Scotching the Myth

'We English, who are a marvellous people, are really very generous to Scotland.' Margaret Thatcher in the Times, 12 February 1990.

The true story of pigs at the trough

By George Rosie in Scotland on Sunday

It is this blind spot that allows local newspapers like the London Evening Standard (on May 17, 1990) to accuse the Scots of being "subsidy junkies" and wailing "like a trampled bagpipe" over the economic plight of the Scottish steel industry.

It also allows London MPs like Margaret Thatcher to tell the Times (on February 12, 1990) that "we English, who are a marvellous people, are really very generous to Scotland". And her Downing Street mouthpiece Bernard Ingram to trumpet "The Scots are subsidised to the damned hilt. The first thing is to stop the Scots grumbling. Emasculate them. That would concentrate their minds. The Scots are getting too much." (Sunday Times April 29,1990). Ingram's sentiments are shared (and voiced) by many Tory MPs from the south of England.

The notion that Scotland is dependent on England is probably as old as the Treaty of Union. In the middle of the 18th century Doctor Johnson averred that the finest (economic) prospect in Scotland was the road to England. And 150 years later that engaging Scotophobe T W H Crosland opined "The whole truth about the Scotch relation with England is that the Scot is more than sensible of the advantage it brings him, but being by disposition as wise as serpents, he is afraid that if he did not pretend to deplore it might not last in its present comfortable unrestrictions."

On the face of it, Scotland does seem to benefit from "comfortable unrestrictedness", - generous levels of public expenditure. Official statistics suggest that the per capita spend in Scotland is around 20% higher than the UK average. But James Mitchell of Strathclyde University says these figures are based on a very narrow interpretation of public expenditure, and do not include the massive amounts spent on defence, or on the huge panoply of tax reliefs from which developments such as the London Docklands benefit. Mitchell says "It's not total public expenditure, it's only part of the public expenditure which is accounted for in Scotland."

David Heald, professor of accountancy at Aberdeen University ascribes this 20% discrepancy to the fact that Scotland needs more dole money than it should, and has more public-sector housing and far fewer private schools and private hospitals than most parts of England. "And the figures ignore the benefits private schools receive from their charitable status," he says. "Or that there will soon be tax allowances on private medicine for the over 60s. Or that more than 40% of the billions worth of mortgage tax relief goes into London and the south-east."

In fact, all the calculations about who gets what slice of the public cake are based on what the Treasury warlocks call "identifiable expenditure". But identifiable expenditure is far from being the whole story. According to the white paper on the government's expenditure plans, the identifiable expenditure for 1988-89 was £129.83bn, of which Scotland's share was £14.291bn (or 11%). But the UK's total public spending was £161.617bn, leaving a whopping £31.780bn "not identified". So where did all these billions go? All the evidence suggests that much of it (and probably most of it) went into London and the south-east.

This is easily explained. Almost £19bn of the £31.7bn went to make up the budget of the Ministry of Defence which is overwhelmingly based in the south-east (and to a lesser extent the south west) of England. Another £2.5bn went to make up the budget of the Foreign and Commonwealth Office which, apart from the notorious GCHQ in Cheltenham, is exclusively rooted in London and the south-east.

Another three of the "not identified" billions went into what the Treasury labels "miscellaneous expenditure", and goes on to explain as "activities required for the general maintenance of government such as tax collection, registration of the population and contributions to the European communities". Which in effect means that the cash was swallowed up by the Customs and Excise, the Board of the Inland Revenue, and the Office of Population Censuses and Surveys most of whose operations are located in the south-east.

But precisely how much public money is sunk into Britain's most affluent corner must remain a mystery, because the government says it does not know. While every penny of public money spent in the "economic region" known as Scotland can be accounted for, spending figures for the eight regions of England are not collected (or at least not published).

This was revealed last year in the sixth report of the Treasury and Civil Service Committee, which was told that "ministers did not feel the need for such information". So while Scotland's public spending figures are hung out for all to see (and complain about) the amounts spent in the plusher parts of England remain firmly under wraps.

