House of Commons - Environment, Transport and Regional Affairs

Select Committee on Environment, Transport and Regional Affairs Appendices to the Minutes of Evidence

Memorandum by Sheffield City Council (UWP 93)

KEY FACTORS CONTRIBUTING TO REGIONAL DISPARITIES, THEIR RELEVANCE TO SHEFFIELD CITY COUNCIL AND THE WIDER REGION

The following key facts are presented to help explain why the Gross Domestic Product (GDP) of Sheffield, its city region and Yorkshire and Humberside, are so much lower than London and the South East.

GROSS DOMESTIC PRODUCT

The GDP of the Sheffield City Region[1] has been falling in relative terms since 1979 and now stands at only 73 per cent of the England average, less than £8,000 per head in 1996[2]. This compares with £12,640 per head (60 per cent higher) for the whole of the London and South East Standard Statistical Region—and this gap is projected to grow on past trends. Yorkshire and Humberside is the second lowest region in England (87 per cent of England in 1997).

EMPLOYMENT

In 1997-98 only 67 per cent of the adults of working age in the Sheffield City Region were in employment, one of the lowest rates in England. This amounts to a shortfall of 130,000 jobs compared with more prosperous parts of the country, such as the South East, where 80 per cent are in work.

INDUSTRY

Sheffield City Region has been reliant on large firms working within traditional but declining industries. Consequently there are only 18 businesses per 1,000 residents. This compares with nearly double that number in London and the South East (33 businesses per 1,000 residents) and the business formation rate, two new businesses per 1,000 residents per year, is less than half.

EARNINGS

Average full-time earnings in London are currently £520 per week compared with £350 per week in Sheffield City Region. Much of this difference is accounted for by the industrial/occupational structure of London's workforce with the highest earning industries and occupations heavily concentrated there, rather than being more evenly distributed across the regions. The very high earnings of a small minority working in London has a particularly significant impact.

HOUSEHOLD INCOME

The most recent household income figures for 1997 confirm that Yorkshire and Humberside had the second lowest household incomes in England (89.5 per cent of the England average). At a county level South Yorkshire had the second lowest household incomes in England and the third lowest in the UK behind Mid-Glamorgan and Tyne and Wear (83 per cent of England in 1995). London and three adjoining counties exceeded 120 per cent and nearly all counties in the South East exceeded 105 per cent. Very few counties outside the South East were as high as this, so a clear divide does exist.

GOVERNMENT SPENDING

Government's own expenditure in 1996-97 was particularly concentrated in London, Scotland, Wales and Northern Ireland. Spending in London was 22 per cent higher per head than in Yorkshire and Humberside, for example. If the London level of expenditure applied it would amount to an additional £3,800 million in Yorkshire and Humberside (and approximately £400 million extra in Sheffield).

The additional expenditure in London is especially significant in the following services:

— Law and order.

— Roads and transport.

— Housing.

— Environmental services.

— Health and personal services.

— Education.

EDUCATION

Exam results in London are generally better than in Sheffield or its city region. For example over 40 per cent gain five or more GCSEs grades A-C in London compared with 37 per cent in Sheffield in 1997. This may be because London receives 23 per cent more funding per pupil. A secondary school with 1,000 pupils receives the equivalent of £3.65 million in London compared with £2.96 million in Sheffield.

LOCAL GOVERNMENT GRANT

One aspect of Government spending is the Revenue Support Grant to Local Government. Sheffield's grant in 1999-2000 in £397 million but it would be £91 million higher (£488 million) if the grant per head that London receives applied.

COUNCIL TAX

Council tax for a Band D property across London averages £731 in 1999-2000 the lowest figure for any English region. The metropolitan district average is much higher at £878, including Sheffield at £886. These differences are due to the higher levels of grant to London.

TAXATION POLICY

Council Tax is a regressive form of taxation, taking a higher proportion from low-income families than high earners. This is also generally true for all forms of indirect taxation. Although direct taxation bears more heavily on high earnings the overall impact is regressive. In 1996-97 households with the fifth lowest incomes, £7,080 per year, paid 37.4 per cent of this in taxation; those on the highest incomes, £45,870 per year, paid only 35.1 per cent in taxation. With much higher earnings in London and the South East the overall rate of taxation will tend to be lower, and after-tax income that much higher.

