Monday, May 21, 2007

Buying Votes... With Our Money

What have I been telling you!!

The Major is forever telling me that Labour governments always rob the South to pay for the North, because y'see, that's where most of their supporters live. He reckons it's a well-known fact, and Westminster politicos only don't talk about it because they know if it got out, the South East would secede within the week.

The last time I looked at this, I reckoned the Greater South East (the GSE- the London, South East, and East official regions, roughly bounded by an arc from the Wash to the Solent) was losing nearly 10% of its income through fiscal transfers up north. But that was several years ago during the City bonus boosting dotcom bubble, and I've been meaning to update the calcs.

A new piece by David B Smith for the Economic Research Council (sadly not online) makes it a whole lot easier, because he's already crunched most of the numbers for us.

What we need to establish is how much each region pays in tax, against how much it gets back in terms of public spending. The difference represents the fiscal transfer it is either making to, or receiving from, the rest of the country.

Now, it must be admitted, we don't have the data to do this precisely, because for some unfathomable reason the government doesn't publish it. Most of public expenditure is now available on a regional basis, but the only readily accessible regional tax data is for income tax (about 30% of total tax). For the remaining elements of both tax and spend, we must allocate pro rata to regional GDP (which almost certainly understates the contribution of the Greater South East, and overstates the contibutions from elsewhere).

On the expenditure side, Smith's calculations suggest that the GSE is getting about one-third of total public spending (33.7% in 2004-05). But on the tax side, the GSE is paying virtually half of all income tax (47.8% in 2004-05: see here). If we assume it's paying its GDP share (42.1%) of other taxes then its overall tax share comes out at 43.8%.

Applying those percentages to the government's projected tax and spend totals for this year (here) tells us that the GSE will pay over £240bn in tax and other public sector charges, but get back under £200bn in public expenditure. That £44bn shortfall is the fiscal transfer.

Now, the Greater South East's GDP this year is projected to be about £550bn (42.1% of the UK total). So we conclude that the region is still losing an extraordinary 8% of its income to subsidise the rest of the country. Which as we've pointed out before, is much higher than those controversial EU budgetary transfers, and higher even than the reparations the Germans were told to pay at the end of WW1.

As always, the major beneficiary regions include Northern Ireland- where the £6bn pa transfer represents a staggering 25% of GDP (see this blog)- and Scotland, on 15%. In fairness, both those regions might enter special pleas: NI because of its recent political history, and Scotland because our estimate doesn't attribute to them the above average share of oil revenues they claim.

Which means the real shocker is the North East, where no such special pleas apply. It currently pays about £18bn pa in tax, but gets back no less than £28bn pa in public spending. As a percentage of their GDP, that £10bn gap is a whopping 21% subsidy from the rest of us.

David Smith argues that with around 60% of its economy comprising public expenditure, the North East (and Wales) almost qualifies as a communist economy. Which is fine- as long as they pay for it themselves. The trouble is, they're not. Me and the Major are.

Which brings us back to buying votes. Because out of the 30 parliamentary constituencies in the North East, no fewer than 28 returned Labour MPs (including of course, the Dear Leader himself, and Mr Millipede). In Scotland the picture's not so very different, with 40 Westminster Labour MPs out of 59. (see here).

In sharp contrast, the GSE returned only 76 Labour MPs out of 207.

You know, I'm beginning to think the Major's right. The regional votes that keep NuLabour in power are bought and paid for by we poor schmucks in the Greater South East.

But hang on... if that's the case... then shurrely... we can't want that... I mean, wouldn't we all be much better off if we just said so long? Why do we need these regions anyway? What do we get out of the deal?

Uh-uh. We'd better stop there. Major Frobisher's starting to froth again.

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