Labour takes sides against London at its peril

By going along with.the myth that the capital weakens the rest of the UK rather than supporting it, Rachel Reeves risks undermining her own growth mission

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I wish Rachel Reeves had run her spending review speech past me before delivering it to the House. I could have made two small but helpful changes. One would have been to add to her list of transport schemes important to the building of “homes for working people” in urban areas an extension of the Docklands Light Railway to Beckton and Thamesmead. The other would have been to remove the final six words from the following 14: “past governments have underinvested in towns and cities outside London and the South East.”

The Chancellor’s prior decision to decline to find a billion pounds or so for the DLR project as part of an increased £100 billion of spending by autumn alone has been aptly described as “baffling” – TfL calculates it would pave the way for up to 30,000 new homes in east “middle London”, north and south of the river. And her rhetorical embrace of one of the country’s most misleading, embittering and destructive myths – the “north-south divide” narrative that insists Londoners live the high life at the expense of everywhere else – was a dip into the well of grievance populism that placed panicky electoral considerations above maximising economic growth.

The persistence of fast-held beliefs to the contrary makes it necessary to, yet again, spell out both how heavily dependent the rest of the UK is on London’s economic strength, and how far from being members of a well-off “metropolitan elite” millions of Londoners are.

Year after year, decade after decade, the capital accounts for close to a quarter of the entire UK’s economic output and generates tens of billion in taxes that are spent, not in London or on Londoners, but in other parts of the country – on health, policing, transport, education and all else the state would provide far less of if taxes from London didn’t fund them. The most recent calculation of the “fiscal surplus” London gifts to the rest of the UK, reported by The Standard’s Nicholas Cecil, puts it at an average of nearly £5,000 per Londoner per year.

“So what?” some might say – “rich London” can take it. Perhaps they would think again if they examined Trust for London’s analysis of the capital’s return to the top of the national poverty league table, with an overall rate of 26 per cent. That’s around 2.3 million people, about twice the population of Birmingham.

Housing costs are the big driver of this, more than negating higher London wages. With the DLR extension going without Reeves’s backing, at least for now, and no indication yet of how much of the boosted affordable homes programme cash will be allocated to London, the region with the most acute housing problems in the land, the chances of the city’s poverty emergency being alleviated soon hang in the balance.

Why make a point of legitimising claims – strongly contested ones, by the way – that the reason other places have had too little infrastructure investment in the past is because London and the South East have had too much? Why appear to be setting most of the country against the part of it that, whether we like it or not, stops the rest of it from falling apart, while more than a quarter of its people, young and old, in work or not, are struggling? Why can’t London be embraced as part of the solution to all the UK’s problems instead of being depicted, just as the Conservatives did, as a pampered parasite?

It is hard to see the answer as anything other than a fear of Nigel Farage. On Sunday, The Observer’s Andrew Rawnsley wrote that the Chancellor’s “emphasis on improving transport links and local regeneration projects in the Midlands and the north of England has pleased Labour MPs who feel the hot breath of Reform UK on their necks,” .

Well, that’s fine. And it’s a good thing that £15 billion has been committed to South Yorkshire, Liverpool, the North East and elsewhere. But where have those billions mostly come from? The nation’s big money tap is in the capital. What happens if, instead of turning it full on, you twist it in the opposite direction? The money flow starts to slow – the opposite of what you get with greater growth.

Everyone knows that the UK’s heavy economic reliance on its capital city is problematic and has been for a long time, just as the high centralisation of national government power, which happens to be based in London, needs to give way to greater devolution.

Perhaps the worst thing about London’s outsized economic muscles compared with those of all other, much smaller, British cities, is the huge pull they exerts on the young, adventurous and ambitious, who, through this century and before, have poured into the capital from all directions for its excitements and opportunities in vast numbers – around 200,000 on average – draining other regions’ talent pools.

But you can’t boost the attractions of smaller cities by penalising the biggest the only one that produces the resources needed to provide that boost; to help, for example, Greater Manchester to improve its productivity, which, despite recent improvements, is still a massive 35 per cent lower than London’s.

The idea that by reducing London’s share of the public spending pie and giving it to other places means that “levelling up” will follow is to misrepresent a profound, flawed yet strongly self-perpetuating interdependency as a zero sum game that can be changed by imposing a reductive idea of greater fairness. But all that gives you is a smaller pie. A smaller pie means smaller portions all round. What’s needed is a bigger one. Without London, there won’t be one. A government desperate for national economic growth takes sides against the capital at its peril.