The Tories and regional public spending cuts

I’ve mostly forborne from commenting on the election campaign so far, and in general will continue to do so (apart from some work on manifestos which should come out next week).  However, remarks made by David Cameron in an interview yesterday with Jeremy Paxman do merit some comment.  I didn’t see the interview, but there are reports of it from the Guardian here, the Telegraph here, and BBC News here.

What’s important here is the suggestion that because the public sector is ‘over-large’ in some parts of the UK, those parts will be particularly subject to cuts in the coming squeeze on public spending.  If ‘rebalancing’ is done by cutting public spending, some parts of the UK are in for a very hard time.  But those cuts would not be limited to the North East of England and Northern Ireland, as Cameron appears to have said.

I couldn’t readily lay my hands on National Statistics data showing public spending as a proportion of GDP on a regional basis, so to make sense of this, I’ve constructed my own version of such a table, using the most recent Gross Value Added data available from the Office for National Statistics (GVA is now the preferred measure for income of regions) and chapter 9 of the Treasury’s Public Expenditure Statistical Analyses.  These data are illustrative more than definitive; I’m not a statistician, and statisticians might well question my methodology. Moreover, I’ve had to use spending data from 2007-08 and GVA data from 2007 (each being the most recent non-provisional or estimated data available), which means it’s slightly out of date.

My table is available as a PDF file HERE.

What this shows is that, for the UK as a whole, public spending accounted for 37.5  per cent of GVA.  In the North East, it was 52.8 per cent; in Northern Ireland, 59.2 per cent.  (The lowest levels are 26.7 per cent in Greater London and 30.5 per cent in the South East – though the nominal level of public spending is by far the highest in London, and it’s London’s very high per capita GVA that explains its low percentage.)  But there are high percentage levels of public spending in several other parts of the UK as well. Top of the list is Wales, where’s 55.7 per cent.  After that come the North West of England (47.8 per cent) and Scotland (45.0 per cent), followed by Yorkshire & the Humber and the West Midlands (44.0 and 43.9 per cent respectively).

(A further caveat: these figures relate to total public spending, and for Scotland, Wales and Northern Ireland don’t distinguish between block grants to the devolved administrations to which the Barnett formula applies, and other public spending, notably on social security.)

It’s worth noting that there has already been a considerable reduction in public spending in Northern Ireland since 1999.  In 2003-04, it was 126 per cent of UK average per capita spending; the estimate for 2008-09 was 122 per cent.  Part of the rationale for some of the Treasury’s generosity toward Northern Ireland (as with the financing deal for devolving justice and policing) is that it is a way of sharing that ‘peace dividend’ between the North and the UK.

What this means is simple.  If the Conservatives were seriously to target public spending cuts in regions where the state accounts for an ‘excessive’ part of the economy, Wales is as much in the firing line as the North East or Northern Ireland; and the North West and Scotland are unlikely to be far behind.

A second implication is that targetting public spending in regions where the public sector is ‘over-large’ is at odds with adopting a needs-based approach to public spending, as David Cameron has said the Tories will (reported best by the Western Mail here).

This may be unfair to the Conservatives; they say in the ‘British’ version of their manifesto, in relation to funding in Wales, ‘our priority remains getting people back into work and strengthening the Welsh economy,  So we will seek ways to work with the Welsh Assembly Government to increase economic growth and improve people’s quality of life’.  They appear to mean the same thing for other parts of the UK where the public sector is a large part of the economy too.  Helping the economy as a whole to grow so that the public sector is a smaller part of it is a laudable ambition and need not involve public spending cuts.   But this is very hard to achieve; Labour policy since 1997  has to been to try to do this, by various means, including (in England) establishing regional development agencies and a public service agreement target.  None of these initiatives has been very successful.  Securing real, private-sector-led, economic growth in lagging parts of the UK is very tough indeed, and will require a careful plan, not just rhetoric.

Beyond this, it’s hard to reconcile what are clearly two different directions of Tory thinking – ‘reining back’ the state on one hand, and equity in allocation of public spending on the other. The relationship between these two strands appears to be a weak one.  This may just be a matter of presentation, but it may also suggest that they’ve simply not understood the complex interaction of these issues, and developed a coherent, thought-through approach to them.



Filed under Conservatives, Devolution finance, Northern Ireland, Scotland, UK elections, Wales

3 responses to “The Tories and regional public spending cuts

  1. Hendre

    It’s similar to Cameron’s announcement on the cut in the number of MPs. The FT (and others) assumed that Wales would take the biggest hit yet there is a sort of vague understanding here that Welsh seats will not be substantially reduced until such time as full primary legislative powers are transferred to the Welsh Assembly. It’s still not clear what the Tories intend for Wales.

    It was odd for Cameron to cite one of the territories which come under the Barnett formula and one which doesn’t. Was he suggesting that the Barnett formula should no longer apply to Northern Ireland or that the Barnett formula should be scrapped?

  2. nigel hastilow

    Your figures are very interesting. I have done some similar calculations based on a KPMG report on regional development agencies. It only applies to England, so you may not be interested and the calculation is Total Identified Public Spending per head of population. On that basis, the “overpaid” regions include London (the others are Yorkshire, the North West and North East) because total identified public spending in London is £285,496 million which works out at £40,210 per head compared with the English average of £32,785.

  3. Scott Greer

    The Tories are also sweetly static in their analyses. Even if you grant that a lower % public sector employment is good, you don’t do that by just cutting the public sector spending/headcount. You don’t do it because the private sector is not a constant. It is actually affected by the fate of the public sector, and could be hurt by public sector cuts.

    If you cut public spending in a place like NE England, on any reasonable set of multipliers you make its economy even worse. How many private businesses in Newcastle depend on public sector workers? It is not at all hard to come up with scenarios in which a 5% cut in public sector spending produces a >5% cut in private sector spending. If that happens, you have *increased* the percentage of public sector in that region’s economy and wrecked a lot of businesses, even before the bills for unemployment, disability, retraining etc start to come in.

    This is exactly the same thing Merkel refuses to understand about Greece, actually. I doubt the economic policy is what the Welsh most wish to import from Greece.

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