So Who Do You Want To Carry?

I ♥ NY. Not.

Back in the 70s the Big Apple nearly went bust. After years of gross fiscal incontinence under Mayors of both parties, the City of New York was on the skids.

Naturally, they turned for help to their fellow Americans - the folk with whom they had been bonded for two whole centuries, one nation under God.

And you know what their fellow Americans said?

Drop Dead. That's what they said. You got yourselves into this mess, so you can get yourselves out of it. Besides which, we never liked you anyway.

Four decades on, and five little PIIGieS find themselves facing a very similar predicament. Because although the Greeks and the Irish have so far been bailed-out by Northern European taxpayers (including us), nobody seriously believes that's the end of the matter. The fiscal deficits and banking debts of the PIIGS are way beyond their own ability to fund, and way beyond the total European bail-out fund already established.

But will Northern Europe's taxpayers be prepared to shell out even more to rescue the PIIGS? Will they want to carry that weight for a bunch of spendthrift Latinos who spend half the day dossing around in the shade, and with whom historic relations are perhaps best described as troubled?

This morning Boris highlights the issue. Just like he and we Eurosceptics have always said, it turns out Northern Europe's taxpayers really don't want to pay for the profligacy of others. Your average German does not recognise a duty to support the Spaniard.

Quite rightly, Boris demands an apology from all those arrogant half-baked Europhiles who denied there was a problem and wanted us to join the Euro - the ones who wrote us all off as "xenophobic, garlic-hating defenders of the pint and the yard and the good old bread-filled British banger".

Ah yes, how right he is.

Yet there's one bit of Boris's argument that sent the Tyler eyebows twitching skywards. Contrasting the disparate tribes of Europe with the cohesive whole that is Albion, he says:

"London contributes massively in net tax revenues to the rest of the UK, and by and large Londoners accept that this is part of belonging to a single political entity."

By and large, hmmm? A nice phrase, and a nice way of reminding the rest of Britain that they'd better keep the Golden Goose of Londinium sweet. Because to our certain knowledge, there are increasing numbers of London taxpayers who most definitely do not accept that their taxes should be carted off to fund the Picts and the Celts.

We've blogged the regional unfairness of Britain's fiscal arrangements many times (eg here). But just as a reminder, here's the latest analysis from Oxford Economics. It shows that Londoners are made to contribute a net £2 grand pa per head. That is, the average Londoner pays £2 grand pa more in tax than he gets back in terms of public spending:

As we can see, the only regions that actually make a net contribution are London, the South East, and the Eastern region - together comprising the Greater South East. Every single other region takes more than they pay (and in Scotland's case, Oxford Economics have allocated to them all North Sea taxes).

It's been like this for as long as anyone can remember, and the obvious question is why do those living in the Greater South East put up with it? Without the fiscal drain to subsidise the other regions, the average family in the Greater South East would be getting on for £5000 pa better off.  That's serious money, and you'd think most families would notice.

Which brings us to today's Localism Bill.

As regular readers will know, we're great fans of localism (eg see here). We absolutely believe that local councils should have greater authority over the services they provide, so they can respond both to local priorities, and to local cost conditions. So to that extent we welcome the Bill.

Unfortunately, as far as we can see, the Bill does not address the single most important requirement for localism to work - sorting out the money. What would really concentrate minds in local councils, and would make local electors really focus on the issue, would be if councils had to raise much more of their own money for themselves (aka fiscal decentralisation).

As things stand, they get the vast bulk of their cash from Whitehall, and they get it whether or not they satisfy local electors. Indeed, we have just about the most centralised system of local council finance anywhere in the developed world (eg see this blog).

It is a recipe for continued inefficiency at the local level, and a recipe for continued fiscal transfers from the productive to the less productive.

One day in the tough years to come, the Greater South East is going to wake up. One day, its families are going to look at that £5 grand pa being carted off elsewhere and ask why? One day, its taxpayers are going to tell the rest of the country to drop dead.

PS This morning's R4 Today gave us yet another example of BBC statism. According to them, the main problem with Pickles' localism is that it might result in mad-cap councils doing mad-cap things, and surely government has a responsibility to stop that. Like Whitehall has got everything taped.

