Leave vote may do more damage to the poorer regions

On the weekend after the EU referendum, the BBC asked a middle-aged Welsh voter whether he was worried about Wales losing its EU money. The man replied that it was “our money anyway”.  Presumably, by this, he meant that the UK contributes more to the EU than it gets back so the money could be said to have come from British taxpayers in the first place.

But will Wales get that money back after the UK leaves the EU? The Welsh government has said that “every penny” of the lost EU money must be replaced by the UK government. David Cameron’s response was not encouraging. Whoever succeeds him as prime minister, he said, would not be able to guarantee that funding.

It is now looking very likely, as the IFS warned before the referendum, that the economy, and therefore the tax take and the public finances, will be severely hit by the Brexit vote. As a result, there will be less money available anyway. Just as worrying for the regions outside London, though, is that the call for devolved powers for London are getting louder. Amidst the silly noise around the idea of London to become a city-state, there are serious proposals for the capital to have more control over its own finances and the newly elected mayor is putting his weight behind them. A majority of Londoners were in favour of more devolution before the referendum. The Brexit vote is likely to harden that opinion.

The trouble is, if London keeps more of its tax revenue, then the rest of the UK will get less. Given that the pot is likely to be depleted anyway, that could have a serious impact on other parts of Britain.

A report by Centre for Cities published today found that the UK is even more dependent on taxes from London than it was a decade ago. London now accounts for 30 percent of the country’s tax revenue. A report in 2014 by the Centre for Economics and Business Research found that, taking account of revenues and public spending across the UK, London and the South-East were subsidising the rest of the country.

Screen Shot 2016-07-07 at 09.26.06

Those in Scotland may argue that this does not take account of the oil revenue but that’s an argument for another day. For Wales and the English regions, though, London keeping more of its tax revenue would have severe consequences.

The regional household disposable income figures published by the ONS in May showed the proportion of income coming from social benefits in each region. This figure includes pensions so you would expect it to be higher in areas where people have retired but even so, the difference between London and elsewhere is marked. In London, 12.6 percent of income comes from social benefits. In the North East it is 23 percent, in Wales 24 percent.

Screen Shot 2016-07-07 at 09.42.00

The ONS definition includes charities and colleges (the NPISH sector) which most people would not consider to be households. The Family Resources Survey, albeit with a smaller sample size, concentrates on households only. It also breaks out state benefits and private and occupational pensions. The resulting picture looks even worse.

Bens & Pens

Source: Family Resources Survey, 2014/15 , published 28 June 2016

On top of the reliance on state benefits, around 10 percent of household income in some regions comes from occupational and private pensions. Much of this is the legacy of deindustrialisation. The factories, mines and steelworks may have gone but their ghosts are still there in the form of their pension schemes, still topping up the local economies of the areas where they used to employ people. In some local authorities, pensions account for a quarter of the area’s income. The jobs of people in the shops, pubs and cafes depend on pensioner spending. But many of those generous pension schemes are now being wound up. In an area where a high proportion of income is from state benefits, what happens when those occupational pensions have gone?

The bitter irony of all this is that, on the whole, the areas most dependent on social benefits are those that voted most strongly to leave the EU.

Leave & Social Benefits

Sources: ONS Regional gross disposable household income, May 2016 and Electoral Commission EU Referendum Results. England & Wales, NUTS3 regions.

This is not really surprising, given that older and poorer voters were most likely to vote Leave. It does mean, though, that those areas where the Leave vote was highest may be among the worst hit by the consequences of leaving, or even just preparing to leave, the EU.

The Guardian reported recently from Ebbw Vale, a town which voted overwhelmingly for Leave but which has few immigrants, high unemployment, severe economic problems and is heavily dependent on EU investment.

It’s a town with almost no immigrants that voted to get the immigrants out. A town that has been showered with EU cash that no longer wants to be part of the EU. A town that holds some of the clues, perhaps, in understanding quite how spectacularly the Remain message failed to land. There’s a sense of injustice that is far greater than the sum of the facts.

