Can the UK go back to being the richest country in the world?
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“I think the UK can go back to being pretty much the richest country in the world per capita, at least as rich as the USA” said Matthew Clifford during a fascinating interview with 20VC which he shared a clip of on twitter.
I agree. I know that our country’s new Chancellor of the Exchequer agrees. And I hope that the people in Matt’s circles who he says are sceptical can be convinced.
The interview was in London, the central city of three English regions (London, South East, and East) that have a total population of 20 million people that together hold Europe’s most populous urban area. The economy of this “Greater South East” of England is already stronger than any sizeable country in the EU and nearly as strong as the USA.
So why doesn’t the Greater South East feel richer than the Netherlands, Denmark, or Austria? And why don’t the people Matt speaks to there feel that they’re already living in a place as economically successful as the USA?
A big reason is that the rest of the UK’s economy is not much like the Greater South East’s, and much more of us live here.
Bradford, the richest city in England.
Later in the interview we learn that Matt grew up in Bradford. In 1920, the city was widely known internationally as The Richest City in England and while that was probably an exaggeration, it won’t have been far off.
In 1920, North England’s economy as a whole was among the strongest in Europe and thus the world. Britain had been the world’s strongest major economy for over a century since Napoleon crippled the Dutch economy and Britain invented modern industry. The USA was on track to overtake us but we were still on level terms. And at this time Bradford, as one of the leading Northern cities and at the centre of the country’s industrial gravity, must have been close to the richest place on Earth.
Today Bradford is not a rich place or a strong economy. Along with its neighbour Leeds and a few other towns and cities it is part of the West Yorkshire urban area of 2.2 million people that is among Europe’s poorest cities. Bradford on its own, which it largely is due to poor transport links, would be even nearer the bottom.
The cost of failure
Why Bradford, Leeds, Birmingham, Manchester, and the rest of the North and the Midlands are so poor is contested.
My view is that it’s not much to do with skills (we have as many graduates as the much richer Netherlands and more than much richer Germany). I also don’t think it’s to do with city size or density (more people live at all distances from Bradford city centre than they do from San Francisco, and together the Northern Powerhouse is the third largest urban area in Europe). I think the problem is poor infrastructure and other symptoms of an extremely centralised government with a preference well beyond the real advantages of that city for investing in London. But I know many disagree.
What is not contested is how expensive this failure is.
The UK economy flying on a single engine combines with centralised government and a welfare state to mean that huge amounts of money are sent from the Greater South East to the rest of the country every year to fund basic public services. And unlike in Germany where these transfers have been shrinking for decades as the East of the country grows its economy, in Britain we become ever more reliant on the Greater South East and London in particular every year.
In 2022/23 the Greater South East sent £57bn to the rest of the UK. That’s over £1bn every week.
When it comes to funding the UK’s return to being the richest country in the world this presents us with a big problem. Unless the Greater South East declares independence and adapts to being a small rich country like the Netherlands, Denmark, Switzerland, or Singapore it will never get rid of its fiscal transfers to the rest of the UK. No-one sensible in the corner of our country holding the capital city wants independence. But it is completely believable that London and its surroundings could halve what they send to the rest of the country.
If the Greater South East’s transfers to the rest of the UK were halved, the money retained there could fund,
- A new research funding organisation like ARIA (£800m) in eleven days.
- Fully automating the tube (£7bn) in three months.
- Doubling of the public research funding to every institute and university (£9bn) in four months.
- Crossrail 2 (£31bn) in a year.
- Building over 70,000 homes worth £500k each every year.
- Giving £15,000 per year in cash to the 2 million households living there in poverty.
- Cutting taxes by a lot.
Or more realistically some blend of each thing.
Each investment would grow the economy enormously, providing even more resources in future years to invest in what missed out in the years before. Whoever you ask to calculate the potential tax cuts I've listed above should be able to give you an estimate of that — ask them about elasticities.