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www.gudanggrosiran.com Categories: localism, regions

How To Rebalance The Economy

Set my people free

Yesterday Cam gave his first major speech on the economy as PM. It contained much that was good: cut the deficit, cut red tape, stabilise the banking system, improve our schools, reform welfare to make work pay, fight protectionism.

Yes, a big tick for all of that.

But his speech included another bit. One that we're not nearly as comfortable about.

It starts off fine:

"Today our economy is heavily reliant on just a few industries and a few regions – particularly London and the South East. This really matters. An economy with such a narrow foundation for growth is fundamentally unstable and wasteful – because we are not making use of the talent out there in all parts of our United Kingdom.

We are determined that should change."

Yes, good - we all agree that must change. Our depressed regions have remained depressed for far too long, and we have always believed they have huge potential (eg see our posts on the city by the bay).

But it's Cam's next bit that makes us wince:

"That doesn’t mean picking winners but it does mean supporting growing industries – aerospace, pharmaceuticals, high-value manufacturing, hi-tech engineering, low carbon technology. And all the knowledge-based businesses including the creative industries...

An early task will be to reform and refocus regional support and the RDAs. And Yorkshire is a priority...

Support from government, civic leadership, business investment and expertise – this is how we’ll help to rebalance our economy across the country. And there really shouldn’t be any limit to our ambitions.

Let’s make Humberside lead the world in carbon capture and storage. Let’s make Bristol a centre for marine energy parks. Let’s make the Mersey a global trading centre once again..."

Oh, Dave. You're sounding soooo horribly familiar.

It's H Wislon with his catastrophic Selective Employment Tax to boost manufacturing, Heath with his expensive lame ducks waddling themselves onto the public payroll in the name of industrial policy, Uncle Jim with his zillions poured into hi-tech industries of the future scrapheap (see this blog), and even St Maggs with all that cash poured down the gullet of BL. And as for Brown with his money burning Regional Development Agencies, R&D tax credits, etc etc, we don't even want to remember it (and er, Dave... weren't you going to axe the RDAs at one point???).

But look, Mrs T has given Tyler strict instructions not to carp until at least we've seen the budget. So we won't.

Instead, let us praise Cam's good intentions, and his sincere wish to help the regions. And simply make a helpful suggestion.

The best way to help our struggling old industrial cities would be to set them free. Slash taxes and regulation and watch private sector entrepreneurs do the rest. Instead of some hugely expensive and ultimately doomed attempt to force Hull into being the world leader in carbon capture and storage, set the city free. Give it charter status and watch it go. As we blogged in February:

"Given its prime location facing Europe, we've long believed Hull has huge potential, and yet it has failed dismally to exploit it. Suppose it became our own version of a Charter City - minimum wage and working hours regulations abolished, social benefits for working age citizens abolished (maybe a 5 year phased withdrawal), central government economic and planning and regulations abolished, no more central government development assistance but a 10% flat rate income tax, 10% Corporation Tax rate, and no capital gains tax.

Public spending as a percentage of GDP would obviously fall sharply, and those that depend on public spending would certainly feel the squeeze (although social welfare recipients could be given the option of staying on benefit if they relocated outside the City). But against that, Hull would attract entrepreneurs and private investment on an unprecedented scale - and with its easy European access, much of the inflow would come from overseas. There would soon be jobs for all.

Yes, yes, of course. We can't do it because of the 53rd EU Directive on not doing stuff. And there's also the question of human rights. And anyway, we might end up with all kinds of Coketown beastliness, and children being sent down the mines. And... well... anything might happen... it's impossible to predict.

Yes, yes, we know all that.

But have you ever been to Hull?

Do you honestly think faster trains and better broadband are the answer?"

Please Dave - think radically. The people trapped in all those bombed out places far from Notting Hill deserve it.

PS As for Laws, just how depressing is that? Here's a guy who seemed a perfect example of cometh the hour cometh the man. We've been hugely impressed. And now we find he's just like all the rest. I'm frankly amazed he says his cover-ups and lies were because he didn't want the world to know he's gay. I thought the world already knew - we certainly all did. And nobody cares about it one way or the other. But what we do care about is him wangling his expenses. Depressing.