And a town which my well have just voted to trash its own economy.

With the local economies of many parts of the country dependent on what the ONS describes as non-productive sources, a worsening of the country’s fiscal position is likely to  hit them hard. If Londoners, a majority of whom voted Remain, decide they want to keep more of their money in London, that will only make things worse. When you start talking about ‘our money’ you raise the question, what do we mean by ‘we’, ‘us’ and ‘our’?

To answer the Welsh voter interviewed by the BBC, what used to happen was that the EU took a lot of money from rich Londoners and gave it to poorer parts of Wales. There is now no guarantee that those rich Londoners will keep on handing that money over. On top of the deep divisions brought out by the referendum, a recession might make us that bit more selfish about what we do with our taxes. Sadly, that means the poorer parts of the country are likely to suffer the most.

 

This entry was posted in Uncategorized. Bookmark the permalink.

22 Responses to Leave vote may do more damage to the poorer regions

  1. Patrick Chamberlain says:

    Well yes, that’s why I voted remain ..

  2. Dipper says:

    Another excellent post from one of the few places on the web that does proper thoughtful analysis.

    The reaction to this reports highlights a difference in outlook amongst voters. To characterise, Remainers are saying “This is how it is. You should have accepted the fact that your area is dependent on benefits, that there are structural inequalities. Your vote has made maintaining the political and economic status quo harder”. Leavers are saying “We reject a social structure that pays us to be at the bottom. We want more than this. The EU places centralised bureaucratic control over local initiative, so will never change our circumstances. Our best chance for a better life lies outside the EU.”

    • PC says:

      I suspect the problem is with the over centralised UK government rather than the EU. Time will tell.

      • Dipper says:

        I think there is broad acceptance in the UK that something needs to be done. The next PM will owe the Leavers for their job even if it is May.

        One aspect of the referendum result is that 52% of the electorate do not have a major political party that represented their view. Whichever party most successfully adopts these voters will most likely win the next election and be in prime position for years to come.

        • gunnerbear says:

          Totally agree…imagine if HMG said, “Yep….we’re going to do what Germany did to ‘help deal with environmental issues’….” and handed out a couple of hundred million to PT and S’thorpe…..which is in essence what Germany and Italy did to support their steelworks…..

          I think some UK politicians are s**tin’ bricks because they’ll now longer be able to say “Well…I’d love to ‘X’ but can’t because the EU won’t let us….” which I think was always the code for, “No way am I doing, that…not now…not ever…”

      • DragonMike says:

        yep, although I suspect time will show each new government promises regional/local devolution and doesn’t deliver once in office….

  3. The working class has been excluded from policy since Thatcher’s election in 1979. It feels, justifiably, that it has been abandoned. This, in my view, explains its voting to leave

  4. sdbast says:

    Reblogged this on sdbast.

  5. Person_XYZ says:

    You have hit the nail on the head. If London keeps more of the money it makes, poor parts of the country have most to lose. We can legitimately ask if these parts of the country should have had more money invested in them in the past, but that is ultimately moot if London keeps more cash for itself in the near future.

    In Scotland, one the main (and very prescient) arguments for being in the UK was that the oil market was fickle and Scotland benefits from the Barnett formula when oil revenues are low. When the UK voted to Leave a couple of weeks ago, a large benefit of being in the UK died. If the Barnett formula is less valuable as a result of London keeping more cash, there is even less for Scotland to lose if independent. The probability of Scotland becoming independent is raised higher still. We can also legitimately ask if London won’t become independent in a few decades. It may be ridiculous now, but I think there is now a outside possibility.

    My initial response after the Leave vote was that people in poor parts of the country had made a poor decision. My mood has hardened. These people were genuinely stupid. Worse, there is no elected representative to blame for incompetence who can be voted out. They did this themselves at the ballot box. They will need a scapegoat when poverty rises further, and it won’t be pretty.

