The Lopsided Recovery

The first in our series of three pieces on just how divergent our experiences during the slump have been. You can see the video on the Sky News website here.

One of the most common observations you encounter here in London, where Sky News is based, is that despite all the headlines about recession – about the fact that this has been the worst slump in modern British history – it often doesn’t feel as if there has been a recession at all.

And it turns out that this is quite right: London and the South East never experienced a double-dip recession at all. And parts of London – particularly the east end of inner London – didn’t even see a fall in their economic output in nominal terms during the deepest years of recession, in 2008/09, according to analysis of official statistics by Sky News.

Meanwhile, other parts of the country have seen the sharpest and deepest collapse in recent economic history. The double-dip recession was largely experienced by Northern Ireland and the North East of Britain, according to analysis from Capital Economics.

The difference in economic experience between London and other parts of the UK (it’s not even necessarily just a North-South divide as parts of the South are also suffering) is greater than ever before on modern record. And the gap has widened more here in the UK than in any other major economy in recent decades.

With both the Labour and Conservative leaders trying to claim the mantle of being the “one nation” party, it’s clear that in economic terms, Britain is anything but.

We have been travelling to postcodes all around the United Kingdom to see how the experience of the recession, and the fledgling recovery, has varied throughout. We were disturbed by much of what we saw: families facing more hardship than ever before, while others in London are oblivious. Some households stuck deep in negative equity while others reap the benefits of a property boom.

We have produced a series of television and web pieces about the divergence in experiences depending on the postcode in which you live; we’re calling it “The Lopsided Recovery”.

The first of those pieces concerns the overall growth picture. The official GDP figures show that Britain faced a very sharp recession in 2009, then recovered in 2010 and early 2011, only to face a double dip in 2012. You can see this by looking at the green line in the graph below. But this masks an enormous divergence between regions.

The North East has had a far deeper recession than the broader UK. The size of its economy is still more than 5% below its 2008 peak. Meanwhile, London’s economy has more than regained its pre-crisis peak. It never even saw a recession in 2012.

And if you look in nominal terms (in other words, before you adjust for inflation), East London expanded in 2008 and 2009. It was the only part of the UK to avoid a nominal-terms contraction in that year – aside from Aberdeen, home to the North Sea oil industry, which also grew throughout.

These kinds of divergences in experience are not unusual in an economy: there are always regional disparities in all countries as it’s impossible for everyone to be growing at precisely the same speed all the time. But there is evidence that the gulf in experience is greater in the UK than elsewhere.

According to official EU figures, the disparity in real incomes between regions in the UK is greater than in any other European country.

An economic paper produced by the Department for Business, Innovation and Skills a couple of years ago found that while the regions of Britain converged economically more than other major countries between 1950 and 1985, between 1995 and 2007 they have diverged more than in other nations.

The worrying trend for the UK is that such disparities have only widened in the recent recession. This looks stark enough on paper – it is even more striking in person.

In Newry, Northern Ireland, where the economy is also more then 5% below the pre-crisis peak, Damien Quinn of one of the neighbourhood community associations, talks of a sharp rise in suicides. Worn out by years of trying and failing to get work, young men (it is almost always young men) are killing themselves to escape the alternative: permanent unemployment, drug dependence and poverty. The latest funeral was just the week before he spoke to us.

In Hartlepool, Angie Wilcox of the Owton Manor Residents Association, sees a growing number of people coming through her doors for cheap food and help as they battle unemployment. She fears that welfare reforms will only make locals more desperate.

Meanwhile, in East London’s Old Street, the area nicknamed “Silicon Roundabout”, Julia Fowler, who runs tech fashion start-up Editd, says she has barely seen any evidence of recession. It is harder than ever to find decent employees; she has been expanding the business since it started in the depths of recession. For those in London, the main problems are that the cost of living – particularly when it comes to housing – just keeps rising, along with the local economy.

There’s nothing inherently perverse about one part of the country performing better or worse than another. After all, a nation state is a union of different economic and cultural areas. However, the longer one part of the country remains so far shy of the rest, the more it will have to be subsidised by its richer regional neighbours. This kind of regional redistribution already happens: according to the Centre for Economics and Business Research, London taxpayers pay a subsidy of around 20% which goes to its regional neighbours; Northern Ireland receives a subsidy of almost 30%.

