13.1: Area, population and GDP in 2007 (% of UK total)

Wealth gap

The best measure of economic prosperity at any given time is gross value added (GVA) per head of the resident population.

This measure reveals clearly the scale of the wealth gap between the south and east of the country and the rest. At the extreme ends of the scale, GDP per head in London in 2007 was twice as high as in Wales a wider gap than in 1997 when Northern Ireland and not Wales was the poorest region.

London, the South East and the East are considerably wealthier than all other regions save Scotland. London and the South East are so far ahead of the other ten regions that they are the only two with GDP per head above the national average.

Recent years

In recent years the gulf between the richest and poorest regions has widened sharply.

From 1997 to 2007 GDP per head in London moved further ahead of the national average (by ten percentage points), while there was a more modest gain in the South East and in Northern Ireland.

All the rest lost ground, with particularly sharp falls in the Midlands, Yorkshire and the Humber and Wales.

Table 13.2: GVA per head 1997-2007

The same story is illustrated in Chart 13.1 which shows average growth rates of GDP during the decade to 2007, measured in current prices.

Against an average growth rate for the UK as a whole of 5.4%, London’s economy led the way with growth averaging 6.3% a year, followed by the South East, the East and Northern Ireland which both managed close to 6%.

The South West matched the national average, leaving seven regions with below average growth rates.

A word of warning is required about official regional GDP statistics. These have always been slow to appear (usually with a lag of nearly a year), are subject to substantial revisions, and have from time to time run into methodological difficulties.

But whatever the statistical shenanigans, there is little effect on the regional pecking order in terms of income per head and economic growth.

The long-standing differences in economic performance are also reflected in regional unemployment rates. Large parts of the south and east of the country have, until relatively recently when the economy went into recession, been at, or very close to, full employment since the late 1990s.

In other words, virtually all those people who wish to work and are able to do so were in employment. The proportion of the economically-active workforce which is out of work still tends to be a little higher in the north of England, and in Wales, although in this respect at least the north-south divide had shrunk markedly over the past 15 years, before re-appearing in the recession.

Yet, the boost to employment in the North East and the national regions (i.e. Wales, Scotland and Northern Ireland) has been dependent on relatively low-paid jobs in the public sector.

As a result, the impact on spending power, prosperity and hence GDP per head has been more modest than the narrowing of unemployment rates pre-recession would have suggested. It has done very little to narrow the regional gaps in income, wealth and living standards.

The industrial structure across the regions also makes some regions more vulnerable to a down turn and a re-opening of the north-south divide.

In the year to the Q2 2009 the unemployment rate for the UK as a whole rose by 2.4 percentage points. In the West Midlands, however, it rose by 4.2 percentage points and in Yorkshire and the Humber, Wales, Scotland and Northern Ireland it rose by at least 2.6 percentage points.