HOUSING COSTS/VALUES

Over the last two years average house values have increased from £53,000 to £55,000 in Yorkshire and Humberside compared with increases in London (from £99,000 to £131,000) and the South East (from £91,000 to £113,000). These are a particularly key aspect of the growing North-South divide. In effect there is a growing transfer of wealth from North to South. There is also a transfer of wealth from savers to borrowers in those situations where house price inflation is so high. Since there has not been a revaluation of property values since 1991, it is also true that Council Tax no longer properly reflects current valuations.

LOTTERY FUNDING

The Lottery is helping to fund many public projects across the country. The total amount allocated to London, nearly £1,300 million to the end of 1998, is more than double the amount for any other region. If Yorkshire and Humberside had the equivalent level of funding it would be receiving over £900 million rather than the £400 million it has received so far. Perversely the population of London spends less on the lottery than most other regions so there is a substantial net transfer of funds from North to South.

RESEARCH AND DEVELOPMENT

Research and development, a crucial aspect of industrial competitiveness, is particularly concentrated in London and the South East, both within the public and private sectors. If Yorkshire and Humberside received the same level of investment as London and the South East the increase in spending would be as follows:

— Government research spend would increase from £55 million to £297 million.

— Higher education research spend would increase from £229 million to £388 million.

— Business research spend would increase from £256 million to £987 million.

In total this amounts to an effective shortfall in spending in Yorkshire and Humberside of over £1,100 million, equivalent to £115 million in Sheffield.

OTHER ISSUES

— Non manufacturing inward investment is concentrated more to the South East with five times as many investment projects as Yorkshire and Humberside.

— DTI preferential assistance is mainly to Scotland, Wales and Northern Ireland, £460 million in 1997-98, compared with £13 million to Yorkshire and Humberside.

— SRB is particularly concentrated in London with London receiving three times the amount of Yorkshire and Humberside in SRB Round 5 (£320 million compared with £109 million). Over all rounds London has received £1,135 million, 25 per cent more per head than Yorkshire and Humberside.

— Other sources of regeneration funding—capital receipts and the action zone programmes—show London in receipt of £783 million, almost double the amount received per head in Yorkshire and Humberside.

— New Deal for Communities is currently planned to provide 10 schemes in London at around £50 million each, compared with four in Yorkshire and Humberside.

— Spending on public sector housing in London runs at more than double the rate of Yorkshire and Humberside per head.

— European funding to Yorkshire and Humberside, in 1997-99 has been no more than might be expected from the region's population share (£90 million).

— Over half of all overseas tourism spend in Britain is spent in London, £6,450 million in 1997.

— The proportion of the adult population with higher qualifications in London is nearly double that of Sheffield's City Region.

CONCLUSION

The above facts illustrate that large sums are spent by Government in some regions, particularly London, Scotland, Wales and Northern Ireland, helping to increase their incomes, wealth and GDP. Beginning to reduce this spending gap would play a major part in regenerating the economy of the Sheffield City Region, and begin to close the extremely wide GDP gap with the South East.

SOURCES OF INFORMATION

1. GDP: ONS News release, November 1998.

2. Employment: Labour Force Survey, Labour Market Trends, ONS, April 1999.

3. Industry: Regional Trends Table 14.6.

4. Earnings: New Earnings Survey Part A, Table A21, ONS, October 1999.

5. Household Income: Economic Trends, June 1998.

6. Public Expenditure: Public Expenditure Statistical Analysis, 1999-2000, Table 8.10, HM Treasury, March 1999.

7. School Results: Regional Trends Table 14.3.

8. School Funding and Local Government Grant: SSAs for 1999-2000, Local Government Treasurers Societies, May 1999.

9. Council Taxes: Regional Trends 1999, Table 14.4, ONS, August 1999.

10. Taxation Policy: Social Trends 1999, Table 5.20, ONS, January 1999.

11. Housing Costs: Halifax Building Society Bulletins.