The longer such imbalances persist, the more resentment is generated on both sides: one has only to look at Greece and the rest of the Eurozone, which is an analogous situation, except in a dysfunctional currency area. And the longer certain parts of the country are excluded from economic success, their people consigned to more or less permanent unemployment, the more difficult they will find it to regain their feet at any point in the future.

I also wrote a piece for the Sunday Telegraph:

If you’re one of those people who still doubts that there ever was a double-dip recession, there’s a good chance you’re right.

Not because of the veracity or otherwise of the official UK GDP numbers, which the Office for Budget Responsibility will trot out again on Wednesday. It is a simple statement of fact.

For when you dig into those statistics, it transpires that London and the South East of England never experienced a double-dip recession at all, they simply did not shrink through 2011 and 2012. The economic contraction that led to the national “double dip” happened exclusively in the North, the Midlands, Northern Ireland, Scotland and Wales.

Even during the very depths of the 2009 recession – the sharpest, deepest and longest-lasting in living memory – the eastern half of inner London didn’t see its nominal economic output contract at all.

Regional disparities of this sort aren’t unusual, there are constantly micro-booms and busts happening throughout the country. The shutting down of a factory; the opening of a supermarket; the discovery of natural resources – all of these things can plunge a town into recession or cause a county to flourish.

The difference is that the gap is greater than it has been since the Second World War. It is rather ironic that with all of the party leaders claiming to represent “one nation”, the statistics paint an economically divergent nation.

According to official European Union figures, the disparity in real incomes between regions in the UK is greater than in any other European country.

Internal research from the Department for Business, Innovation and Skills finds that while the regions of Britain converged economically more than other countries between 1950 and 1985, between 1995 and 2007 they have diverged more than in other major nations.

Working in and around central London, as the national media does most of the time, hardly provides the richest sense of how the rest of the country is faring. Which is why I have spent the past month travelling around the country, from postcode to postcode, to see how the experience of the recession, and the fledgling recovery, has varied.

The disparity is stark. In Newry, Northern Ireland, where the economy is more than 5pc below the pre-crisis peak, Damien Quinn, from one of the neighbourhood community associations, talks of a sharp rise in suicides. Worn out by years of trying and failing to get work, young men (it is almost always young men) are killing themselves to escape the alternative: permanent unemployment, drug dependence and poverty. The latest funeral was just the week before he spoke to us.

In Hartlepool, Angie Wilcox of the Owton Manor Residents Association, sees a growing number of people coming through her doors for cheap food and help as they battle unemployment. She fears that welfare reforms will only make locals more desperate.

Meanwhile, in east London’s Old Street, the area nicknamed “Silicon Roundabout”, Julia Fowler, who runs the tech fashion start-up Editd, says she has barely seen any evidence of recession. It is harder than ever to find decent employees and she has been increasing the size of the business since it started in the depths of “recession”.

For her and others in London, the challenge is trying to afford a home. For others the challenge is escaping from negative equity. For what you might pay to buy a three-bedroom apartment in Belgravia (price per sq ft: £1,586), you could afford to buy an entire street worth of three bedroom houses in New Tredegar in south Wales (price per sq ft: £59).

The difference between this and other recessions is that much of the pain is happening out of sight: not merely remotely, outside of London, but beneath the surface as well.

Unemployment is relatively low, but that disguises the fact that workers have taken real-terms pay cuts in a way Britain has rarely seen in statistical history. Millions are underemployed, unable to work as much as they want and UK-born workers have been out-competed by immigrant workers. The figures for home repossessions look benign but only because of forbearance from banks, and because troubled homeowners are looking for alternative ways to escape their debts without being physically turfed out on to the street.

In Caerphilly, Gerald Mears still lives in the house he bought with his wife decades ago. Except that he is now a tenant rather than an owner. Having been threatened with repossession, the local council bought his home and now charges him rent to continue living there.

Stories of this sort are widespread, though you wouldn’t necessarily know it if you live and work in London. However, there is at least some evidence that the Chancellor recognises this problem.

On Friday, George Osborne revealed that he has hired Policy Exchange director Neil O’Brien as a special advisor. One of his major areas of expertise is the North-South divide. As Neil will tell you, the South may well be booming again, but just don’t think that goes for the rest of the country as well.