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This July I’m talking at a conference in Cambridge. The crowd is mostly conservative but with plenty of liberals, which I use in the English meaning of the word for the whole of this piece. I’ll be one of few Britons living and working outside South East England unless my invitation is a sign that the organisers worked hard to change that this year.
I’m talking about the state of Britain, particularly our regional divides, why we must reduce them, and how we might do that. That’s part of the broader conference on building a more united, secure, and prosperous Britain.
What I say will depend on what others say, what questions are asked, and what mood I’m in. It will be based on the thinking in this piece which I have written as I do before almost every talk I give to order my thoughts. I share it mostly because otherwise I wouldn’t force myself to work hard enough on it.
Economic growth and prosperity isn’t everything, but without it almost everything that matters becomes harder. And on economic prosperity, Britain is not doing well. There are many positives, but they are too few, too small, too poorly known, and too narrowly distributed. This risks our country’s survival, our future prosperity, and our global importance. We should care about this because on net, Britain’s legacy is positive and the world will be worse if we are weaker.
Britain’s economy is weaker than all of our North European neighbours. This is despite them all charging much higher tax and none except France having the economic advantage of containing a comparable world city to London.
Ireland, Norway, Denmark, Sweden, the Netherlands, Germany, and Belgium have significantly higher GDP per person than Britain. That’s true even after we adjust the Irish data to GNI* as we should. France is only slightly ahead.
Strong growth in the East of Europe since EU expansion combined with strong growth in Southern Europe since Covid leaves Britain with a weaker economy and higher youth unemployment than the European Union for the first time ever.
Northern Ireland, Scotland, and Wales are all led by parties that want to leave the United Kingdom. In Scotland, polls show that a strong majority of the working age population would vote for independence if offered the chance. In England, the three established parties of the centre are polling at their lowest combined share of the vote in over a century.
Every region of Britain is financially dependent on fiscal transfers from London and its surroundings. Outside of the Greater South East of England, the fiscal deficit is as large as the fiscal deficit of Greece at the worst of its financial crisis. In the West Midlands of England, once among the most prosperous parts of Britain, a long-standing fiscal surplus has declined to a deficit of 15% of GVA in just two decades. Unlike in Greece, there is no realistic prospect that these fiscal deficits will reduce, except in Scotland whose economy has overperformed England’s since devolution and in Northern Ireland whose economy has overperformed since Brexit.
London sends over 8% of its economic output to the rest of the country to fund public services, the highest rate ever. The higher taxes required to fund this, especially as they are unusually concentrated on the most productive businesses and people, constrain growth and entrepreneurialism in the Greater South East. That these places then block building or expansion of homes, offices, infrastructure, data centres, and laboratories is unsurprising given that the resulting growth will be taxed and largely sent elsewhere in the country. This constrains growth further.
Nowhere is the underperformance of the British economy more visible in the data than in its large cities. Every large British city except London — those with a population over one million, from Manchester and Birmingham to Sheffield and Liverpool — has an economy in the weakest third of similar size cities in Europe. If Edinburgh, Cambridge, and Oxford would grow to populations of well over a million this problem would be solved, but of the three only Edinburgh shows much interest in doing so and there is a long way to go.
In the birthplaces of the industrial revolution and the scientific flourishing that followed it there is little economic legacy of our past glories. We have dusty Nobel Prizes and repurposed Victorian mills, but Britain has no Milan, no Munich, no Toronto, no Chicago, no Lyon, no Rotterdam, and no Barcelona.
Intelligent and considered people will disagree strongly, but they deserve my blunt clarity so that they know what they disagree with. We must later find a nuanced compromise as part of fixing our country together but I urge those who disagree to avoid reaching for nuance too soon. Everything is “a little bit more complicated than that”. There is no insight in saying so too early.
Britain’s current problems mostly stem from changes Margaret Thatcher made to Britain which were continued under her successors. Thatcher started it, but Thatcherism endured. To understand the damage Thatcherism caused, we start in Scotland.
Support for independence in Scotland was 14% and falling when Thatcher came to power. It was 40% and rising by the time she left. New Labour and devolution — voted in by 74% to 26% of Scottish voters in the 1997 referendum — bought this down to 20%. A return to power by the Conservatives pushed support for independence back up to the near 50% level of today.
