Liz Truss’ Claim About Productivity of Workers Outside London is Economically Illiterate

Liz Truss’ Claim About the Productivity of Workers Outside of London is Economically Illiterate

The Conservative frontrunner’s belief that Londoners simply “graft” harder than people outside the capital does not stand up against evidence on regional inequalities, says Sam Bright

The mask has slipped, again. Following Rishi Sunak’s comments in July that he purposefully redirected Government funding away from deprived, urban areas while serving as chancellor, Conservative leadership frontrunner Liz Truss has now committed her own act of regional warfare.

Leaked audio obtained by the Guardian quotes Truss as saying that London is more productive than other parts of the UK because its workers “graft” harder. The comments were made while she was chief secretary to the treasury, a role she held from June 2017 to July 2019.

“If you look at productivity, it’s very, very different in London from the rest of the country,” she says. “But basically… this has been a historical fact for decades. Essentially it’s partly a mindset and attitude thing, I think. It’s working culture, basically.”

Truss is describing a very real problem: economic output in London, measured in terms of gross value added per hour worked, is 30% above the England-wide average, and 55% above the lowest-performing region. London and the south-east are the only UK regions that are more productive than the nationwide average. And these gaps are widening.

But to claim this is due to the innate idleness of people outside London is offensive and – even more importantly for an incoming prime minister – economically illiterate.

In a paper for the Industrial Strategy Council, inspecting regional productivity disparities, Robert Zymek and Ben Jones note that “there was a period of regional convergence during the mid 20th Century, but this was reversed during the 1980s and 1990s”. Now, the productivity divide between the south-east of England and the rest of the country reflects the state of affairs seen at the turn of the 20th Century.

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Workers in London didn’t suddenly and spontaneously decide to work harder than their counterparts elsewhere during the 1980s and 1990s. Rather, assimilating libertarian economic principles, successive governments oversaw the gutting of Britain’s industrial heartlands, simultaneously engendering a service-based economy concentrated in the City of London – the country’s financial epicentre.

The regional convergence in productivity during the middle of the 20th Century corresponded closely with the scale and influence of industrial employment – while the subsequent divergence corresponded with the Government’s adoption of Thatcherite economics.

“The share of manufacturing workers in total employment peaked in the 1950s, the absolute number of workers in manufacturing in the 1960s,” says historian David Edgerton in the Rise and Fall of the British Nation. “This was Britain’s manufacturing moment; the moment too of the industrial working-class.”

The Thatcher Revolution

As ​​regional development expert Alan Townsend observed in the immediate aftermath of the Thatcher years in 1993 – penning an analysis for the Royal Geographical Society – the Conservatives encouraged a “services-led southern boom”.

From 1979 to 1990, the GDP of the south-east increased threefold from £57 billion to £170 billion. And, by the end of the decade, household income in the north lagged behind the capital by 25%.

Thatcherite economics assumed that once the umbilical cord was cut – once the heartlands were liberated from dying industries – spare economic capacity would be harnessed by the free market to galvanise new, more prosperous forms of innovation in these places.

However, the free market concentrated economic activity in the areas where it could achieve maximum productivity – in cities, particularly London, where a nexus (an agglomeration) of creative, financial and political activity conspired to generate disproportionate opportunities for wealth creation.

This is a distinct feature of the service economy created by Thatcher’s regionally-skewed economic boom. As the Resolution Foundation notes in a recent report on the UK’s productivity problem: “The UK’s specialisation in tradable services (i.e. services such as insurance and consulting, that can be traded across regions and exported abroad) is an important determinant of its spatial disparities because tradable services benefit strongly from agglomeration economies.”

In other words: professional services – which benefit from the frictionless transfer of knowledge and resources – tend to cluster in a small number of cities. The Resolution Foundation report adds: “As a result of these agglomeration economies, highly productive economic activity is more spatially concentrated in economies that specialise in high-skilled tradable services.”

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Thus, while only roughly 15% of the UK population is based in London, the capital has locked down 30% of the country’s private-sector employment, notably in high wage, highly skilled (and productive) professions.

The direction of travel for the country’s most highly-qualified graduates is therefore inevitable – with all roads leading to the south-east. Research from the Centre for Towns shows that, since 1981, towns and villages in Britain have lost more than a million people aged under 25, while gaining more than two million over-65s. Accordingly, a quarter of all new graduates from UK universities in 2014 and 2015 were working in London within six months – including 38% of Russell Group graduates with first class or upper-second degrees

Government spending has compounded these regional divergences. As London has grown, so too has government investment in the capital – signifying a concerted effort to boost the productivity of the UK’s economic nerve-centre, while catering for the basic needs of its burgeoning population. Hence, London’s economic growth has become a self-fulfilling prophecy: productivity and population growth fuelling government investment, which in turn generates even greater economic gains.

From 2009-10 to 2019-20, London transport spending per head was £864 – compared with £379 in the north-west of England and £413 in England overall. Even in the ‘levelling up’ era, Government spending in London and the south-east has increased at a higher rate than in the north of England.

Rationally, how does Liz Truss expect areas outside of London to “graft” harder when they are burdened with a slow, unreliable, overcrowded transport network? How are they supposed to be productive when they are stuck outside the local station, waiting for the replacement bus service for the train that never arrived, furiously trying to check their emails while stuck in an internet black hole?

All of these structural factors have converged to create the London lodestar – a city vastly more productive than the rest of the country, underpinning regional inequalities that are more extreme than any other developed nation. “Graft” has nothing to do with it. If Liz Truss had tried a bit harder as a policymaker, perhaps she would be aware of these facts.

Sam Bright is the author of ‘Fortress London: Why We Need to Save the Country From its Capital’.