PARTS of the UK are as dependent on the state as some Soviet bloc countries were at the time communism collapsed, a new analysis based on official figures shows.
It paints a picture of large areas of the country whose prosperity in recent years owes everything to Gordon Brown’s largesse with taxpayers money, and which will struggle when spending slows down to more normal levels.
The analysis, carried out by the Centre for Economics and Business Research (CEBR), is based on detailed statistics on public spending released by the Treasury earlier this month.
It shows that in the northeast of England, Wales, Scotland and Northern Ireland, government spending exceeds 50% of their gross domestic product (GDP). In the northeast and Wales it accounts for almost 60% of the economy. In Northern Ireland it accounts for more than two-thirds of its GDP at 67%. In London and the southeast, in contrast, government spending accounts for just one-third of the economy.
Some of these places are very heavily dependent, said Professor Doug McWilliams, chief executive of the CEBR. Its like a drug once you’re on it, it is very hard to get off.
The eastern European countries as they emerged from communism typically spent about 60%, for example Hungary in the early 1990s and the Slovak Republic in the mid-1990s, but they have cut back ferociously since. Today, only Sweden and Denmark are anywhere near these numbers.
Much of the difference between the UK regions is accounted for by so-called social protection spending; mainly state pensions and welfare benefits.
These range from 9.6% of GDP in London to 20.3% in the northeast and 21.3% in Northern Ireland. This reflects not only a higher proportion of people who are unemployed or on incapacity benefit outside the south, but also much greater reliance on state pensions.
But the figures, from the Treasury’s Public Expenditure Statistical Analyses, also show that big increases in employment, education, health and other public services with job numbers up by about 750,000 since Labour came to power have had a huge impact.
Manufacturing job losses have impacted particularly severely on the Midlands and the north, said David Frost, director-general of the British Chambers of Commerce. Public-sector jobs have filled the gap, but that can’t carry on for ever.
The Treasury figures show that since 1998-9, when the current series of figures began, government spending has risen from 53.8% to 58.7% of the economy in the northeast and from 46% to 51.7% in Scotland. Nationally, it has increased from 38.3% to 41.3%.
Economists believe that the socialization of large parts of the UK’s economy will harm Britain’s ability to compete. Some areas will prove impossible to wean off the state, they warn.
It is a chicken and egg situation, said McWilliams. One of the reasons these places have a large public sector is because they don’t have enough private enterprise.
But one of the reasons they don’t have enough private enterprise is because it is squeezed by a large public sector.
This analysis shows how great the scale of divergence is between regions, not just in total quantity but also by function. It also indicates that public spending trends in the UK are different from most other countries worldwide, with it growing faster than GDP in the UK whereas it is falling as a share of GDP in the majority of other countries.
The states share of the economy in London and the southeast, widely regarded as the most dynamic region of the country, is similar to that of America, Ireland and Australia countries that have generally grown more quickly than Britain. By contrast, the states share in many other regions is higher than in slow-growing European Union economies.
Brown has been pursuing policies that will increase the state dependence of northern regions, Wales and Scotland. He has ordered at least 20,000 civil service jobs to be relocated out of London and the southeast.
According to a report in the International Herald Tribune yesterday, Britain is being Europeanised by higher levels of public spending. The low-tax, low-spending economy Labour inherited from the Tories in 1997 has been turned into something closer to that of France and Germany.
In some respects Britain’s economy is becoming more European and this is the wrong direction if this country is to continue to be an attractive place to do business and create jobs, said Derek Scott, Tony Blair’s former economics adviser.
The gap between the EU’s higher levels of tax and spending and those in Britain has narrowed sharply under Labour.