In fact, when it comes to public spending, direct and indirect, the biggest pig at the trough is London and the south-east. The other "economic regions" of Britain - Scotland, Wales, the north-west, and the north-east are dwarfed by the bottom right hand corner. Which is hardly surprising; with a population of around 17 million, crowded into 27,000 square miles at a density of 637 people a square kilometre (compared to 66 a square kilometre in Scotland) it could scarcely be otherwise.

But London and its suburbs seem blissfully unaware of the huge amounts of British taxpayer's money which is used to keep them going. The yearly subsidy to British Rail's Network Southeast, for example, is almost 100m, - the same as the annual budget of the Scottish Development Agency. The government is planning to spend - via London Transport - around 4bn on new underground lines in London (including one into the Docklands) which represents a public expenditure of around £570 for every man, woman and child in London. Meanwhile, no cash is available to electrify the line between Edinburgh and Glasgow. Economists say that to see Ravenscraig out of the wood would cost a subsidy of 300m - the amount being spent on one mile of road linking Docklands to the city. Another £1bn is to be spent simply upgrading the M25 bypass.

It is not that public spending is invisible in London. One of the most powerful characteristics of London's economy is the presence of central government, in all its ramifications. There are more than 20 government departments, ranging in size from the giant Ministry of Defence (140,000 civil servants) to the tiny Office of Arts and Libraries (58 civil servants), which is public spending pure and simple. At the last count (in April 1989) there were 216,000 civil servants working in and around London - 38% of the UK total. What the Treasury's figures do not reveal, however, is the proportion of the 50,000 or so top (SEO and "open structure") jobs which are located in and around London. "Almost all of them" is the view of one Whitehall insider.

Most of these 216,000 civil servants receive the "London weighting", a bonus which ranges from £725 to £1,750 a year, depending on how close to Charing Cross you live.

Individually, they are modest sums, cumulatively, they add around £250m a year to the cost of the civil service. It also has a knock on effect.

Whitehall's London weighting forms the basis of the London weighting doled out to the 100,000 or so employees of London's 33 local authorities, together with other public service and some private sector employees.

But there is more to the civil service than jobs for the pen-pushers and memo-shufflers. Central government is a formidable employer of technical expertise. Most of the big UK ministries - Environment, Defence, Transport, Energy - directly and indirectly run networks of scientific and technical establishments. Most of these are in the south-east, and to a lesser extent the south-west.

The Department of Transport is a neat example of the syndrome. From its headquarters at Marsham Street in Victoria it supervises the Transport and Road Research Laboratory in Crowthrope, Berkshire, the Air Accidents Investigation Branch in Farnborough, Hampshire. The Marine Directorate is run from, of all places, High Holborn in London. The Department of the Environment is based at Watford. And while the main function of the Department of Energy is now to supervise (however inadequately) the production of Britain's vital North Sea oil and gas, 856 of the ministry's 1036 civil servants are based in London. There are only 99 in Scotland, and most of these are in Glasgow. All five of the government's research "councils" are headquartered in the south-east - one in London and four in Swindon.

The Ministry of Defence's scientific brainpower is even more concentrated in the south of England. The Chemical Defence Establishment is at Porten Down in Wiltshire, the Royal Aerospace Establishment at Farnborough in Hampshire, the Admiralty Research Establishment at Portsdown, Portsmouth, the Royal Signals and Radar Establishment at Malvern in Worcestershire, the Royal Establishment is at Sevenoaks in Kent and the Aeroplane and Armament Experimental Establishment can be found at Boscombe Down in Wiltshire.

In the opinion of some economists, this massive concentration of publicly-funded research and development (R&D) goes a long way to explain the buoyant hi-tech economy of the south-east. "First of all the region gains simply in direct terms of jobs," says Michael Breheny of Reading University. "It is estimated that the MoD is spending something like £3bn of its defence equipment expenditure in the south-east, and that generates a very large number of jobs. But there is an additional benefit in that the jobs are in the high technology sectors, electronics and aerospace that are regarded as very important to any local economy in the country."

