right.
The existence of boom and bust within a nation is rare, according to the OECD. Between 1996 and 2001, only Turkey of the 30 OECD countries had a wider spread of growth rates between its strongest and its weakest regions.
It is difficult to escape the conclusion that regional and local UK economies under Mr Blair’s government have become more divergent more quickly than under Lady Thatcher, in spite of the massive equalising force of surging public expenditure.
With public expenditure growth set to slow sharply in coming years, the disparities are likely to become more visible again, according to Prof Henley. Developments since 1997 are “pointing to a world of extremely productive breakaway regions including London, the South-East and a few cities elsewhere, a few intermediate areas and a big rump of poor performance”.
Not looking good for Gordon at the next election, is it?
