Some years ago, I wrote a paper entitled “The problem is London”. In this paper, I argued that London dominated the UK: demographically, politically, economically and culturally to an extent not seen anywhere else in the developed world. I wrote other pieces on a similar vein, in particular, one of which argued that the growth in support for Scottish independence was driven, largely, by hostility to London.
The domination of London in the UK has hugely detrimental effects on the rest of country and leads to the concept of the two nations – a prosperous London (and the South East) and an impoverished rest of the country. While this is an oversimplification (since there are pockets of affluence and poverty in any region), the reality is that London is ahead of the rest of the country in terms of income, wealth, health, employment and virtually any other indicator you can name. This is also exacerbated by the dominance of the London based financial services sector on the rest of the UK economy. In another paper published in 2010, Roger Latham and I pointed out the dangers of this unbalanced UK economy both in terms of geography and by sector.
This point has been only too clearly illustrated by the huge divergence in voting patterns between London and the rest of Wales and England. In London 60% voted to remain in the UK while in the rest of England and Wales the figure was only 47%.
We now see scare stories that BREXIT will impact negatively on the London based financial services sector and may lead to significant job losses. At the same time, I see quite a bit of optimism among small-medium enterprises (SMEs) that freedom from EU bureaucracy coupled (possibly) with greater interest in SMEs by a UK government traditionally more concerned with the London financial sector.
It suddenly struck me that perhaps BREXIT will provide the UK with an opportunity to re-balance its economy in such a way as to reduce the over-domination by London and the City. The decline in financial services in London may be an unavoidable consequence of BREXIT but this might be mitigated by a strong focus on SMEs across the UK. It is not always realised that in the UK, SMEs:
- make up 99.9% of total number of businesses in the UK
- provide 59.1% of all private sector jobs
- generate 48.7% of private sector output
If a policy of growing the SME sector were successful, it would automatically re-balance the UK economy to some extent.
However, this will not be easy. The UK (and indeed the EU itself) have a poor record of SME productivity, which lags behind that of SMEs in the USA. This may, in part, be to do with EU bureaucracy but there are other factors at play. Last year the Government published, its productivity plan which outlined a number of wide ranging initiatives to improve our productivity record. While such initiatives are to be welcomed, I still have a feeling that the main driver of productivity concerns the quality of leadership and management within the SME itself.
Although the Government has published a productivity plan, it remains to be seen whether it will follow through, with gusto, what it has proposed. Perhaps it is time to end the love affair with the City and place a much greater focus on SME growth and sustainability.