Thread by @thomasforth

This is a really important graph. Most people don't know about it. Some people who do know about it misrepresent it, some of them deliberately and there's been a fair bit of that in recent days. So I thought I'd stick my neck in,.. trying to offend everyone equally.

https://twitter.com/ChrisGiles_/status/866964261272158209

First of all, I'm just going to look at the regions of England. Wales, Northern Ireland, and (especially) Scotland already host lively debates about their fiscal position within the UK. I am not going to help with those, so I'll just look at England.

The UK is a nation of regional solidarity. Public spending varies little across the nation while tax receipts vary enormously across the nation. Big spenders (VAT), high wages (income tax and NIC), expensive houses (stamp duty), etc... mean London & SE England pays lots of tax.

Lower spenders, earning lower wages, and buying/selling cheaper houses, etc... mean that regions with weaker economies like mine here in Yorkshire pay less tax. But we all, in London and in Leeds and in Hull, get a similar NHS and similar schools. A nation of regional solidarity.

In Germany these regional fiscal transfers are explicit. The federal government charges richer states money and sends it to poorer states. In England we do fiscal transfers through centralisation; taxes are collected in the centre and redistributed to provide universal services.

So @ChrisGiles_ doesn't actually send me a cheque for £3000 because I live in Yorkshire. The transfer happens because residents of Yorkshire like me pay too little tax to fund our NHS, but residents of London like Chris pay the extra tax that covers the shortfall. Solidarity.

@ChrisGiles_ This solidarity is a very good thing. Almost no-one in England argues otherwise. So the debate really should be, how big do we want these transfers to be? And how long do we want them to continue for? And are we really happy with "as big as they need, forever"?

We have twenty years of data on effective regional fiscal transfers within England. They are getting bigger. People in London and South East England send more and more money to all the places I've lived - Yorkshire, The North West, The West Midlands all need more inward transfer.

In addition to being a nation of solidarity, we are also a nation of fairness. Is it fair for the average Londoner, not that much better off than the average resident of Yorkshire once they've paid their higher rent or mortgage to be sending people like me more and more money?

I don't think it is. I think it makes everyone miserable. A Londoner in a flat that's too small that they pay too much for sending me money to pay for the NHS where I live because I don't do a productive enough job or pay enough tax to provide for my community and my region.

So what's the solution? Spain and Italy have some pretty grim solutions to this problem -- the rich places try and opt out of solidarity. The people of Milan and Barcelona would quite like to keep their own money instead of sending to Sicily and Sevilla. But in England,...

That's not really an option. Because most of whatever extra money London kept would just get swallowed up in the same thing as holds back their quality of life today,... rent. If Londoners have more money their landlords will just charge more rent and house prices will rise.

Another option (my preferred) is to reduce the fiscal transfers with growth. This is exactly what Germany has done. As East Germany's economy has grown, the fiscal transfers required from West to East have decreased. The question is, what can we do to grow the North's economy?

On this question the UK, from think tanks to politics via academia, is not very good. Majority expert opinion in the UK is that it's very complex and that we've tried and failed and we can't do anything. Success in Germany, The Netherlands, elsewhere shows this to be wrong. IMO.

My position is that,
• Agglomeration benefits (bigger places are more productive) exist.
• North England and Midlands have weak economies in large part because their effective size is smaller than EU equivalents.
• Better transport and densification of the cities solves this.

A big part of achieving agglomeration is having people with skills working close to each other, moving firms with their ideas, and collaborating with researchers. So we need,
• Culture (broadly defined) to retain these people.
• R&D spending, to retain idea-generating people.

It is very possible that I am wrong. I will be thrilled to be wrong, and to be proven wrong, by North England and the Midlands achieving economic growth that lets us pay more of our own way by some other means. Those alternatives have had time to prove themselves by now. Show us.

There is a final option I think. It's considered rude to say it, but I know that a lot of people think it. We could just keep things like they are. We concede that London alone is England's proper city and we focus all of our efforts on its success and share the proceeds.

I don't like this third option, but I think that most of the English people (and thus most of the British people since most Britons are English) are actually fine with it. The problem comes when you talk to Scots about it. Because most Scots are not okay with it at all.

But that is a whole other thread and another massive debate and I'll not be having it anywhere except in a pub in Glasgow.