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Why is the rest of the country still so much poorer than London?

This is the question MPs hope to answer, as they launch an inquiry into efforts to improve economic growth across the UK.

Many governments have pledged to end the wealth divide. Tony Blair, the former Labour Prime Minister, claimed in 1999 that the concept was outdated, while Conservative Prime Minister David Cameron vowed in 2015: “We’re going to close the north-south growth gap.”

But official figures show that the economic gap is still there - and it’s still growing.

Across England, economic output in 2017 was £1,563 billion, or £28,096 per person. That’s the total value of goods and services produced in the country, known by economists as Gross Value Added or GVA.

But some places were far more productive than others.

In London, economic output per person was £48,857.

In the West Midlands it was £22,713.

We hear a lot about a "north-south divide", but it’s wrong to see this is a division between the north and the south. Apart from London, only the south east had a productivity level above the national average.

(Image: PA)

In other words, the Midlands and the south west of England are also poorer than London and the south east. In fact, productivity in these regions is lower than it is in the north west.

So the real wealth gap is between London and the surrounding area, and the rest of the country.

What’s more, the gap is growing.

Figures published by the House of Commons Library show that GVA grew by 2.5% (after inflation) annually in the West Midlands between 2010 and 2017.

That's pretty good. It means the economy is growing more quickly in the West Midlands economy than across the UK as a whole, where average annual growth growth was 2%.

But London's economy grew by 3.3% annually in this period - so the gap between the West Midlands and London got worse.

What does this mean in practice?

(Image: Getty Images Europe)

There’s plenty of poverty in London, and there are some wealthy people in the West Midlands. But overall, a region with lower productivity has fewer well-paid jobs.

This has a knock-on effect on public services too. Councils and police forces in the wealthy south find it easier to raise money from council tax, which means they’ve been less affected by cuts in funding from the Treasury.

The House of Commons Business, Energy and Industrial Strategy Committee is looking at what Government can do to help. Members include Conservative, Labour and SNP MPs, and they will be looking at barriers to establishing new businesses and the role of regional bodies in promoting growth.

But the Committee has already spotted one potential problem. It’s obtained figures from the Department for Business, Energy and Industrial Strategy showing that a Government scheme called the British Business Bank, which provides funding for smaller firms, has been funnelling money to the south.

The British Business Bank provided £5bn to London firms between October 2015 and September 2018. That comes to £567 for each London resident.

At the same time, it provided £1.49bn to the West Midlands. That comes to £255 per person.

Rachel Reeves MP, Chair of the Business, Energy and Industrial Strategy Committee, said: “While the Government’s Industrial Strategy aims to boost productivity and growth throughout the country, there are too many areas that are being left behind.

“Regional disparities are increasing faster than any other major European country, meaning vast swathes of the UK are failing to share in the prosperity of London and the South East.

“Our inquiry will be looking at what more the Government can do to help business and whether firms in less productive areas have the support they need to get going and grow.

“We want to hear about the specific challenges businesses face as well as stories of areas that have been successful in reducing disparities.

“Greater efforts to narrow regional disparities is key if we are to truly have an economy that works for all.”

Business leaders, and anyone else with a contribution to make, can get involved by submitting evidence to the committee via its website, at https://www.parliament.uk/business/committees/committees-a-z/commons-select/business-energy-industrial-strategy/inquiries/parliament-2017/inquiry10/ .

How central government tries to help regions grow their economies

It’s always tempting to say that central government doesn’t care about the North and Midlands - or perhaps about anywhere outside the M25, the motorway that encircles greater London.

But there’s been a plethora of schemes designed to create wealth and help businesses succeed in the poorer regions of the country. It's just that they seem to have had limited success.

Here are a few of them:

Regional Development Agencies (RDAs)

These were regional offices of the Department for Business, Energy and Industrial Strategy (previously known as the Department for Trade and Industry) with their own staff and budgets. At one point, the nine RDAs in England had annual funding of £2.3 billion between them.

They were a Labour invention and the Conservative-led government abolished them in 2010.

Local Enterprise Partnerships

The replacement for RDAs, created by David Cameron’s government. They are more of them, each covering a smaller area, and they are led by local businesses and councils.

They received funding from a Local Growth Fund, and the Greater Birmingham and Solihull LEP received £433m for the period from 2015 to 2021.

The Regional Growth Fund

This was created in 2010 and provided grants totalling £3.2 billion to businesses across the country over a five year period.

City Deals

These were the brainchild of Nick Clegg, the former Deputy Prime Minister. The Government signed a deal with a city council, typically giving it access to finance - such as the ability to raise taxes locally - in return for a promise to use the money to help businesses create jobs.

The Northern Powerhouse

Former Chancellor George Osborne’s plan to turn the north into a second economic powerhouse, alongside London. While it involved a range of different projects, the key element was a plan to improve transport links between the north’s great cities.

A new body called Transport for the North was created to draw up plans, and the Government is currently considering its proposals.

The Midlands Engine

A similar concept to the Northern Powerhouse, for the Midlands. Goals include improving transport links between the East Midlands and West Midlands, and encouraging collaboration between businesses and universities.

Combined Authorities

These are regional councils created by local councils working together. For example, the West Midlands Combined Authority was created by Birmingham, Solihull, Walsall, Dudley, Sandwell, Coventry and Wolverhampton councils.

They are eligible for funding - typically around £30m a year over 30 years - and can take control of areas like housing and skills.

The catch is that central government is only willing to provide significant funding to combined authorities which agree to create directly-elected mayors to lead them.

The Stronger Towns Fund

A £1.6 billion fund for places “that have not shared in the proceeds of growth in the same way as more prosperous parts of the country”, according to the Government.

So far, £583m has been allocated to towns across the North with a further £322m allocated to communities in the Midlands.

It’s been described as an attempt to bribe MPs into voting for Theresa May’s Brexit deal, although there’s no connection between how local MPs voted and where money is allocated.

The UK Shared Prosperity Fund

This is a planned Government scheme to replace “structural funding” currently provided by the EU.

The EU gives the UK £2.4bn a year for economic development, including support for businesses, employment and agriculture.

So far, few details have been released about the Shared Prosperity Fund will work or how much money it will provide after Brexit takes place.