Traders in the City of London were punching the air at Kwasi Kwarteng’s mini-budget last week. It was small wonder. He had granted some of them hundreds of thousands of pounds. By way of contrast, “red wall” Tory MPs’ hearts were sinking. Kwarteng’s new tax measures might have had one aim in view: to benefit London’s economy at the expense of the rest of the country. His former boss Boris Johnson’s one sensible policy ambition, to reduce the income gap between the capital and the north, lay in ruins. London was exulting.
The surge in bankers’ bonuses and the slashed rate for the richest 5% in the UK will go overwhelmingly to residents of the capital and its environs. The £45bn package is aimed at the wealthy, at corporate profits and at boosting the price of land and the private housing market. Of the 48 English enterprise zones to enjoy Treasury largesse, just 16 are in the north.
More serious is that if the cost of the tax cuts is not to be recouped merely by future tax rises, £35bn must be found in the next four years from public spending, according to the Resolution Foundation. With Scottish and Welsh budgets protected by the pro-union Barnett formula, the implication is a return to savage austerity in English regions heavily dependent on public funds.
Kwarteng and his boss, Liz Truss, clearly hold to the belief that Britain’s economic growth depends on London and its primary industry, finance. In the quarter century after the Big Bang of the 1980s this was largely true. London’s wealth surged to European preeminence and its taxes funded depressed northern provinces. From 2008 onwards that wealth stuttered. While south-east England remained among the richest regions in Europe, the gulf between it and other UK regions widened, making the country the most geographically unequal major economy in Europe. At least Johnson recognised this.
To suppose that tipping yet more money into London will reverse this divergence by “trickling down” is intellectually absurd. Yet Kwarteng’s budget is blatant. He wants to make London ever more attractive to rich newcomers. He wants to inflate its banks, overheat its house prices, build over its countryside and indulge developers (and party donors) who are turning London’s neighbourhoods into miniature Hong Kongs. He has yet to halt Heathrow’s toxic expansion or end the HS2 railway, now little more than a massively subsidised commuter line into London. Such extravagances are unthinkable in the north. When a British chancellor waves money in the air, it is instantly snatched by London.
The limping productivity of provincial Britain is the greatest structural weakness of the UK economy. The insurer Legal & General now estimates that cities such as Manchester, Newcastle and Sheffield contribute less per capita to their nation’s economy than do even cities in the former East Germany.
It is clear they must be helped to retain their talent and guard their quality of life. They need creative urban hubs rather than bleak enhanced investment zones. They must become attractive places in which to live and move about, not dreary places from which to flee. The capital is not the issue. The British economy needs the rest of the country in order to reverse decades of decline. For once, London must take a back seat.
Simon Jenkins is a Guardian columnist