London is unfairly favoured over the rest of the country - it was an engineered world-city. It did not naturally achieve that position. Economists highlight the bias towards London to the point that it is a black hole for investment at the expense of the rest of the country. "We see that public expenditure on a per capita basis is more than twice invested in London than other regions in the transport and housing sectors." "Thanks to the tax system - that there is an automatic bias in directing investment towards London."
Transport infrastructure projects are assessed on a DfT "good value for money" calculation.
Value for money category - Benefit to Cost Ratio - Prospects For the Projects
- Poor - less than 1 - None
- Low - Between 1 and 1.5 - None
- Medium - Between 1.5 and 2 - Some but by no means at all
- High - Over 2 - Most if not all
Even a 1 to 1.5 would be considered for London. When the value for money calculations were introduced in 2004, the SLA's head Richard Bowker stated that all outside the M25 will get little.
Boy he was right. "London in the growth years, makes a net contribution to the public coffers between £4 and £11 billion. This is disingenuous. The calculation ignores the capital gains that flow from public spending. Public money invested in London yields huge gains in the private sector - in the appreciation in capital assets - that far exceed the financial subsidies that are transferred to the regions."
The reason capital is not so readily invested in the North is that the privileged aggregation of rents at the centre, London, creates benefits such as the public subsidies to transport, and the opportunity to claw back tax payments as capital gains. This set of incentives encourages the financial institutions to concentrate close to each other in these areas. The cumulative effect is bias towards the centre - London.
- A higher proportion of public spending in the regions is committed to welfare benefits to people who are rendered unemployable by payrole taxes. Those state subsidies are necessary to keep people alive. Unlike investment in say a new metro system, they do not produce windfall gains in the land market.
- In London, however, a higher proportion of public money is devoted to improving the quality of transport and schools. This raises the productive capacity of the population working in the capital. The spin-off takes the form of capital gains to landowners. And that means Londoners are more able to claw back the taxes they paid to the exchequer, leaving them with higher disposable incomes to be spent in the retail sectors - which, through the multiplier effect, gives a further boost to the London economy.
If the London property market is overheating, the chancellor may put up the national interest rate, yet property is not overheating in the north east and they suffer because of the raised interest rate.
"
The boost to London's infrastructure out of the public purse overspills to higher land values, which translates to easier financing arrangements for entrepreneurs who secure an advantage to their competitors in the regions." Everything stacked towards London and the south.