If there’s one phrase David Cameron would like people to associate him with, it’s probably ‘one nation conservative’. Ever since Benjamin Disraeli coined the term in his 1845 novel Sybil, or The Two Nations, it has stood for a brand of compassionate, inclusive conservatism that Cameron would like his government to embrace. He’s likely to be savagely disappointed.
The now near-certain 2010-2014 Tory administration will see Britain become two nations again, probably more so than even under Margaret Thatcher. So far Wales, Northern Ireland and the North-East have been largely protected from the recession by public spending. But while the prosperous South may well bounce back from the recession reasonably quickly, the regions are about to be tipped into a brutal economic whirlwind. The result will be a vicious social and political battle that will mark much of the first term of the next Tory government.
Under 12 years of a Labour government, regions that were once by-words for depression and unemployment have prospered. Old industrial centres such as Tyneside, Belfast and South Wales have been re-invigorated. New apartment buildings have sprouted along the banks of gloomy old canals. Shopping malls have sprung up on derelict factory sites. Stern, redbrick warehouses and mills are now trendy coffee bars. To an extent that hadn’t been true since the 1950s, the UK became, economically at least, one nation again. The South might have been a bit richer, but the gap wasn’t widening.
There were some solid underpinnings to that. In Northern Ireland, for example, the troubles came to an end. Peace is a lot better for economic growth than war. In the North-East and Wales, the painful process of de-industrialisation that began in the early 1980s had come to an end. The ‘destruction’ bit of capitalism’s constant ‘creative destruction’ had ended, and the ‘creative’ bit had started.
Yet for the most part, this prosperity was a mirage. While there was some genuine economic development, it was mainly a flood of government spending that lifted them up. Over the last few years, many parts of Britain have become as dependent on the state as any of the old Soviet satellites before the Berlin Wall came down 20 years ago. The Centre for Economic and Business Research reckons public spending now accounts for 67.9% of the Northern Irish economy, 67.3% of the Welsh economy, and 61.6% of the economy of the North-East (Scotland, despite its image as a subsidy economy, comes in at a more modest 57%).
By contrast, in the South-East, the state accounts for only 38% of the economy, and in London 39%. Those are vast gaps – the state is almost twice as dominant in Wales and Northern Ireland as in London and the South-East. With the recession, it will only get worse. The Treasury’s own figures show the state accounting for almost 70% of GDP in Wales and Northern Ireland by 2010-2011.
That was fine so long as the money was there to pay for it. But the public spending taps are about to be turned off. The International Monetary Fund warned last month that Britain had the worst budget deficit in the developed world, and that much of the shortfall was structural. Regardless of whether it pulls out of recession – and with current policies it probably won’t – there will have to be huge cuts in public spending. That’s going to hit hardest in those areas where the state spends the most.
London and the South-East may be able to bounce back relatively quickly. Free market economies are flexible. The South has benefited from the weak pound, stimulating new export industries, and the huge injection of cash from the Bank of England. By next year, it could well be growing at a reasonable clip again. If Gordon Brown’s catastrophic decision to lift the top rate of tax to 50% is reversed, there won’t be much to hold it back.
But the regions will fare far worse. When public spending starts to go into reverse from 2010, the areas that depend on the state will be hit hard. Over the last decade, the state has grown so fast in those areas that there’s virtually no private sector left to speak off. There aren’t any industries that workers can switch into. Nor are there any clusters of entrepreneurial innovation. The government has employed so many people, and paid them so much better than the private sector, that it has crowded out all other activity.
In the 1980s, Northern Ireland, Wales and the North-East suffered hardest from the collapse of big, old-fashioned industry. In the next decade, they will suffer most from the collapse of big, old-fashioned government. The results won’t be pretty. You don’t need to know much about economics to realise that when an entity that accounts for 70% of GDP cuts back, it brings everything down with it. House prices will plunge. Shops will shut. Unemployment will soar. What few private businesses remain will struggle.
At some point, the regions will develop new industries, just as in the nineteenth century. Meantime, Britain will become two nations again: one fast recovering and growing more prosperous while the other is stuck in a permanent slump.