PARTS of the United Kingdom have become so heavily dependent on government spending that the private sector is generating less than a third of the regional economy, a new analysis has found.
The study of “Soviet Britain” has found the government’s share of output and expenditure has now surged to more than 60% in some areas of England and over 70% elsewhere.
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Experts believe the recession will tighten the state’s grip still further as benefit handouts soar and Labour directs public sector organisations to create jobs to soak up unemployment.
In the northeast of England the state is expected to be responsible for 66.4% of the economy this year, up from 58.7% when a similar study was carried out four years ago. When Labour came to power, the figure was 53.8%.
The northwest has seen a similarly relentless advance by the state, according to the research commissioned by The Sunday Times from the Centre for Economics and Business Research (CEBR).
“Labour has failed to encourage private sector investment across the country. Instead of supporting enterprise and small businesses, Gordon Brown has used the public sector to cover up his failures,” said Theresa May, the shadow work and pensions secretary.
The CEBR reached its estimates for 2008-9 by applying the 6.68% state spending increase announced in November’s prebudget report evenly across the country, although in practice some regions will receive more than others.
Across the whole of the UK, 49% of the economy will consist of state spending, while in Wales, the figure will be 71.6% – up from 59% in 2004-5. Nowhere in mainland Britain, however, comes close to Northern Ireland, where the state is responsible for 77.6% of spending, despite the supposed resurgence of the economy after the end of the Troubles.
Even in southern England, the government’s share of spending is growing relentlessly. In the southeast, it has gone up from 33% to 36% of the economy in four years.
The state now looms far larger in many parts of Britain than it did in former Soviet satellite states such as Hungary and Slovakia as they emerged from communism in the 1990s, when state spending accounted for about 60% of their economies.
Large-scale layoffs in the northeast will mean a rise in benefit payments. Newcastle-based Northern Rock was nationalised last year and has shed 1,500 jobs. Nissan announced three weeks ago that it was to cut its workforce in Sunderland by 1,200.
Many are finding new jobs in the public sector, according to One North East, the state development agency.
One of the biggest public sector employers in the northeast is the Department of Work and Pensions, which employs 13,400 there, hundreds of them in jobcentres.
“It’s not that the public sector in the northeast is too big, it is that the private sector is too small,” said Malcolm Page, deputy chief executive of One North East. “The decline of traditional industries in the past means we need to establish more big private-sector companies in the region.”
Latest figures from the Office for National Statistics show that since Labour came into power in 1997 jobs in the public sector have swelled by more than 500,000. In 1997, more than 5.1m people were employed in the public sector. The figure for 2008 is 5.7m.
However, Vince Cable, the Liberal Democrat Treasury spokesman, said that the state’s grip on the regions was likely to soften the impact of recession there.
“Newcastle and areas like that have a large public sector which will at least shield traditionally very depressed areas from the battering that southeast England is going to get.
“In the long term we need to do something about it. This does suggest the crowding-out phenomenon of the private sector and it also suggests there is a lack of entrepreneurial activity.”
January 25, 2009
Source: The Sunday Times