Skip to content

Hmm, Fuel for my Thought

I\’ve muttered about this before and this seems to confirm at least part of it.

It found that workers in the capital and the Home Counties generate a third of the nation\’s wealth, producing £375 billion a year in goods and services, out of the nation\’s total output of £1,155 billion. London alone produces £218 billion.

Londoners turn out £29,000 worth of goods and services each year per head, compared with £14,396 in Wales, the least-productive part of the country. Northern Ireland and the North East are not far ahead, each region generating £15,200 per head.

OK, that bit we know.

The North-South divide on income continues to grow, the report found. Average weekly incomes in the North East stood at only £455 in 2006, more than a third lower than London, which enjoys weekly incomes of £766.

The earnings gap of £311 is significantly higher than the £282 gap recorded in 2004.

That\’s the bit I find most interesting. We\’re told endlessly that we have more inequality in the UK than do most other countries. But our possible reaction to that inequality (on the assumption that we have any at all) rather depends on how it comes about. If it\’s great inequality within each and every unit of the country then that\’s rather different than there being inequality across regions. Two reasons for that:

1) If it is regional inequality then presumably it can be solved by people moving. That they don\’t shows that they don\’t particularly mind it. Sure, some large percentage (possibly even 100%) of those making the average £455 in the NE would prefer to be making the £766 average in London, if they could stay in the NE, but not if they had to move to London to get it. Thus they prefer the inequality in incomes to the actions necessary to remove it.

2) We\’ve also got large variations in regional living costs. Living in the NE (most especially housing costs, but also in food and many other things…check the price of a pint for example) requires a great deal less cash income than living in London. Another way of saying the same thing is that you can have a higher standard of living on the same cash income in the NE than you can in London. So consumption inequality is a great deal lower than income inequality.

So, now we come to the point. We are told that we have much higher levels on inequality in the UK than other EU countries do, and I\’ve no doubt that is true: but I\’m also certain that at least part of this is due to the regional variations in wages. And I think I\’m right in saying that we have greater variations in regional wages than most other EU countries. And further, that we have greater variations in regional prices.

So, by measuring inequality on a national basis, by incomes, we are grossly overstating the actual inequality, most certainly on a consumption basis, when we take the regional varations in prices into account.

Now,. nearly all of that I am certain of. What I don\’t know is how much that contributes to the stated inequality figures: I\’ve asked around and apparently no one has ever worked it out and I certainly don\’t have the skills to do so.

But it would be fascinating to know the answer, wouldn\’t it?

For example, white collar female jobs in the NE pay 60% less than the same jobs in London. We would thus, if our economy consisted of only those two groups, be saying that (because we measure poverty as being less than 60% of median income) everyone working in female white collar jobs for the average wage there in the NE was poor….which isn\’t really quite what we mean by poverty is it?

7 thoughts on “Hmm, Fuel for my Thought”

  1. There are regional price and GDP indices – think you can find them (ha ha – good luck) on the ONS site.

    One thing I tend to point out here though is that presumably housing is more expensive in London than elsewhere because it is better, not insofar that it is of better quality or bigger (it is not) but that is location is better. For if it wasn’t people wouldn’t live there (using the same logic as you do above)

    Tim adds: Indeed, standard thought…why do people live in smaller house or flats in hte city rather than large houses with gardens in hte country. Because the other things the city offers make up for it.

  2. Yeah, this would increase the inequality again (in consumption terms). I suppose the caveat to this is where people live in a house in Lnodon becauase that is where they have to live to work – then it’s more of an input cost and should be subtracted from their earnings.

  3. When you factor in cost of living, those in metropolitan areas like London have less net take-home pay.
    The inequality is actually in favor of those living in outlying areas.
    In the U.S., where God has not turned His Face completely from us, salaries are adjusted accordingly.

  4. I would have thought that “better” living in the city vs the North was almost entirely correlated to the desire to be close to a higher-paying job, perhaps with better career prospects.

    Unsurprisingly, however, the surplus income is soon swallowed by property rents.

    City amenities vs gardens is the big factor in the city flat/commuter-belt house comparison.

  5. You are right that the income inequality is not a problem, but the nation’s dependence on the London /South-East economy is. I was at a conference last year at which we were told (I can’t verify it anywhere, but the speaker was credible) that while every German “Land” has a capital city which is economically in surplus, London effectively subsidises every other major city in the UK. In effect, the UK is “hinterland” to London. What would happen if the City of London ceased to be a world financial centre (perhaps because of some regulations introduced by a well-meaning government which didn’t understand it)?

  6. Pingback: Regional Inequality

  7. Pingback: Dodgy, dodgy statistics

Leave a Reply

Your email address will not be published. Required fields are marked *