London subsidising rest of UK to tune of £13bn a year

London is bankrolling less affluent areas of the country to the tune of more than £13bn a year, new research reveals today.

The report from Oxford Economics, an independent think-tank, shows that the average person living or working in the capital pays about £1,740 a year more in tax than he or she gets back in public spending on infrastructure such as roads and schools. The South-east and East Anglia contribute more than £1,000 a head to the nation's coffers each year, while the rest of the country is a drain on Whitehall.

Northern Ireland is the most heavily-subsidised region of the country, each resident enjoying about £3,700 a year more in public spending than he or she pays in taxes. Wales, the North-east and Scotland are the other big winners. The report estimates that London, the South-east and East Anglia together have paid out a net £250bn over the past 10 years.

Alan Wilson, director of consulting at Oxford Economics, said: "Although the cross-subsidisation of Scotland, Wales and Northern Ireland by the rest of the UK has been widely reported, what these figures reveal is that even within England there are definite winners and losers in terms of the demand on the public purse. Whilst regional policy must continue to support those areas of the UK that have suffered economically from the disappearance of traditional manufacturing jobs, it is also vital that government doesn't kill the goose that lays the golden eggs by hampering the continued prosperity of those regions that do generate financial surpluses."

The report shows that government spending in London in the 2004/05 financial year, the most recent available for purposes of analysis, was £68.7bn. This compares with the £76.4bn in tax raised from people living in London and the £87.2bn in tax paid by those who work in London. While no one would deny that many parts of London are rich, critics argue that it would be better to channel more of its revenue to the capital's deprived areas. In contrast, tax revenue from Northern Ireland was £10.7bn and public expenditure was £16.9bn.

Colin Stanbridge, chief executive of the London Chamber of Commerce, said: "This research confirms what we already knew - that London is short-changed by the UK Exchequer. Despite the fact that the capital accounts for nearly one-fifth of the UK economy, London has some of the most heavily overcrowded trains, the greatest disparity between skilled and unskilled workers and accounts for some of the most deprived neighbourhoods in the country. Without renewed investment in skills and transport - most notably the urgently needed Crossrail project - London's role as the engine of the UK economy will come under threat."

Ian Morrow, deputy chief executive of the Northern Ireland Chamber of Commerce, said the province's subsidy was a legacy of its troubled past. "Northern Ireland faced challenges in the Seventies and Eighties which were not experienced elsewhere in the UK, and much of the public subsidy was directed towards security operations and regeneration programmes, essential to the maintenance of the economy. The situation has now changed and the Northern Ireland business community knows that long-term reliance on the public sector is no longer viable," he said.