Life in the Kingdom of Albia

Would London and the South-east prosper if they became an independent country?

We are in the process of rethinking the relationship between the various bits of the UK. There will inevitably be a new relationship with Northern Ireland. If Labour wins the next election, there will be a Scottish Assembly; if Wales wants an assembly it, too, will get one; and, just this week, Labour's Regional Policy Commission outlined plans for separate regional economic strategies.

But if the English regions are to have more power, what are the implications for the largest region of all? What will London and the South-east have to say?

There is, as yet, little resentment in the South-east about the extent to which it has to subsidise the rest of the country, no equivalent of Umberto Bossi's Lombard League in Italy. But we are at one of those moments in world history when fissures within countries are growing, where their arbitrary borders are being questioned, where a grand redefinition of countries is possible.

So let's just suppose that in the next few years, an equivalent of the Lombard League does gather strength - let's call it the Thames League - and that the South-east and London do decide they wish to form a new independent country - let's call it Albia - and let's see.

We'll take the present official definitions, which run out as far as Oxfordshire, Hampshire and the Isle of Wight, but exclude Suffolk and Cambridgeshire, both part of the London commuter belt. In practice, the boundaries would be decided politically: I suspect that with Oxford in, Cambridge would eventually join, too.

This Albia would have a population of 17.8 million, making it a little larger than Australia, a lot larger than the Netherlands or Belgium and, to take a slightly different comparison, considerably larger than Scotland, Ireland and Wales put together. It would, of course, be considerably richer than the UK as a whole. London's GDP is about 125 per cent of the UK's, while the South-east's is a bit over 110 per cent. It would also be quite rich by European standards: Albia would have about the same GDP per head at purchasing power parities, as France and Germany, maybe a little higher, and considerably higher than Italy or the Netherlands.

But how would the country appear in world terms? GDP would be more than $400bn, which on official figures is bigger than Russia. That says more about official calculations of GDP than it does about the real size of the Russian economy, but on my calculations, Albia would be number 11 in the world economic league.

In the short term the people in Albia would be better off as citizens of an independent country. The billions that people in London and the South-east pay in subsidies to the rest of the country would be available to improve the standard of living and the public facilities of Albia. We do not have regional balance of payments figures, but Albia would probably have a current account surplus. There would be a trade deficit, with large imports of manufactured goods, though the South-east has a high-quality engineering sector. Virtually all energy would have to be imported, too.

On the other hand, most of the UK's invisible earnings would be retained by the region, so there would be a large surplus on that score, particularly from tourism and financial services. In economic structure it would look rather like Switzerland, with relatively small manufacturing sector except in specialist areas such as pharmaceuticals, but compensated by tourism and banking. Were Albia to have its own currency (while the rest of the UK adopted the euro?) it might run into the same problem as Switzerland, where the strength of the Swiss franc tends to crowd out manufacturing. Viewed in static terms, it would be a very successful part of the world.

But what about the economic dynamics, for there would undoubtedly be big changes in the role of London, in particular. I think that Albia would gradually turn into something much more like Hong Kong or Singapore. It would lose some business in providing administrative services to a large hinterland. The other regions of England would no longer want to pay London rates for central government services. Albia, for its part, would no longer feel obliged to maintain military forces abroad, or to spend so much on diplomatic representation. It would behave much more like Australia, playing an important regional role, but not pretending that it was any sort of world power. I could see it choosing not to be part of the EU (like Switzerland) while the rest of the UK remained in.

If Albia would become less important politically, it would, I suspect, become commercially more important. It could tailor its taxation and other financial policies to suit its own needs, without having to consider the rest of the UK. No longer would politicians elected by people with no interest in the economy of London and the South-east (and maybe some hostility towards the region) have any say in the way it organised itself.

Practical matters would be no problem. We have a model in the Benelux countries of a single economic zone with open borders, and it works very well. People on the Continent often live in on country and work in another: live in France and work in Geneva, or in Sweden and in Copenhagen. There are plenty of examples of common economic zones run by different political regimes. It would be no more difficult to manage a separate Albia than to manage a separate Scotland.

There would have to be a constitutional decision: would Albia keep the Royal Family or would it chose to be a republic? I suspect that it would actually be more likely to vote to keep the royals, certainly in the initial stages of independence, than the rest of England: the Home Counties are pretty royalist.

In short, the idea of a separate, rich, city-state centred on London is wholly practical. It would be the nearest approximation, within the UK, to some of the fastest-growing economies in the world: in particular, Singapore and Hong Kong. Both those places have benefited vastly from independence from their hinterland. Why should Albia not do the same?

There is only one problem. This is not going to happen. It is not going to happen because the concept of England has too deep historical roots. Scotland, Wales and, of course, Ireland all have their own identities, separate from England's. But the South-east does not have an identity separate from the rest of England. That is the crucial difference between the Lombard League and the Thames League: one has history, the other does not.

What is happening, though, is that cities and regions are becoming relatively more important vis-a-vis nation-states. The various regions of what is still the UK want more say in their own affairs, quite rightly, as Labour recognises. Expect Albia to want more say, too.