Andy Burnham, the Mayor of Greater Manchester, has highlighted economic disparities between the north and south of England as a national issue, emphasizing that underperformance in northern regions negatively impacts the entire country. He has called for stronger devolutionary powers to address the imbalance.

Data indicates that London and the South East contribute disproportionately to the UK’s public finances, paying substantially more in taxes than they receive through public spending. London’s net contribution exceeds £48 billion, while the South East’s stands at around £15 billion. All other regions operate at a net fiscal deficit. Burnham argues that this dynamic effectively requires the south to subsidize the north.

Anthony Breach, director of policy and research at the Centre for Cities think tank, pointed out that Burnham’s proposals for greater devolution are often misunderstood. Some interpretations suggest he advocates for increased spending in the north funded by southern taxpayers, but Breach contends this is already the current system. He suggested that those opposed to London and the South East supporting other regions should actually welcome Burnham’s call for devolution.

Public spending is highest in London, partly due to its population size, higher living costs, and increased public sector wages. However, the productivity of northern regions lags significantly behind. An analysis by the Institute for Fiscal Studies shows that public spending in the North East accounts for nearly half of the region’s productivity, whereas in London it amounts to less than a quarter.

The economic gap reflects historical and structural issues. Since the 1980s, as the UK shifted away from industrial manufacturing toward a service-oriented economy centered in London, regional inequalities have deepened. The UK also has one of the highest levels of income inequality among large European countries.

Demographic factors contribute as well. Regions with older populations, such as the North East, face higher demands for social care and pensions, which consume a substantial share of regional productivity. Birmingham, the UK’s second largest city, has the highest proportion of residents claiming unemployment benefits. In areas with fewer or lower-paid jobs, households often receive more in public benefits and services than they pay in taxes.

Burnham has criticized the UK’s highly centralized fiscal system, noting that 95 percent of taxes collected go directly to Whitehall, a share higher than any other G7 country. Local governments depend heavily on grants allocated based on specific needs like social care. Over the past decade, these grants have been cut by 40 percent in real terms, further straining local authorities. The number of central government employees has doubled compared to all local government staff combined since 2000.

This centralization, Burnham argues, is limiting economic growth outside London. Studies from the Organisation for Economic Co-operation and Development indicate that countries with more fiscal devolution—where local governments control a larger share of tax revenue—tend to have higher average wages.

Among potential reforms, there is discussion of allowing combined authorities to retain part of the business rates they raise, creating an incentive for local growth. However, critics warn that without sufficient economic base and workforce development, fiscal devolution might trap less prosperous regions in a vicious cycle with declining revenues.

Japan’s experience with similar regional divides is often cited. Since the 2000s, Japan has reduced centrally controlled grants to local governments and devolved some tax authority, while maintaining baseline support to poorer areas to ensure minimum service levels.

Burnham’s vision for “putting power in the hands of people and places who can use it best” may follow a comparable path. Yet experts like Breach caution that devolution without fiscal autonomy is unlikely to generate the desired boost in regional growth.