What would it take to half the transfers? The good news is that we know. Germany has just about halved its fiscal transfers by growing the economy of its East. Today East Germany has a much stronger economy than North England and the Midlands. And the USA transfers money out of its big successful cities like New York, Boston, Philadelphia, Chicago, Houston, Denver, Seattle, San Diego, Los Angeles, Atlanta, Miami, and San Francisco at a much lower rate than in the UK. That’s not because US transfers are less generous (Mississippi and Alabama are nearly as dependent on transfers as England’s poorest regions) but because the USA, like Germany, has dozens of big cities with strong economies, not just one.
Optimism and realism.
I think the optimism and actions of people like Matt are really important. It’s great that Rachel Reeves and the Labour Party are already doing the top thing he asked for by forcing through permission to build more data centres near London. It makes it less likely that similar investments that Leeds would have given permission to without intervention will go ahead, but I will lose no sleep over that; competition is a good thing overall even if you lose some battles.
I think that ARIA is a good new institution and I’m glad it exists. I feel similarly about the AISI, GDS, Tech City, NHSx, the Alan Turing Institute, the ODI, the British Library, Nesta, the Crick Institute, the Diamond Light Source, the Elizabeth Line, London Overground, Thameslink, HS1, and HS2, and so much more. These are, or were, or will be, overwhelmingly good things that have and are using government money and power to make the Greater South East of England one of the best places in the world to build a successful business and a great career.
The investment is paying off, as it has done for decades. If the Greater South East were a country it would be among the most successful economies in the world. If it could keep even half of the £1bn a week it currently sends to the rest of the UK to fund our public services it would almost certainly top the rankings.
And that’s why I share Matt’s optimism, though probably with quite different ideas about how we should go about making Britain the richest country in the world again.
I think that with just a fraction of the same support from the UK government as the Greater South East enjoys we could achieve much more than we do now. There is no good reason that North England could not have an economy as strong as the Netherlands for example.
If Northern Powerhouse Rail hadn’t been cancelled and a train from Leeds to Manchester took 30 minutes instead of the 90 minutes it took me on Saturday, we’d be doing better. If two new platforms at Manchester Piccadilly had been built and that train via Bradford continued to Manchester Airport, we’d be doing better. If Leeds stopped being the largest city in Europe without a tram, Manchester the largest city in Europe without a metro, and Sheffield the largest city in Europe outside of Albania without a single electric train, we’d be doing better. If Tech North in Manchester and other similar organisations across North England hadn’t been snuffed out by the UK government when they started to succeed and threaten London’s dominance, we’d be doing better. If the Diamond Light Source had stayed in Daresbury, if the Crick Institute hadn’t been one of the final straws in tempting AstraZeneca away from Cheshire, if HS2 wasn’t going to stop before it provided significant benefit to anywhere except London, if the British Library had built the base in Leeds it has long promised to instead of focusing almost all its attention in one place, if the UK government and its laws hadn’t blocked us from expanding our airport and building on our greenbelt as we voted to in Leeds, if Nesta had invested its endowment in anything in the North of England rather than buying a big building in the capital from which to tell us that junk food is bad, we’d be doing better.
I could go on and on and I know that everyone’s already sick of it. To the astonishment of many, I don’t actually love moaning. And I do get on with building what I say I want to see in Leeds.
I co-founded and help run the second fastest growing AI company in North England. I helped establish one of the UK’s leading and longest-lived Open Data and Innovation institutions, right here in Leeds. I pay more and more people better and better wages to do world-leading work in Leeds and across North England and around the world. I will continue to do so.
I believe that Britain can be the richest country in the world again. When we were the richest country in the world, cities like Bradford, as part of global cities like Manchester and Leeds, were among the richest in the world too. I know that we can return to that. But we will need to be helped by the UK government like the Greater South East is, not constrained as we are today. And the constant, large, and growing government incentives, subsidies, and support that tempts our best people and our best companies to London, Oxford, and Cambridge will have to reduce. If things stay as they are we’ll keep underachieving and keep dragging the Greater South East down with us as we demand more and more of the money that could be invested in growth and better lives there to pay bills we can no longer afford. I hope we change course.