In Scotland, Thatcherism achieved a bigger swing away from the Union, among a more Unionist population, than multiple famines did in Ireland.
It did this by removing local government control and ownership and with it, over time, local collective responsibility and agency. In Scotland, right to buy was one of the deepest insults.
The idea behind right to buy existed before Thatcher became Prime Minister. In London and Birmingham, Conservative run local governments had won elections on the promise to sell council houses to existing tenants at small discounts. The transfer of assets from the local state to local citizens in accordance with the wishes of local democracy was a good policy. Its popularity would undoubtedly have seen it spread.
Rather than celebrate this success and encourage more places to copy it, Thatcher grabbed power and removed local agency. Local governments were forced by the central government to sell their assets, this time at punitively large discounts. The central government then took a large chunk of the proceeds and banned the investment of any money that remained into new housing. In Scotland, the share of council housing was unusually high and the population had not voted for Thatcher. But they would have right to buy forced on them anyway by the weight of South English votes.
This asset seizure, a phrase whose denial by the right is a serious delusion, is completely legal within the British constitution and continues in England to this day. But it broke the spirit of that constitution, especially of Scotland’s place within our Union. Scots thought that if Scottish local government assets were to be sold at a forced discount, it should be Scots that decided.
Right to buy was one of the causes for devolution and curtailing it was one of the first acts of the new Scottish Parliament. It has since been abolished there completely.
Thatcher’s removal of agency and responsibility from communities wasn’t limited to Scotland or to housing.
For centuries, English and then British governments had refused English cities the right to build universities in case they competed with the English duopoly of Oxford and Cambridge. Technical colleges and polytechnics were created by local governments to train their populations to meet the needs of local industry instead. Under Thatcher these local institutions were nationalised and removed from local control. In decades since almost all education in England has been removed from local control.
State research funding had long been a national competence and it was thus easy to shift South. Thatcher’s work continued a centuries old pattern where Britain’s innovation and thus its economic future was deliberately concentrated in London, Oxford, and Cambridge by the central government and Britain’s nominally “national” institutions in the capital.
The industrial research associations retained a Northern presence for R&D and so they were privatised. Industrial R&D fell away in the absence of state support. Foreign assistance, protection and subsidies seem to have proved a better long term strategy for industry than Thatcher’s approach.
Local governments, except for London, were forced to privatise bus operations and stop regulating bus services of any form.
Metropolitan government was abolished and local government freedom was nearly completely removed by rate caps, nationalisation of business rates, and forced privatisations of municipal assets and competences.
The municipal corporations that were built in Britain as its industrial revolution cities grew are now shadows of what they were when Britain led the world. The legacies of great Liberals — Richard Cobden was a founding Alderman of Manchester Corporation and Joseph Chamberlain a great leader of Birmingham Corporation — live on now almost exclusively in stone and brick not living institutions. British cities and towns are covered with beautiful buildings that once housed tramway departments, statues outside gasworks and power stations, and plaques on the dams of reservoirs that Britain never remembered how to build again following the privatisation that finally completely ended their municipal link.
To return to prosperity, Britain must undo many of the excesses of Thatcher, while keeping her improvements. I do not argue, for example, for a return to the union power and huge industrial subsidies before Thatcher.
To my surprise, and to the embarrassment of the Labour Party who argue the case against Thatcher most strongly, it is the Conservative Party that has made most progress on this.
Michael Heseltine describes his destruction of the metropolitan councils as his worst mistake in office. They are now largely restored by Osborne and Cameron’s combined authorities and metropolitan mayors.
Bus deregulation was a disaster. Bus use in major British cities fell by half while doubling in London and Dublin which were spared deregulation by being the privileged capital and outside of the UK respectively. Huge agglomeration benefits were sacrificed. The power to regulate buses was returned to the new Mayors under Theresa May. Andy Burnham in Greater Manchester has achieved great popularity and good success by using these powers to bring the buses back under public control.
