New EU figures expose the staggering gap between the capital and the poorest areas of Britain. We must revitalise the regions if we want to secure economic recovery
Britain is a structurally unbalanced economy. The City is too big. The productive base is too small. The International Monetary Fund says so. The Bank of England says so. The government says so.
Less remarked upon is the UK's geographical economic imbalance. This is even more pronounced than the imbalance between a dominant financial sector and a struggling manufacturing sector, as shown by recent figures for 2010 from Eurostat, the European commission's statistics agency.
Measured by per capita incomes, the gap between the best-performing and the worst-performing regions of the UK is the widest of any of the European Union's 27 member states. Eurostat broke Britain down into 37 sub-regions and found that in inner London GDP per head was 328% of the EU average, while in west Wales it was 70% of the average. No other country came close to the gap of 258 percentage points between extremes that exists in the UK.
As Andrew Evans of Capital Economics has pointed out, however, the regional disparities in the UK are still enormous even when the plutocrats of Belgravia and Mayfair are removed from the equation. The gap between the second-best-performing sub-region of Britain (the oil-and-gas-rich north-east of Scotland) and west Wales was 92 percentage points – again the biggest in the EU.
Britain, in other words, has islands of prosperity in a sea of relative poverty. Of the 37 regions studied by Eurostat, 27 have GDP per capita below the EU average. Only one region in the north of England had per-capita incomes above €24,500, the average for the EU as a whole; none did in the West Midlands, Northern Ireland or Wales.
Fixing a problem that has been getting steadily worse over many decades is not going to be easy. But here are five ideas for what could be done. Firstly, policymakers need to recognise explicitly that the rebalancing of the economy has a geographical dimension.
Secondly, they need to frame macroeconomic policy so as to create the right conditions for growth in the struggling regions. That means keeping the pound low in order to boost exports and easing up on public spending cuts, which disproportionately hurt the regions furthest from London.
Thirdly, Westminster should devolve greater powers to regions, giving them more control over their own finances. That would enable them to devise their own local economic strategies. Fourthly, there needs to be greater investment in education, using regional universities as enterprise hubs and improving skill levels.
Finally, the power of the state should be mobilised in two ways. The BBC's exodus to MediaCity in Manchester should be used as a template for government departments, and more should be spent on infrastructure projects of the local, rather than the grandiose high-speed railway, kind.
Is George out of time?
George Osborne appears to have set himself a deadline of between now and the middle of June – when he will be donning a bow tie for his annual Mansion House speech – to come up with a plan of action for the bailed-out banks Royal Bank of Scotland and Lloyds Banking Group.
The chancellor is said to feel that he has been egged on by Christine Lagarde and the International Monetary Fund, which last week called upon him for a "clear strategy" on what to do with the taxpayer's £65bn stakes in the two banks.
But is he really under any pressure at all? The Washington-based fund, in town for its annual health check of the economy, also provided Osborne with a number of caveats. First, if more taxpayer funds need to be poured into the banks to make them stronger, then so be it. Extra cash from the exchequer could prove beneficial in the long run, said the IMF.
Second, the two banks were not yet ready, the fund admitted – they face challenges in spinning off branches mandated by the EU. And third, the IMF said the sell-off strategy needed to "maximise" value to taxpayers.
Conveniently, the Prudential Regulation Authority has dealt with the first point for the chancellor by encouraging RBS and Lloyds to find the extra capital they need by selling off businesses and scaling back on risky activities. The sudden divestment of Lloyds's stake in wealth management firm St James's Place is evidence of this pressure from the regulators.
The second point will be dealt with by the EU, which will be leant upon to extend its end-of-2013 deadline for the branch selloffs.
It is the third issue that is hardest to tackle. No doubt the biggest brains in the Treasury – and those at the Policy Exchange thinktank currently drawing up a handful of ideas to be presented next month – are trying to address the tricky issue of what constitutes value for money. That is a far thornier problem.
Back for a second term at P&G
As José Mourinho brushes down his Armani overcoat in anticipation of a second spell at Chelsea, the US consumer goods giant Procter & Gamble has recalled its own special one for a second tour of duty.
Alan George Lafley – known as AG to his friends – has been hauled out of retirement after three years to succeed his successor.
Bob McDonald, 59, is regarded as having failed to deliver the sales and profits growth expected of the Pampers, Gillette and Fairy Liquid combine. It is therefore his turn to retire, and 65-year-old AG is making a comeback.
Now AG is being asked to perform an action replay of his decade in charge, when his mantra was "consumer is boss" and the shares more than doubled. On Friday his return was greeted with a 3% increase in the share price.
There are obvious disadvantages to bringing back the old boss as the new boss – lack of new ideas and new blood, for instance. But there are also advantages: knowledge, for one, and experience. Steve Jobs's return to Apple after years in the wilderness proved to be a triumph, as was Howard Schultz's reinstatement as chief executive at Starbucks.
AG, however, is not infallible. After retiring he carved out a new career as a management guru. His speciality was succession planning. Having groomed McDonald as his successor at P&G, it might be best left to someone else to find his next successor.