It’s a truism to say that the problems in the eurozone are complex. But we can all accept that in a single currency area it is dangerous to have one part of the economy roaring off successfully, while another part struggles weakly. Germany’s strength pushes the euro to a level that undermines economic growth and stability in the south of the continent. This means that, in order to keep the single currency area together, , you need political commitment plus fiscal transfers from those who benefit from membership of the euro (or public spending, in other words) to promote growth in the south.
This should be no surprise to us in the UK. Our own economies are different, within our single currency area. The strength of sterling through the 2000s was a block to the economic development of non-London economies, but it was a problem being tackled (to a greater or lesser extent) by public sector investment via regional development agencies, local authorities, and others. In my own Merseyside constituency, our manufacturing sector saw increased productivity, while public spending created whole new arenas for the private sector to enter, such us in the visitor economy.
But this is now under threat. The end of regional development agencies was even more significant than even the outcry at the time suggested. It represented a sweeping change in policy by the Tory-led government, and not one for the better.
Whichever way you turn on Whitehall, the Treasury is working with government departments to strip public funds from regional economies. Where the end of mass industrial employment had left social decline in the 1980s, Labour put in place deprivation funding to remodel economies. Not just subsidy, but funds to break patterns of worklessness. Osborne’s first act was to remove these area-based grants from local authorities. Cities, in which growing universities expanded the local economy, are now at risk from the withdrawal of investment in higher education. Andrew Lansley wants an end to deprivation-based funding for health: a problem that will land in the lap of the same city leaders, who will have increased responsibility for public health.
And Francis Maude wants to pay public servants in so-called ‘low pay’ area less than their counterparts doing the same job elsewhere . The net effect of all of this should not be underestimated. You can’t keep taking money out of a city, or a region, without seeing the impact. No private developer could justify investing in a place where incomes are low, and where people want to leave to be paid more elsewhere. The government could be kickstarting serious economic decline if they’re not careful.
Steve Van Riel pointed this out on ProgressOnline recently, suggesting that a solution might be ’requiring all national public spending decisions to have regard to the impact on local economic demand‘. This is the kind of approach that would, in an ideal world, be considered. But I don’t think that an Osborne-led Treasury would countenance it because it muddies their responsibilities. If an appearance of ‘growth’ comes from a reinflated City of London, that will do fine for them. As long as Cameron and Osborne get some GDP growth in the weeks before the next election, their work is done. And never mind who’s left behind.
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Alison McGovern is MP for Wirral South. She tweets @alison_mcgovern
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Photo: Marin Nikolov