London Is Like Another Country

All countries have their regional differences. States in the American Deep South are poorer than those in New England. In Germany, Bavaria is richer than Brandenburg. The struggling parts of Italy are south of Rome. But Britain is in a class of its own. The gap between the richest and poorest parts is wider than in any EU country. Incomes per head in inner London are five times as high as in the Welsh valleys or Cornwall. There are two sides to this story. One is the stupendous growth of London – a city that is now fit to bursting. The other is the sluggish performance of Britain’s older industrial towns – the bits of the country that were worst hit by de-industrialisation and have been slowest to recover from the recession of 2008-09.

A new paper from Christina Beatty and Steve Fothergill of Sheffield Hallam University illustrates what has been happening. Between 2010 (when the economy had just emerged from the recession) and 2016 (the latest year for which figures were available), the old industrial towns saw jobs growth of 2.1%, compared to 7% in the main regional cities and 14.5% in London. For every job created in the old mining districts of South Yorkshire, for example, seven were created in the capital. As Fothergill notes, it would be surprising had there been no employment growth at all during a period when the economy was expanding. “But with job growth so much slower than in the cities, and far slower than in London, the evidence is that the economy of Britain’s older industrial towns is essentially stagnant.” That’s because the old industrial towns, which have a combined population of 16 million, double that of London, have never really recovered from the pit and factory closures of the 1980s and 1990s. The share of white-collar jobs is far below the level in the cities, the proportion of the workforce educated to degree level is far lower, and average gross weekly pay was £408 in 2017, 91% of the UK average. In the main regional cities it was £446, and in London, it was £599.

Joblessness is well down on its peak, but there are large numbers of people on incapacity benefits so the real level of unemployment in older industrial towns, taken as a whole, is estimated to be 780,000, or 7.5% of the working age population. If, as widely expected, the Bank of England raises interest rates this week it will be because of fears that the economy is operating at full employment. That might be the case in London: it is certainly not the case in Hartlepool, Merthyr Tydfil or Burnley. Pay and conditions in older industrial towns are often poor: a direct consequence of the slack in the labour market since it allows employers to dominate when it comes to setting pay and conditions. Low pay means the Treasury has to foot a hefty bill for tax credits, which are running at £6bn a year in the older industrial towns. Increasingly, they are becoming dormitory towns for people who work elsewhere.

What the report clearly shows is that London has effectively become a separate country, with stronger job links to the international labour market than it has to the rest of the UK. There was an 800,000 increase in the number of London jobs between 2010 and 2016, accompanied by a 530,000 increase in economically active people from overseas of working age. In the past, the sort of employment growth seen in the capital between 2010 and 2016 would have sucked in workers from the regions, but during the post-recession period, the number of UK-born workers living in London dropped by 320,000. These people – driven out of the capital by over-crowding and rocketing property prices – moved to the home counties and commuted into London. International migration is a prominent feature of recent trends in the towns, although not nearly to the same extent has been seen in London. At an estimated 160,000, net international migration of economically active working-age adults was roughly three-quarters of the 220,000 job growth in older industrial towns between 2010 and 2016. As the report notes, without the net inflow of migrants from abroad the size of the workforce in the older industrial towns would have declined. The increase in the number of workers from overseas filled skills gaps and also probably allowed some firms to expand faster than otherwise would have been the case. “But in adding to labour supply, migrant workers may also have eased the pressure on employers to offer better pay and conditions,” it adds.

Some conclusions can be drawn from this report. The first is that urgent action needs to be taken to tackle London’s over-heating. Primarily, that involves building more homes, either in London itself or within easy commuting distance. The second is that there is a need to bring more well-paid jobs back to the towns that make up a quarter of the country’s population. That means the right mix of macroeconomic (competitive exchange rate), regional (active industrial strategy) and educational (focus on training and skills) policies. The third is that in the absence of serious action to tackle London’s capacity constraints and to revive the old industrial towns, there will be political pressure to curb immigration. As Beatty and Fothergill note, there is scant evidence, other than through the tax revenues generated by London that are recycled in public spending, that London’s spectacular employment growth since 2010 has had any positive benefit for Wales, Scotland and the north. The north-south divide is becoming more pronounced, with the old industrial towns feeling ignored, separate and un-listened to. Given the history of the past four decades, that’s not surprising.

Credit: Larry Elliot for The Guardian, 29 July 2018.