1. Department for Public Leadership and Social Enterprise Leslie Budd Open University Business School, Open University Paper presented to Urban and Regional Economics Seminar Group (URESG) meeting Open University in Wales Cardiff 25 – 26 September 2013

2. Department for Public Leadership and Social Enterprise

3. Explicit and implicit subsidies to the activity-complex economies of London that agglomerations of similar size do not receive (eg. Manchester-Liverpool); Urban and regional economic policy (including industrial and transport) privileges London as Vanity Fair (Thackeray) and the site of its continuous fair (Heathrow); The metaphor of vanity appropriate to Cross-Rail, Thameslink 2000 (3000?) and HS2 that generate one-off benefits for construction and rail manufacturing in some parts of the UK but longer term benefits of economic rents to certain classes of economic agents in London and South-East; These large rents are generated for property-based rentiers and owner occupiers (including me!) with no re-distributive mechanism through allocative and distributional roles of state in regard to rest of UK; The prospect of Scottish independence and the London Finance Commission’s Report recommending more tax raising powers for London, make Tom Nairn’s “Break-Up of Britain” prescient in regard to England if greater regional economic balance is not developed and sustained; In macroeconomic policy terms, London is becoming to the regions and devolved nations what Germany is to the periphery of the Eurozone.

4. 4 Crisis finance 1 1 / 4 % Investment Banking 2 1 / 2 % Financial Services 8% Manufacturing 12% Wholesale, retail, transport, hospitality 36% Professional Services (incl. Law and Accounting) 40% Department for Public Leadership and Social Enterprise

5. Refers to type of agglomeration economy that emerges from the joint location of unlike activities which have substantial trading links with one another’ (Parr and Budd, 2000; 603). Activity-complex economies can be likened to economic growth poles in which economic activities are developed and sustained by proximity to each other, for example financial centres; innovation networks and so on. The benefit of proximity is expressed in the form of gaining agglomeration economies and thus lowering the transactions costs or the firms involved; Department for Public Leadership and Social Enterprise

6. A transaction space is defined as ‘ an abstract n-dimensional space defining the institutional, legal, cultural and language differences that must be accommodated if a given transaction between two or more agents is to take place ’ ( Wood & Parr, 2005; 4). The idea of a transaction space is one that is developed from the relationship between transactions costs and agglomeration economies. In more homogeneous transaction spaces, transactions costs are lower and vice versa. The principal economics literature that inform transaction spaces are urban and regional economics; and institutional economics; In the former case agglomeration economies provide the theoretical framework and the governance structures associated with Transactions Costs Economics (TCE). Department for Public Leadership and Social Enterprise

7. 1.The more that a transaction space is homogeneous, the lower will be the transactions costs of constituent forms and thus the transaction space will be more efficient. On the other hand, the more heterogeneous a transaction space the higher the transactions costs. 2. In this context heterogeneity, is defined as the degree to which the collection of institutional and cultural characteristics faced by economic agents ’ transactions is different across the geographical space that separates these agents. BUT perversely, London as a capital city faces a much lower level of heterogeneity in respect of this definition Department for Public Leadership and Social Enterprise

14. RegionPopulationDensity (per Km 2 ) GVA (m. 2011 prices) Adjusted GVA (m.2011 prices) Difference North East2,597,000302 (2326) £41,423£122,623 (£69,601)£81200 (£27586) North West7,052,000498 (4349) £122,873£220,579 (£109494)£97706 (-£13379) Yorkshire and Humberside 7,052,000343 (4066) £90,913£236,957 (£86652)£146044 (-£4261) East Midlands4,533,000290 (4127) £80,512£248,199 (£76605)£167687 (-£4907) West Midlands 5,602,000430 (3649) £95,295£198,125 (£101209)£102830 (£5914) East of England5,847,000306 (3179) £113,712£332,217 (£138624)£218505 (£24912) London8,173,1945206 (5206) £286,603£49,217 (-£213352)-£237386 (-£73250) South-East8,635,000452 (4320) £192,208£380,164 (£172428)£187956 (-£19779) South West5,289,000222 (3657) £101,083£407,064 (£107121)£305981 (£6038) English average 6,086,688 894 (3875)£124,598

15. Department for Public Leadership and Social Enterprise

19. Land Securities and British Land have invested over £2bn (2011 prices) in buying property assets around CrossRail termini and proposed ones around HS2 (total cost north of £80bn). Shares prices have been supported by this public policy intervention since 2000 when CrossRail was effectively confirmed; Assisted in riding out post 2007 financial crash effects on share prices and balance sheets; Accounting rules have perverse effect on balance sheet treatment of increased capital gains on land assets; Feeds through into profit and loss accounts in which tax liabilities are reduced; So through London-centric focus, state socialises costs of investment (O’Connor) but also socialises costs of risk (Budd); Alonso model of housing and transport costs trade-off also appears to hold for commercial real estate; In theoretical terms and the quasi-financialisation of large construction companies (PFI and REITs) rent as a special form of surplus value becomes generalised - feeding through into rent component of GVA: itself heavily concentrated in London and SE

20. Department for Public Leadership and Social Enterprise

21. State no longer conforms to Musgrave and Musgrave’s Theory of Multiple Household in that allocation and distribution functions of government are subordinated to stabilisation role, promoting accumulation of private assets underwritten by state on a divergent spatial scale; Increased Gini coefficient of rising inequality of income and wealth in UK now has a strong spatial dimension; This dimension reinforced by treatment of London as a perverse transactions space and privileging its activity-complex economies compared to other agglomeration of approximate size and density; Infrastructure underpins rentier economy of London thereby generating large economic rents to land-based economic agents (including me!); Boosterism of NME and its academic catamites leads to bad economics and politics; London Finance Commission proposal banal in themselves but may lead to more federal England in the prospect of an independent Scotland; Macroeconomic policy ( pace monetary policy) forward guidance based on London and SE – so cost of capital is effectively spatially constructed.