tisdag 20 februari 2007

London subsidises the rest of the UK

Edinburgh Castle
Originally uploaded by Trent S..

London subsidises the rest of the UK to the tune of £13 billion a year. So says a report by Oxford Economic Forecasting

Not so. London, like any other major business centre, can only exist as an important business centre by virtue of its hinterland. Most of the flow of wealth in Britain goes from the periphery to the centre. The effect is overcrowding, unaffordable housing and congestion in London and the South East, and widespread economic depression everywhere else, requiring substantial sums of money being spent in a largely futile attempt to redress the imbalance. And still, so much wealth is left in the bottom right hand corner of the country that property (land) values grow inexorably.

The reality is that London and the South East are sucking wealth out of the rest of the country. The principal mechanism through which this happens is the tax system, which largely ignores the advantages and disadvantages of geography. And so businesses which might be viable in the absence of tax are driven below the margin and out of existence. The wealth that might otherwise have been produced is lost, whilst the people who could have produced it are left in idleness and have to be kept by the taxpayer.

To see the reality of this, it is necessary only to compare Cornwall and the Channel Islands. The latter are even more remote from centres of population than Cornwall, and if they were subject to the standard UK tax regime, like Cornwall, they would suffer high unemployment and be a drain on the country, with large amounts being directed towards them in grants intended to alleviate matters

But as the Channel Islands are able to set their own tax regimes, they are self-sufficient and enjoy buoyant economies. They do not have to go constantly cap-in-hand to the British government.

Of course there are complaints about their tax-haven status, but it is only stupidity and powerful vested interests that stop the British government following suit and relying on land value taxation as its principal source of revenue.

With such a tax regime, the revenue drawn through taxation would be precisely in accordance with the geographical advantage or disadvantage of every location. Those operating at marginal locations would, quite rightly, pay no tax.

Under such a system, nobody would be subsidising anyone else. Until tax is proportionate to locational advantage, landowners in the most advantaged areas are being subsidised by everyone else.

Oxford Economic Forecasting is plain wrong.

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