INTRODUCTION

One of the most enduring features of Britain’s post-war economic development has been the persistence of the ‘north–south divide’. Incomes, employment growth, job opportunities and even education expenditure have all remained substantially lower in the less prosperous regions of northern and western Britain than in the booming south. Such a pattern of uneven development has presented major problems for policy makers. In addition to the obvious disadvantages to the less prosperous regions, the south-east has also experienced difficulties from its boom conditions. For example, soaring house prices have acted as a formidable barrier to in-migration from less prosperous areas, have eroded local social services (as nurses, teachers and other public sector workers are priced out of housing markets) and fed back into employers’ costs – as workers demand higher wages to meet their accommodation bills.

The costs of uneven regional development also have a national dimension. Macroeconomic stabilisation is made more difficult by the coexistence of labour shortages and inflationary pressures in the south and substantial unemployment in Britain’s ‘peripheral’ regions. For example, during the boom of the mid–late 1980s tight labour markets in the southeast fuelled wage inflation that was in turn transmitted to other regions with higher unemployment through national wage agreements, interplant agreements for multi-plant firms, and wage-setting based on relative earnings in related occupations. The resulting national inflationary pressures forced government into deflationary policy, despite the persistence of substantial unemployment and unused capacity in less prosperous regions.