    • Dipper says:

      well Person_XYZ, obviously, I don’t agree. London paying more tax is not the same as London making more money. Michael Gove highlighted the fact that the gap between bosses and workers has widened several times over, and many bosses live in London, so on that score the increased tax is a measure of London appropriating more wealth from the rest of the country. I’m sure many bosses think they are well worth their money, but Michael Gove doesn’t – he described them as more David Brent than Steve Jobs.

      Very few people are genuinely stupid. If you ever come across people behaving in what you consider a stupid way there will generally be a logic to what they do if you understand their position well enough.

      And why should anyone outside London vote to maintain this? https://www.theguardian.com/news/datablog/2014/aug/07/london-gets-24-times-as-much-infrastructure-north-east-england

    • gunnerbear says:

      How much of London’s ‘wealth’ is because major firms have their HOs based there and book transactions via London? Tell you what, when the City has paid back the vast sums of cash that the rUK paid to dig London and the SE out of the mire, then London can go ‘indie’.

      • DragonMike says:

        Good review, although I think you missed one or two documents from the early to mid 2000s from what was then the London Development Agency and their economics unit, unfortunately I cant find them anymore, they may not be on the internet anymore.
        https://www.london.gov.uk/what-we-do/research-and-analysis/gla-economics-publications.

        Regardless, internal migration and accumulations of wealth due to being a capital city are very hard to quantify so are generally ignored, so there is a lot missing in any calculation. In how many countries is the above NOT true anyway? There will always be an element of subsidy, this doesn’t in turn prove that a subsidised city should be a leaver or remainer.

        Also, a net economic benefit can also accumulate to a minority of the population, leaving the majority thus net worse off. Hence on an in out vote, if the EU is the only factor seen as repsonsible for this distribution, then the majority vote for out, as on a net basis they lose with remain. People wouldn’t vote for the net economic utility of the country.

        IMO the point is not if a region is heavily dependent on ‘top-ups’, but why? London is a global city with major globally orientated industries, and thus they require a lot of policy attention, e.g. from the Bank of England, and exert a huge influence on which policy is. So the question is really what is the economic direction of the country and how does the EU fit into this system? (leaving out cultural consdierations for now)

        The money that comes in via the various european funding streams such as the ESF, regional devlopment funds, European Investment Bank etc. are part of a broader system mostly in control of the UK government. I think many leavers who are occasionally denigrated as economically stupid are actually quite rationally pointing out that all these funds are is part of a system that is patching up the economic problems region face, with tax credits as the last resort to keeping people abov water, but not fundamentally offering anything new.

        Labour never really offered a genuinely a new idea about what economic development means, how to generate new money for old economies. As was pointed out above, the EU was often used by poltiicians to escape the blame for a lack of alternative plan, or a lack of desire to do things differently, e.g. state aid. By removing this get out clause I think a lot of Leavers have quite rightly perceived that it will make it easier to discuss these matters. I disagree that it wasn’t possible beforehand, but the leave campaign managed to unite frustrated people wholly or partly abandoned by the liberal consensus, the socially illiberal who purely want an end to the ECJ/human rights agenda, and nationalists who would always be anti EU.

  6. If we assume that human beings are not entirely rational (as you have so ably demonstrated) and that the result of our vote is a more selfish society, one could easily foresee that once we have “taken our country back”, that London and the South East could quite reasonably start asking “why should we prop the rest of the country up”. Just sayin’😦

    • Dipper says:

      because the wealth of a country accumulates in the capital. No country, no wealth to accumulate in the capital.

  7. Dipper says:

    Look folks, I’m just going to call out a stop to this constant criticism of people who voted to Leave on the basis of the demographics and the supposed characteristics of that demographic. If whites had voted to Remain and people of colour had voted to leave I don’t think anyone on here would find it remotely acceptable to say people of colour voted to leave because they were stupid and bigoted and deserved whatever lowly living standards they found themselves in.

