Not quite so grim up north, or here in Wales

Rhys David reports that the gap between living standards between richer and poorer parts of the UK is not as great as we thought

Rhys David is former Financial Times journalist and now writes on economic and business issues. He is a trustee of the IWA where he was development director from 2002-2008.

Now for some good news. We are all used to seeing league tables in which Wales, usually with the other leading suspects the North East and Northern Ireland, prop up the various economic and social tables outlining performance across the UK nations and regions. But maybe we depressing ourselves unnecessarily and other ways of measuring performance place Wales in a better light. After all, though we are constantly told we are the poorest this or the weakest that, for those living here Wales does not feel markedly different from many other parts of the UK, if you exclude the super-rich areas of the south east.

The Institute of Fiscal Studies seems to think so and its recent study Poverty and Inequality in the UK: 2010, on how levels of poverty have changed under Labour, actually places Wales in the middle of most of its tables, and in some case in the top half.

What the IFS has done is to take price differences into account – mainly housing – in measuring living standards and poverty across the regions. In other words if you live in the south east of England and work in central London you might not be able to afford a house in the capital and have to live 25-30 miles away. It does not matter, therefore, if you are earning several thousand pounds more than if you lived in Wales doing an equivalent job, because you are probably paying £3,000 a year for your rail season ticket, as well as a bigger mortgage. As the IFS observes:

“In general, regions with relatively high incomes also have a relatively high cost of living, and vice versa. Hence, Scotland, Wales and the northern regions of England look less poor once their lower cost of living is taken into account, and southern regions of England look less affluent. The gap between the richest and poorest regions shrinks, meaning Britain is actually less geographically unequal than appears when using UK-wide prices, as the government’s Households Below Average Income publication does.”

The research finds that in the three year period between 2006-07 and 2008-09 the West Midlands – the area hardest hit by the decline in manufacturing – had the lowest median income, 94.7 against the UK figure of 100, when regional price differences were taken into account. Wales is seventh of the 11 British regions on this measure at 97.4. Overall, Wales’s average annual median income growth over the ten years was the sixth highest, 1.6 per cent against 1.7 per cent for the UK as a whole.

However, on the more usual measure assuming uniform national prices, Wales was nearer the bottom at 91.2 of the UK average ahead of only the north east on 89.9. The best performer the south east was showing median incomes 16 percentage points ahead of the UK figure.

On relative poverty Wales again appears to have made some progress over the period of Labour government when regional prices are used. The average poverty rate at the start of the period was 19 per cent but the battery of measures introduced by the Government to reduce child poverty and to increase other benefits had reduced this to 17.4 per cent. Perhaps surprisingly, London itself remained the area of the UK with the highest levels of poverty throughout this period, its totals dropping only from 23.5 per cent to 22.1 per cent.

The lowest levels of poverty were to be found in Scotland (14.6 per cent) where levels fell by 3.1 percentage points over the period. The north east also showed a big drop in relative poverty – a fall of 3. 5 percentage points over the period compared with only a 1.6 percentage points drop in Wales.

Relative Poverty across the UK before housing costs using regional prices

Region Average poverty

rate in period %

1996-7 to

1998-99

Average poverty

rate in period %

2006-7 to

2008-9

Change

Percentage points

London 23.5 22.1 -1.4
West Midlands 19.4 21.1 1.7
East Midlands 19.2 19.8 0.6
North West 21.2 18.9 -2.3
Northern Ireland 18.2 n/a
North East 21.2 17.7 -3.5
Yorkshire 20.5 17.4 -3.0
Wales 19.0 17.4 -1.6
South West 19.8 17.0 -2.8
East of England 16.5 16.1 -0.5
South East 15.6 15.2 -0.5
Scotland 17.8 14.6 -3.1
Total 19.4 18.0 -1.4

Source: IFS

Again, using regional prices Wales emerges with levels of child poverty somewhere in the middle of the UK range. At the start of the Labour period of office the figure for Wales was 25.1 per cent, against a high in London of 34.1 per cent and a low in the south East of 19.7 per cent. At the end of the period the equivalent figures were 20.9 per cent a 4.3 percentage point drop in Wales, and 29.3 per cent for London. Scotland had by this time replaced the south east, however, with the lowest levels of child poverty, recording a figure of 17.8 per cent, an impressive 8.6 percentage point drop over the 10 year period.

The story in the case of pensioner poverty is even more remarkable as far as Wales is concerned. The figures suggest Wales, Scotland and the north east had the lowest levels of pensioner poverty throughout the period, with London, the East Midlands and the south west topping the tables.

However, the picture is different for working age adults without dependent children. In Wales 13 per cent of such adults were living in poverty in 1996-7, the third highest percentage in Britain and this figure had increased to 14.4 per cent ten years later, though the increase was smaller in Wales than in most other parts of the UK.

The report picks out the West Midlands as a relative loser under Labour and the north east and Scotland as the relative winners. The picture for Wales is more mixed but in general Wales’s relative position has improved. David Phillips, a senior research economist the IFS, concludes:

“Life certainly looks less grim up north and less rosy down south once one takes into account differences in the cost of living. Because the picture changes so much when we do this, the new government should seriously consider taking into account variations in prices across the country when measuring poverty and living standards.”

The report certainly suggests that the problems of poverty across the UK are more nuanced than has perhaps been thought. Nevertheless, this is unlikely to make it any easier for policy makers to decide how to address the problems. Any move towards greater regional wage differentiation, as is sometimes suggested as a way of creating more jobs in poorer regions would quickly wipe out the benefits people living in those regions secure from lower living costs, and in particular lower housing costs. It also remains the case that with lower housing costs Welsh people who own their own homes also have lower valued houses. As such they are not building up the capital – for their own potential use and to pass on to their children – that people in the richer regions, and in particular the south east are able to do.

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