All in it together? Why the chancellor needs a map and a calculator

Despite some headline-grabbing measures, last week’s Budget was another chapter in a series of spending decisions that once again highlight how Treasury officials, economists, and the politicians they advise rarely look at how their decisions pan out across the country.

George Osborne budget

Luke Raikes is a researcher at IPPR North

Despite some headline-grabbing measures, last week’s Budget was another chapter in a series of spending decisions that once again highlight how Treasury officials, economists, and the politicians they advise rarely look at how their decisions pan out across the country.

To underline the importance of this understanding, and as an example of the regional disparities that can emerge from fiscal decisions, the graph below shows side-by-side a preliminary estimate of the geographical impact of two separate economic measures: the proportion of top-rate taxpayers, a rate set to be cut from April 6; and the real-terms cuts to DWP social security expenditure between 2011/12 and 2017/18.

The South has more than three times the proportion of taxpayers in the top rate of tax (1.4 per cent), whereas the North (though even more so Wales) feels the brunt of the chancellor’s crackdown on benefits (£262 per head).

Osborne needs a calculator

This geographical blindness in economic decision-making has not served many parts of the country very well, with growing regional disparities mirroring the growing income inequality that concerns so many.

While many argue that it is always best to let the market rip, and that inequality (across incomes or regions) naturally results from and perpetuates efficiency and wider prosperity, our scepticism about such “trickle-down” theories should be extended to that of “trickle-out” theories – the claim that prosperity will naturally extend from one corner of the country to the rest is at least as dubious.

To this end, IPPR North is conducting a large-scale research project – Spending Review North – which will analyse current government spending decisions across regional and sub-regional economic geographies such as city-regions, Local Enterprise Partnership and travel to work areas, and in so doing pave the way for a better informed fiscal decision-making, and a more inclusive economic growth.

In the current fiscal circumstances of which we are constantly reminded, financial decisions relate more clearly to one another than ever before: each “tough decision” has a clear, zero-sum opportunity cost, and is a firm statement of political priority.

Crucially, however, one can see how these decisions can have a differential and compounding effect on a particular region or place, sucking wealth out of one part of the country and hoarding it in another.

It is also the case that those on benefits will spend substantially more of their income locally, making these decisions not only unfair but inefficient in stimulating local growth.

The decisions made by this government are widening the gap between the northern and the southern economies.

IPPR North will present a more comprehensive analysis of the geographical impact of Spending Review decisions in the coming months.

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