    Insults of this kind are the first step in a process of dehumanising people. The next steps are a differential view of outcomes – “they” don’t mind living like that because “they” are different. If “they” didn’t want this to happen to them then “they” shouldn’t have been like that in the first place.

    It ends up in events like Rotherham. 1400 girls sexually abused in plain sight, tolerated because the authorities thought that was a suitable outcome for “them”, because “they” are not like “us”.

  8. billbedford says:

    Can someone explain why South Lakeland voted to remain, or Monmouthshire?

    • Strategist says:

      South Lakeland – very beautiful place, lots of well-educated middle class incomers, prosperous (Kendal, Windermere, Ambleside etc) – and of course pretty much the last bastion of enthusiastic LibDemmery (Tim Farron’s seat)

  9. Almar says:

    In view of the disparity in infrastructure spending between the London area and the rest of the country mentioned by Dipper, it would be useful if this blog could integrate the data behind its charts with other government spending, both direct and indirect. This would include not only infrastructure as usually defined, but also subsidies to museums, galleries, other arts, research facilities etc. some of which comes from other bodies that however depend on central government for their financing.

    It was unclear to me whether the chatrs in the blog included Central government grants to local authorities and funding for e.g. academy schools. If not, the data for these also ought to be integrated to give an overall figure.

  10. DragonMike says:

    ood review, although I think you missed one or two documents from the early to mid 2000s from what was then the London Development Agency and their economics unit, unfortunately I cant find them anymore, they may not be on the internet anymore.
    https://www.london.gov.uk/what-we-do/research-and-analysis/gla-economics-publications.

    Regardless, internal migration and accumulations of wealth due to being a capital city are very hard to quantify so are generally ignored, so there is a lot missing in any calculation. In how many countries is the above NOT true anyway? There will always be an element of subsidy, this doesn’t in turn prove that a subsidised city should be a leaver or remainer.

    Also, a net economic benefit can also accumulate to a minority of the population, leaving the majority thus net worse off. Hence on an in out vote, if the EU is the only factor seen as repsonsible for this distribution, then the majority vote for out, as on a net basis they lose with remain. People wouldn’t vote for the net economic utility of the country.

    IMO the point is not if a region is heavily dependent on ‘top-ups’, but why? London is a global city with major globally orientated industries, and thus they require a lot of policy attention, e.g. from the Bank of England, and exert a huge influence on which policy is. So the question is really what is the economic direction of the country and how does the EU fit into this system? (leaving out cultural consdierations for now)

    The money that comes in via the various european funding streams such as the ESF, regional devlopment funds, European Investment Bank etc. are part of a broader system mostly in control of the UK government. I think many leavers who are occasionally denigrated as economically stupid are actually quite rationally pointing out that all these funds are is part of a system that is patching up the economic problems region face, with tax credits as the last resort to keeping people abov water, but not fundamentally offering anything new.

    Labour never really offered a genuinely a new idea about what economic development means, how to generate new money for old economies. As was pointed out above, the EU was often used by poltiicians to escape the blame for a lack of alternative plan, or a lack of desire to do things differently, e.g. state aid. By removing this get out clause I think a lot of Leavers have quite rightly perceived that it will make it easier to discuss these matters. I disagree that it wasn’t possible beforehand, but the leave campaign managed to unite frustrated people wholly or partly abandoned by the liberal consensus, the socially illiberal who purely want an end to the ECJ/human rights agenda, and nationalists who would always be anti EU.

  11. The regional numbers are also inflated/deflated as a result of revenues related to shipping. for example, Scottish Whisky apparently delivered only 500m of revenue to Scotland in 2013, but in the same year, Whisky exports were worth over 2.5b in revenue to England as a result of them being shipped via English ports.

    I am pretty certain the same holds true for the vast majority of our countries EU-centric trade, with revenue recognition occurring primarily in the SE as a result of EU exports being concentrated there. (so, for example, cars from Sunderland are a Southern profit center, but Sunderland is a Northern cost center)

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s