Mitigating UK Regional Inequality

How did the United Kingdom become so Unequal? 

The United Kingdom has been an unequal country for a long time, but it is only getting worse. The UK is one of the most unequal countries of the 38 OECD nations. Following the 2008-09 Global Financial Crisis there was a positive relationship between regional inequality and economic growth, the more unequal a country was, the faster it grew. This applied to the United Kingdom. It has a few regions and cities that are more prosperous and resilient to economic shocks than others, which allow those regions to recover and develop more quickly than other areas after a shock, leading to a rise in inequality. 

This gives rise to the question of whether inequality will rise following Brexit and the recovery from the COVID-19 pandemic, with London and the West Midlands being the only regions set to reach output levels of 4-5% above the pre-pandemic level, with other areas around the 2% level. 

One of the main reasons for the level of inequality across the United Kingdom is the high degree of centralised power, with most spending decisions taken by the Treasury in London. OECD evidence for 1995 - 2011 suggests that fiscal decentralisation is positively related to national economic growth, productivity and human capital. 

How can we Tackle Inequality? 

In order to decrease inequality across the United Kingdom, power needs to be transferred away from the central government to allow decision making to be made at a local level. A first step has been taken, allowing spending to be decided at a local level through a block grant from London, however, revenues are still collected centrally by Westminster.