The State of Britain

Jaywick in the headlines again, the time for regional policy innovation and the ‘Boris Bridge’ to the Emerald Isle

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The effectiveness of regional policy was in the spotlight following the Government’s publication of its deprivation index which looks at an area’s levels of income, employment, education, health and crime as well as housing services and living environment. Jaywick in Essex, again made the headlines and was still the most deprived area of the UK. Geographically though Jaywick was an outlier, the town was followed by nine deprived areas of the North West, most noticeably Blackpool, but then, and despite the wealth passing through it, Anfield.

In terms of local authorities, 49% of Middleborough and Liverpool had deprived areas, Knowsley, Hull and Manchester were next. The first authority from the ‘southern’ half of the country was Great Yarmouth at 25th. What was most significant though, was that in terms of performance since 2015, nine of the top ten areas that have seen deprivation accelerate the fastest in the UK were in the north. Oldham topped the list and saw deprivation increase by c8%, only Worcester appeared to prevent a northern clean sweep. Eight of the ten most improved areas were in London, with Copeland the only northern authority to appear.

In fairness, there was a northern bias to the 100 English towns targeted by the government’s new £3.6bn Towns Fund but this money is unlikely to shift the dial much. Time to try something different? Like him or loath him, Donald Trump’s Opportunity Zones appear to be making a difference in the American Rust Belt. Investors defer or reduce capital gains if funds are invested in projects in deprived areas of the US, resulting in the profits on those projects becoming tax free after a decade. Why not pilot it in Oldham, and then let the Treasury run its slide rule over the numbers.

The government announced the twelve renewable energy projects that had won ‘contracts for difference’ auctions, which guarantee energy prices for suppliers. The new projects will power more than 7m homes for as low as a startling £39.65 per megawatt hour. This is 30% below the £57.50 auction price achieved in 2017 and is below the £50 per megawatt hour that wholesale electricity prices have hovered around this year. These figures suggest no taxpayer subsidy is needed and evidences that offshore wind in particular, is a UK success story that is benefiting deprived eastern coastal towns and cities.

On nuclear, EDF says the cost to complete the Hinkley Point C plant is now estimated to be between £21.5bn and £22.5bn – an increase of £1.9bn to £2.9bn compared to the previous estimate. These cost overruns will not hit UK consumers because the price agreed for the electricity it will produce was £92.50 per megawatt hour (when the wholesale market price was around £40) reflecting EDF’s commitment to absorb any cost increases. Not all of the additional spend will be local, but some will, and few Somerset businesses will complain.

Construction work continues while the HS2 review is ongoing but if HS2 does goes ahead, the first phase between London and Birmingham will be delayed by up to five years, Transport Secretary, Grant Shapps, has confirmed. That section of the line was due to open at the end of 2026, but it could now be between 2028 and 2031 before the first trains run on the route. HS2’s total cost has risen from £62bn to between £81bn and £88bn.

Channel 4 News has seen documents showing that the Treasury and Department for Transport have been asked for advice on the possible costs and risks of a 20 mile bridge from Scotland to Northern Ireland. Better infrastructure in Galloway suggests a bridge from Portpatrick to Larne is the preferable route at a cost of c£15-£20bn. Where or who will foot the bill for this project is unclear, although the £80bn HS2 project is under review. Every Prime Minister wants a legacy.

The Stats
The ONS said the dominant services sector helped the economy grew 0.3% in July, which meant growth was flat over the quarter, an improvement on the 0.2% contraction seen in April-to-June. On manufacturing, the figures suggest that firms are beginning to restart stockpiling in anticipation of the possibility of no-deal Brexit in October.

The labour figures remained good. The ONS said the UK employment rate was the joint-highest on record since comparable records began in 1971 at 76.1% , and higher than a year earlier (75.5%). The largest increase in employees by industry was in the professional, scientific and technical industry, up 3.3%. The largest decrease by industry was in the information and communication industry, down 1.6%. The UK unemployment rate between May to July was estimated at 3.8%; lower than a year earlier (4.0%) and unchanged on the quarter. If bonuses are included, the ONS estimated that the annual growth in average weekly earnings for employees increased to 4% in the three months to July, from 3.8% in the three months to June, the biggest rise since the mid-2008. In real terms, annual growth in total pay was 2.1%. Another ONS survey into flexible working revealed 42% of public sector workers worked flexibly compared with 21% of private sector workers.

Inflation fell to 1.7% from 2.1% in August driven by a 5% decrease in games, toys and hobbies, especially computer games, plus clothing prices increased by 1.8% compared with a 3.1% rise a year ago. Culture (theatre tickets etc) saw a slower rise of 0.2% in July and August compared with 2.9% a year ago. The cost of bread went up though, along with breakfast cereal and meat.

The annual growth in house prices slowed to its lowest rate since September 2012, with four of the nine English regions seeing prices falling over the year. Average house prices increased by 0.7% in the year to July 2019, down from 1.4% in June 2019, seven years ago the rate was 0.4%.

Whilst the Bank of England held interest rates at 0.75%, on the Continent, the European Central Bank unveiled fresh stimulus measures. The deposit facility rate, paid by banks on their reserves at the ECB, was already negative, but was cut again from -0.4% to -0.5%. The ECB also said it was re-starting quantitative easing and will buy €20bn of debt a month from 1 November.

GDP growth in the euro area and the EU28 rose by 0.2% during the second quarter of 2019 compared with the previous quarter, according to Eurostat. In the first quarter of 2019, GDP had grown by 0.4% in the euro area and by 0.5% in the EU28. Over the year key European economies have been sluggish; Germany has grown by 0.4% and France by 1.4% with Italy contracting by 0.1%.

The euro area (EA19) unemployment rate was 7.4% in August 2019, down from 7.5% in July 2019 and from 8.0% in August 2018. This is the lowest rate recorded in the euro area since May 2008. The EU28 unemployment rate was 6.2% in August 2019, down from 6.3% in July 2019 and from 6.7% in August 2018.

The euro area inflation rate was 1.0% in August 2019, the same as in July. A year earlier, the rate was 2.1%. European Union annual inflation was 1.4% in August 2019; also the same as in to July, a year earlier the rate was 2.2%.