Wealth Disparity – Is London leaving the rest of the country behind?
The distribution of wealth is becoming an increasingly hot topic in global politics. The growing disparity between the rich and the poor is clearly apparent around the world, and the UK is no exception. According to data compiled by Eurostat, the data agency of the European Union, the gap between the richest and poorest of the UK is wider than in any other EU country. Incomes per head in inner London are five times as high as the Welsh valleys or Cornwall.
Economists cite that the significant growth of London paired with the relatively lethargic performance of Britain’s older industrial towns is one of the key contributing factors to this current state of economic disparity within the UK. Across London and the South East, more than 20% of household have a wealth of more than £1m – a much higher proportion than anywhere else in the country.
Variations in employment growth across regions has also had an impact. New research from Sheffield Hallam University showed that between 2010 and 2016, old industrial towns saw jobs growth of just 2.1%, compared to 7% in main regional cities and 14.5% in London. With job growth significantly slower than in London, the evidence suggests that the economy in the UK’s older industrial towns is essentially stagnant.
Pay and conditions in older industrial towns are often poor: a direct consequence of the slack in the labour market since it allows employers to dominate when it comes to setting pay and conditions. Low pay means the Treasury has to foot a hefty bill for tax credits, which are running at £6bn a year in the older industrial towns. Increasingly, they are becoming dormitory towns for people who work elsewhere.
In the past, the sort of employment growth seen in the capital between 2010 and 2016 would have sucked in workers from the regions but during the post-recession period the number of UK-born workers living in London dropped by 320,000. These people – driven out of the capital by over-crowding and rocketing property prices – moved to the home counties and commuted into London.
A number of conclusions can be drawn from this information. The first is that urgent action needs to be taken to tackle London’s over-heating. Primarily, that involves building more homes, either in London itself or within easy commuting distance. The second is that there is a need to bring more well-paid jobs back to the towns that make up a quarter of the country’s population. That means the right mix of macroeconomic (competitive exchange rate), regional (active industrial strategy) and educational (focus on training and skills) policies.