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www.gudanggrosiran.com Categories: lame ducks, regions

Charter Cities

It will be even worse now

Ever since Tyler can remember, Britain's old industrial heartlands have been a disaster area. Once they'd lost their traditional industries like steel and shipbuilding, something very bad happened to them - they seemed to lose the will to live.

And as we've blogged many times (eg here), despite decades of political promises and billions of tax-funded support, they have never managed to leave the high dependency unit. For example, when last sighted - in 2007-08 at the height of the biggest economic boom the world has ever seen - around 55% of the North East's GDP comprised government spending. It will be even higher post-Crash (see chart above).

Now George has joined the long succession of politicos who want to do something. Among other things he wants to connect up our failing cities to a high speed rail network and superfast broadband.

Sounds kind of sensible - if effin' expensive - but given the record, why should we believe that will be any more succesful than the motorways (and that famous White Elephant across the Humber) were back in the 60s and 70s? 

No, after more than half a century of failure, it's time we started thinking much more radically.

One possiblity would be to close the North. This was pretty well what think-tank Policy Exchange suggested back in 2008 (see this blog). They advised we recognise reality, pull down the shutters on basket cases like Liverpool, Hull, and Tyneside, and ship their populations down to the prosperous (pre-Crash) South. Needless to say, they were immediately condemned for urbanocide by all and sundry, including Mr Cam. The Major wasn't too pleased either on account of needing to build 30,000 workers flats at the bottom of his garden outside Guildford.

Fortunately there is another more attractive option - one whose time has surely come.

Last week Tyler attended an interesting talk at... well, bless my soul, Policy Exchange, by the American economist Paul Romer:

"Paul spoke about his pioneering idea that city-sized areas can be created in developing countries so that their citizens can experiment with better rules. An example would be the experience of Hong King in China. He stated that by setting examples in these areas, better rules and new ideas can spread more quickly. Paul argued that large-scale migration is no longer possible. Hundreds of millions of people cannot move to places with better rules and laws. Instead they can move to Charter Cities."

Romer's proposal focuses on helping the populations of developing countries through the establishment of brand new self-governing mega-cities located on the coast for easy access to the outside world and a ready supply of water. Like old-time Hong Kong and Singapore, these Charter Cities would be dedicated to hard work and enterprise; tax and economic regulation would be minimal, with for example, no minimum wage and no social benefits. But crucially, the rule of law - both criminal and civil - would be paramount, and guaranteed by some strong third party from the developed world outside (and if you're thinking that sounds awfully like the British Empire, so were we).

In truth, most of the audience seemed sceptical that this proposal could ever fly (like, what's in it for the guarantors?). But what if instead of establishing new Charter Cities on the coasts of developing countries, we simply reconstituted some of our own dying coastal cities? Liverpool, Hull, and Tyneside would be good places to start.

Take Hull. Given its prime location facing Europe, we've long believed it has huge potential, and yet it has failed dismally to exploit it. Suppose it became our own version of a Charter City - minimum wage and working hours regulations abolished, social benefits for working age citizens abolished (maybe a 5 year phased withdrawal), central government economic and planning and regulations abolished, no more central government development assistance but a 10% flat rate income tax, 10% Corporation Tax rate, and no capital gains tax.

Public spending as a percentage of GDP would obviously fall sharply, and those that depend on public spending would certainly feel the squeeze (although social welfare recipients could be given the option of staying on benefit if they relocated outside the City). But against that, Hull would attract entrepreneurs and private investment on an unprecedented scale - and with its easy European access, much of the inflow would come from overseas. There would soon be jobs for all.

Yes, yes, of course. We can't do it because of the 53rd EU Directive on not doing stuff. And there's also the question of human rights. And anyway, we might end up with all kinds of Coketown beastliness, and children being sent down the mines. And... well... anything might happen... it's impossible to predict.

Yes, yes, we know all that.

But have you ever been to Hull?

Do you honestly think faster trains and better broadband are the answer?

PS If you want to know more about Romer's proposals, here's a vid he made earlier:



PPS Romer's real claim to fame is in developing his path-breaking endogenous growth model 20 years ago. Yes, that is the same endogenous growth that has guided the Great Helmsman so successfully.

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www.gudanggrosiran.com Categories: regions