Breheny says the overwhelmingly southern bias of government-funded R&D has created a damaging structural imbalance in Britain. This is borne out by a piece of EC research which investigated "Science and Technology for regional Innovation and Development in Europe" (STRIDE) and concluded "Most of the UK defence R1D spending is contracted with firms in the southern half of England."

In other words, for every hi-tech job provided by the government, another three or four are created by the private companies which cluster around the civil and military R1D establishments. According to the STRIDE report: "In fact, one in every four is employed in technology based industry in the south-east compared with one in eight in Scotland and Northern Ireland and one in eleven in Yorkshire/Humberside."

But the scientific and technical R&D establishments are only part of the largesse showered by the British taxpayer on the south-east. There is another structure to central government which is hardly taken into account when public spending sums are being done. It is the layer of government known as Non-Departmental Public Bodies (NDPBs) known to their enemies as quangos. Take, for example, the Office of Arts and Libraries (OAL) one of the smallest of government departments which has a total staff of fewer than 60 and operates out of a set of rooms in King Charles Street. It is one of Whitehall's minnows, but its tail of NDPDs is both long and costly. One of its charges is the British Library, which employs almost 2,500 people, has an annual budget of 70m, and is currently spending £450m building new premises at kings Cross. Another is the Arts Council for Great Britain which employs 350 bureaucrats and spends 150m per year. The British Museum is yet another, with a staff of more than 1,000 and an annual budget of around 30m. All told, the OAL's quangos provide jobs form more than 8,000 Londoners.

Not that London appreciates the public spending it devours. Bob Colenutt of the Docklands consultative committee (set up by local councils to monitor developments in the Docklands) says Londoners have no idea how much public money is being sunk into the Docklands.

With a gross domestic product (GDP) of more than £140bn the south-east is by far the biggest regional economy. But some economists say London's GDP is grossly inflated by the fact that so many companies pay their corporation tax via their London headquarters. So that while the wealth of Guinness for example, might be generated in the breweries and distilleries of Scotland and Ireland, if the tax is paid in London, then London gets the credit. Which makes Scotland look all the more dependent on London's munificence.

James Mitchell of Strathclyde University says the south-east tail is now wagging the British dog. He claims that the high interest rates under which industrial Britain is currently groaning are designed to cure the overheating of London and its environs. "So to all extents and purposes, mainstream economic policy has become a regional policy. Now that may have the effect of dampening demand down there. But it will have damaging effects in areas like Scotland and the north of England where high interest rates are totally inappropriate."

Trough Facts

1. A total of £8bn will have been spent on London's Docklands by the end of the decade - £4bn of it public money.
2. The £332m which London Docklands will receive direct from the government this year is 30% more than the other nine development corporations in England combined.
3. Of the £9bn current and planned expenditure on trunk roads in England, £6bn is being spent in the south east.
4. Despite the money being pumped in, only 39% of Londoners said in a recent poll that they liked living there and almost half wanted to get out.
5. Nearly all the 50,000 top civil service jobs are located in and around London and 216,000 civil servants - 38% of the total, work there.
6. London weighting for civil servants costs £250m a year and forms the basis for similar payments to thousands of other staff in the public and private sectors.
7. Most of the £6bn spent by Britain's 1,550 quangos goes to London and the south-east, where most of their 118,000 employees are located.
8. Almost half the defence procurement budget - £3.5bn, 42.5% of the total compared with Scotland's 7.5% - is spent in the south east, bringing massive spin-offs in commercial high technology.
9. The government is planning to spend £4bn on new underground lines in London, equal to £570 for every man, woman and child in the capital.
10. The £100m annual subsidy to British Rail's Network South-east equals the Scottish Development Agency's yearly budget.
11. Most of the annual £1.32bn which the BBC receives is spent in London and the south-east.
12. Of the £7bn spent on mortgage tax relief, 40% goes to the south-east.
13. The Energy Department's main job is to supervise North Sea oil and gas production, but 856 of its 1,036 civil servants are based in London and only 99 in Scotland.