Regional GDPs & Public Spending
Caught the end of a question on one of the BBC’s political programmes a few days ago in which the presenter was asking a minister to explain a recent research finding that public sector spending accounted for the clear majority of the GDP in some of the UK’s regions.
This sounded an interesting piece of research, so I’ve been trying to track it down… unfortunately:
(i) no sign of it on the BBC site
(ii) A Google News search brought no solid reports on it
However, it did turn up in the blogosphere - on the Adam Smith Institute site - and David Mellor had a comment piece mentioning it in the Evening Standard too. (There was also a comment piece in the Daily Mail, but I have to draw a line somewhere…)
All this is probably indicative of the fact that the right can see the opportunity to make some political capital out of this one, offering it as evidence that Brown’s economic stewardship is a little more Old Labour than it might seem. Indeed, Mellor’s piece - titled ‘Can No-one See the Danger of Brown?’ - is almost pure polemic, but at least it gets the crucial stats from the report in at the end (and the source!):
Brown the allegedly successful manager of the economy, with an added hint of menace. The menace of old Labour of course, applied as stealthily these past eight years as Tony’s tan, and undeniably effective.
Harold Wilson and Jim Callaghan could only dream of Brown’s achievements in several regions of the country, described by one respected commentator as being ‘as dependant on the State as some Soviet bloc countries were at the time communism collapsed’.
A newly published analysis by the Centre for Economic and Business Research shows that in Northern Ireland Government spending accounts for 67% of the region’s gross domestic product (GDP), in Wales and the North East 60%, and in Scotland and the North West around 50%. Here in London and the South East, parts of the country Brown regards with barely disguised disdain, the balance is where it should be - around a third.
The ASI blog entry is more balanced and adds another finding that they make much of:
growth of public expenditure as a percentage of GDP has grown faster in Britain (at 4.2%) than in any of the 27 OECD countries - 17 of whom actually reduced their spending figure over that period. [they fail to tell us which period though!]
They also break the bad news that the full Centre for Economic and Business Research report is only available to subscribers… but the good news that it draws on freely available Treasury data. Or so they say…
The key source here is the Public Expenditure Statistical Analyses 2005 report and Chapter 8 in particular. The figures are in cash terms - so I presume the CEBR made their own calculations - probably using data on regional GVA (Gross Value Added) from National Statistics (pdf and excel versions available).
A quick back of a fag packet calculation shows some discrepancy between the figures; further digging on the web revealed a summary of the CEBR report in which they outline their methodology - which involves projections for future growth and some adjustments to the GVA figures. While there are some items that could be quibbled with, the approach seems generally sound and the figures do not look too unlike those from the back of the fag packet calculations the government stats produce - though their assumption that non-identifiable spending can simply be scaled across the regions in the same proportions as identifiable spending is somewhat dubious.
Nevertheless their report shows such spectacular differences between the regions that the overall message is in little doubt: that the UK’s regional economies and, ultimately, their welfare ’states’ differ enormously. The following tables from the report summarise the key findings/issues well:
What the figures cannot show, though, is how this spending impacts on private sector activity. In the North East, for instance, there is a large core of people employed by the major IT MNCs maintaining and (re)building the IT infrastructure that underpins much of the nation’s social security system. Similarly, much of the defence and health care spending will involve little more than transfers of large transfers of cash to private suppliers. And, in terms of capital spending on rebuilding or refurbishing schools, hospitals, universities and other public buildings once more much of this money will be going directly to private sector contractors. What would be REALLY interesting, therefore, would be a breakdown of how much each region’s private sector activity is dependent on public money… for as the boundaries between public and private blur the crude figures presented above can only give us part of the picture of what is really happening.
