It hardly counts as news that the UK is really two economies but here are the hard numbers to demonstrate the point. London, the south-east and the east of England recorded net fiscal surpluses in 2016 – in order words, tax receipts exceeded public spending on a per-head basis. The rest of the UK was in deficit, says the Office for National Statistics in its first such regional breakdown.
Some differences were substantial. At one end of the scale, London showed a surplus of just over £3,000 per person – the difference between revenues of £15,756 per head and spending of £12,686. Northern Ireland had the biggest deficit – about £5,400 per person – and Wales was next at £4,500.
Regional differences are to be expected, of course. And, remember, the data doesn’t seek to reflect factors such as a brain-drain towards the capital, which might affect one’s view of the extent to which London and south-east can be said to “subsidise” the rest of the UK. The most important statistic is that the UK, as a whole, has had a net fiscal deficit every year since 2003.
Yet two conclusions seem clear. First, if Brexit presents challenges for London, with its heavy weighting towards financial services, the problem is the rest of the UK’s too. As matters stand, London and the south-east are the UK’s cash cow.
Second, an independent Scotland would face hard choices. The deficit per head in Scotland was £2,824 last year, according to the ONS data. To reduce that figure as a standalone nation, taxes would have to rise or spending would have to fall, other factors being equal. That makes the currency question – one of the central debates in the 2014 referendum – critical.
Back then, the Scottish National party said a post-independence Scotland would continue to use the pound sterling. The economic logic looked weak at the time, and remains so: Scotland would be embracing a currency union that could damage its own competitiveness at the moment of separation and make balancing the budget harder, especially if the oil price was low.
The ONS data is published free of vulgar political interpretation, obviously. But that £2,824 per head deficit figure for Scotland shouldn’t be ignored. If another referendum lies around the corner, voters deserve to be told whether an independent Scotland would continue with the pound, use its own currency or join the euro. There are pros and cons to all those options – but clarity is essential.
Nationwide has no mutual interests with Co-op
The natural home for the troubled Co-operative Bank would be the Nationwide Building Society, many would say. The Nationwide is a mutual. Like the Co-op Bank, it proclaims its social purpose. And it has experience of takeovers, having absorbed many laggards from within the building society sector over the years.
Regulators at the Bank of England would probably be delighted by such a union. From their point of view, the capital woes of the Co-op Bank are the source of a small but annoyingly persistent headache. There’s just one problem with the takeover theory: there’s nothing in it for the Nationwide.
Its profits fell last year from £1.28bn to £1.05bn under pressure from low interest rates, but the result was perfectly respectable. As the chief executive, Joe Garner, points out, the society is not in the profit maximisation game. It is a member-owned organisation with some freedom to manage its profits upwards or downwards, depending on how it wants to balance incentives between savers and borrowers. As long as profits continue to arrive around the £1bn mark, capital can be replenished and investment can continue. Why mess with this formula?
One might say the Co-op Bank’s 4 million retail customers would be a nice addition. So they would be, but they would arrive with unwanted baggage, such as the Co-op Bank’s “legacy” issues from its ill-fated Britannia merger in 2009 plus commercial and local authority lending operations. The Nationwide isn’t interested in such distractions. It should continue to steer clear.
Bank’s cyber-defences don’t rate highly
When confronted by an email hoaxer, the governor of the Bank of the England made less of a fool of himself than the chief executive of Barclays. This news is mildly reassuring.
It is alarming, however, that a mischievous web designer can reach Mark Carney by using a humble Hotmail account. Long passages of the Bank’s annual financial stability report are devoted to cyber-risks. Regulators have bigger threats in mind than the danger that the governor might get duped in a prank but the Bank’s defences, as Carney might put it, seem “not appropriate at all”.
