Sumday

[Originally published in Telegraph, 31 May 2017]

Almost a year after the EU Referendum, two sets of figures released by the Office for National Statistics seem to reinforce the idea of London as a place apart from the rest of the UK. Dig a little deeper, however, and it is convergence and mutual dependence that come to the fore.

The data on regional fiscal balances drew a sharp contrasts between London and the South East, and the rest of the UK, with the former paying nearly £250 billion on taxes, and receiving services costing almost £50 billion less in 2015/16, while the balance was reversed elsewhere.  This translates to a per capita ‘subsidy’ of £3,000 in the year from London to the rest of the UK.

This shouldn’t be too surprising. The capital’s economy and its population have been growing as fast as ever since the financial crisis, fuelled by cheap money, openness to talent and growing trade in services. This economic growth means that London accounts for disproportionate levels of corporation tax, higher wages are reflected in higher income tax and national insurance payments, and soaring property prices are reflected in stamp duty receipts – half of which are derived in London.

In terms of expenditure, London costs more per head in terms of economic development, transport and technology costs, but significantly less in terms of social protection (ie, benefits). The balance between welfare costs and economic infrastructure costs is interesting, though there’s a limit to what you can conclude from a one-year snapshot of figures.

But, however successful London looks in terms of tax revenues, for many Londoners, the city’s gravity-defying boom feels like something that is happening to someone else.  The second set of figures, on gross disposable household income, seems at first to confirm the sense of London excpetionalism.  The figures, for 2015, show the average gross income of Londoners to be more than £30,000, almost twice as much as in the North East.  Taxes and benefits bring the numbers closer together: the London average is £25,000 and the North East average is £16,000. 

The gap is still significant.  But, as any Londoner or tourist will tell you, it’s amazing how fast the money goes. Throw housing costs into the mix – neither mortgage capital repayments nor rent are included in the figures – and the gap closes further.  Deducting the average 2015 rent for a one-bed flat in each region, you are left with residual income of £12,000 in London, and £11,000 in the North East. And that £1,000 ‘London premium’ will quickly be eaten by the higher costs of transport, childcare and beer in the capital. 

Life is tough for many people in London – and it’s been getting tougher as income grew more slowly between 2014 and 2015 than in other regions, even before spiralling rental costs were taken into account. Also, of course, there is no such person as an average Londoner, and the differences within the city are as stark as those between London and other regions.  Income per head (after taxes and benefits but before housing costs) in Kensington and Chelsea has nearly £60,000 per head, while the average resident of Barking and Dagenham has £16,500.

So these figures don’t show that Londoners are a bunch of effete metropolitans rolling in lucre, or that other UK regions are free-riding on the capital’s coat tails. But they do show, in line with Centre for London reports, the leading role played by housing costs in the persistent poverty that many Londoners face, and the importance to the whole UK of sustaining the openness to talent and trade that supports London’s growth.