The Labour Party, finally, is catching up. It is currently returning some tax raising powers to local governments. A visitor’s levy of the kind common in North America and Europe may be allowed soon, though the same excruciating UK government process that often thwarts such ambitions and conveniently retains power centrally will take time to complete. There are plans to formulate a system whereby cities could retain some mixed portion of income tax or business rates, though the central promise that this will be revenue neutral means it won’t give cities back the freedom they lost under and before Thatcher.
My proposals to fix Britain are shamelessly pro-market and close to classically liberal. They aim to make British cities much more like their much richer US and North European equivalents and like they themselves were in the late 1800s when they led the world.
The asks, such as the right to set business rates or property taxes locally, to decide how often bins are collected, to set a bus fare system, to give permission for an airport to expand or for new homes to be built, or to charge a small local income tax, or a sales tax, or collect a small variable supplement on national insurance, are so trivial that people in other developed countries barely believe that these powers could ever not exist for a city. But in England’s big cites, they don’t.
I want to shrink the central state by returning power to more local states and in doing so reduce the preference of that central state for London and its surroundings. Instead of forcing Cambridge to expand via a development corporation we should reduce central funding for scientific research and infrastructure in Cambridge, Oxford, and London until they have doubled in size and expanded their airports. Incentives, not force. And if other big cities want to win, by cutting tax, or investing in better transport, or permitting more growth, they should be allowed to. Both public and private investment should flow to where it would generate the greatest return according to that desire to win.
In most countries, mine would be a firmly centre-right opinion. A smaller central government, greater local power and freedom to act, more competition between places on taxes, permissions, and capacity to enable growth. But in Britain it is not.
Thatcher’s legacy ensures that appeals for anything but the most powerlessly ultra-local power are rejected by conservatives. Devolution, the emergency constitutional settlement that Scotland demanded in the wake of its disempowerment, is still treated with great scepticism if not outright rejected, quietly, by most of the centre right.
Across the centre of politics the policy consensus to achieve British prosperity is the one that has failed for forty years and continues to fail. They wish to continue the Thatcherism that sacrificed the economy of the North for a brief period of catch up growth in the South.
This is an approach that the people of the South reject too. They oppose the expansion of Oxford, Cambridge, and Heathrow and effectively reject more homes in London through excessively high affordable housing demands. But this doesn’t matter to the centre and to the American thinkers who fly into London for a week to agree with them. British views are merely an inconvenience to be swept aside by making the central state even larger and more powerful.
Crushing those NIMBYs, rather than empowering their rivals, is the great central plan of almost everyone in London who thinks about British growth. That rival powers in Manchester, Birmingham, Leeds, and Newcastle might compete and win is almost uniformly rejected. These are places to be helped at best or abandoned at worst, but certainly not potential engines of growth and never competitors for the greater good within a system that believes that competition and markets are good.
The left’s ideas are little better. They want to raise taxes on high earners and the wealthy to fund welfare elsewhere, a recipe perfectly designed to make the country ever more dependent on London. It prefers to spend on welfare than invest in infrastructure and research to boost growth. It rations permission and it values equality over prosperity.
The centre’s great tweaks accidentally centralise the state and sacrifice the power of competition in the name of fairness and efficiency. Land Value Taxes replace council tax and accidentally remove the last link between local tax and local activity. Huge panels of experts, large national plans, and requirements for ever more detailed business cases, ever greater adoption of best practice, and ever more measurement and evaluation leave us unable to build anything, except from the centre and even then, barely at all. An obsession with rejoining the EU crowds out other actions which the British people have not rejected in referendums and in general elections which could generate far greater prosperity. Worst of all, a completely blinkered view of the country responds to Northern dissatisfaction by celebrating how great London, Oxford, and Cambridge are.
The right rejects devolution and competition within the country, often for fear of its own privilege being eroded, though it would never admit that. It has centralised the state more than anyone else and removed most local agency. It denies that industrial strategy gave the Greater South East its advantages while it continues to apply it there, and only there. It denies the economic impact of Brexit, opening the door to separatists to deny the economic impact of their own ambitions. It denies the success of our higher tax neighbours by pointing to countries like the USA and Switzerland whose decentralised power and freedoms it would never entertain.
We are in a mess. Our current thinking on how to escape it is poor. We can do better, and Manchester would be a much better place than Cambridge to think about how.