Monday 16 May 2011

More infinite evidence

From The Daily Mail (article undated, but Google tells me it's from 1 May 2011):

Millions of Britons have traditionally headed South in search of a better standard of living. But research suggests those with aspirations of wealth could be better off staying put... A study of the true spending power of salaries around the country concludes that those in the North of England enjoy a higher standard of living and a better quality of life...

The study, by Barclays Bank, highlights the fact that, while the biggest salaries are available in the South, the high cost of living there means the money does not go as far as it does elsewhere. It measured average local incomes against the regional cost of living - which includes everything from mortgage repayments to the cost of a pint of beer or a bus ticket...

Barclays' spokesman Gordon Rankin said lower housing costs were a major factor in giving Northerners a higher disposable income. He added: "There is a small, but noticeable, group of people who are realising the equity in their properties in the South-East and moving to the cheaper West and North and buying property outright. Because they do not have to worry about mortgage payments, they are therefore able to survive on smaller incomes."


To cut a long story, yes, there are huge regional disparities in gross incomes; the disparities are reduced by the impact of income tax and the welfare system, and because there is free-ish movement of people and labour within the UK, the differences in net incomes will be competed away to some degree.

However, residual differences in net wages remain. So people try move from low income to higher income areas. Because there is a limited supply of housing in any area (in particular in high wage areas), what then happens is that rents and house prices are driven up in those areas, until they reach a stage where they are so high that there is no advantage in moving to a higher wage area - the extra net income is swallowed up by the higher rent or mortgage repayments. At this equilibrium stage, we observe (as observe we must) there is an equal and opposite pressure for people from 'the South' to cash in their house price gains and move to the West or North again.

As we know from an earlier article (also in the Daily Mail), generic consumer goods in the shops cost pretty much the same anywhere in mainland Great Britain, so we note that the other things which the article says contribute to the higher regional cost of living in 'the South' (cost of a pint of beer or a bus ticket), are both goods/services consumed at point of use, i.e. they include 'embedded rent' (there is no competition between a London pub and a Manchester pub, or a London bus route and a Manchester bus route).

6 comments:

Sean said...

for good sake Mark shut it, I dont want any more southern numpties moving up ere!

Ive had enough of eager young southern children setting up weekend cupcake delivery services and the like. If I want Surrey, I will move to Surrey.

Steven_L said...

However, residual differences in net wages remain.

Not so in the public sector. Thanks to nationapay scales I'm pretty cash poor in the south east, but if I got the same job oop north I'd be a lot better off.

I'd have to run a car again, but I reckon I'd come away at least 50% better off. In fact, south east councils are some of the lowest paying in the UK.

Mark Wadsworth said...

S, do you not at least have the satisfaction of watching their weekend cupcake delivery service going bankrupt again?

SL,apart from the London Weighting, I suppose that's true. Which partly explains why the % of public sector workers in London* and South East is said to be lower than elsewhere.

* London has a lower %age, officially, but as the Whitehall mandarins all earn absolutely huge salaries, the % of regional spending which is government spending is just as high as elsewhere, which most right wingers forget to mention.

chefdave said...

Do we really Barclays employees explaining Ricardos law (aka the bleedin' obvious) to us in a hamfisted way?

I can do that, and I'll even accept a 50% cut in my annual bankers' bonus.

Electro-Kevin said...

I'm absolutely strapped having moved out West. The house prices aren't that much cheaper and the regional average wage is abysmal.

Further North is the way to go to maximise bangs for bucks. It's no coincidence that on the rare occaision I've been on foreign holidays I've been surrounded by Northerners.

PS, being half Geordie I've known for a long while that Newcastle has been a fantastic city with an amazing quality of life compared to London. The people there have an amazing sense of identity and self confidence.

Mark Wadsworth said...

CD, we need as many people as possible to explain it! There are hard core Homeys and Faux Lib's who insist that it is not true, and that growth in the economy does not accrue mainly to land owners or homeowners.

EK, sure, if and when I retire I'll be away from London for good.