The real national divide that Labour can duck no longer

'Alongside its ostentatious displays of wealth, London has many of the poorest areas of the country'

One of the most far-reaching, in its implications, and short-sighted, in its thinking, dramas currently being played out in the Government concerns its latest revision of the index of regional deprivation. This may sound like a statistical abstraction but it is vital, as it is used in myriad ways to influence the flow of funding to regions and local authorities.

One of the most far-reaching, in its implications, and short-sighted, in its thinking, dramas currently being played out in the Government concerns its latest revision of the index of regional deprivation. This may sound like a statistical abstraction but it is vital, as it is used in myriad ways to influence the flow of funding to regions and local authorities.

Government departments, big lottery distributors, major charities and other funders will use the index when deciding how to target spending. It will affect the distribution of hundreds of millions of pounds to the most deprived communities in the country.

Material released so far containing the rankings for different council areas shows that there will be big winners and losers as a result of the changes from the previous index.

Interestingly, the biggest gainer in the country is the Prime Minister's constituency of Sedgefield, rising overnight from the 108th most deprived area to the 40th - and gaining vastly increased eligibility for money under the Single Regeneration Budget and an array of other schemes. Other notable gainers are the constituencies of the ministers responsible for the review, John Prescott and Hilary Armstrong, whose local authority districts rise 100 places between them. Of the 22 areas that stand to gain most by rising into the top 65 local areas, seven have cabinet members as the local MP.

In contrast, London is hit very hard indeed. In the new league table of council areas, London boroughs drop a staggering total of 689 places. Many other urban authorities lose out as well. The big cities outside London drop a total of 499 places.

The Government has clearly been trying to soften up the worst-affected areas for this change. The widely publicised report by Oxford Economic Forecasting on regional economic differences, emphasising the "North-South" aspect of the division rather than the economic division between areas dependent on manufacturing industry and those that are not, was published at a suspiciously convenient time. It is used to obscure the fact that London's unemployment rate is markedly higher than the national average. Once housing costs are taken into account, the capital also has a higher proportion of its population, 27 per cent, among those on the bottom fifth of incomes than any other region of Britain.

For months and months, London councils have been trying to penetrate the rationale behind these extreme shifts, buried as they are in a maze of sophisticated statistical techniques. It's a struggle that I took on as soon as I was elected Mayor. Any analysis of the core elements of deprivation - unemployment, low incomes, discrimination against black and minority communities - shows that, alongside its ostentatious extremes of wealth, London has many of the poorest areas of the country. How has this reality been "conjured" out of existence - and with it the funding these areas need for regeneration and building social inclusion?

Unfortunately it has been impossible to come up with a coherent answer. In this age of freedom of information, the Government told local authorities and inquirers the remarkable tale that the statistical data used to calculate relative deprivation was confidential and could not be released.

This deprived everyone of the chance of testing the reasons why, for example, Kilburn, a highly deprived area in my constituency of Brent East, had gone from being the 89th most deprived local authority ward in the country to the 1,305th - an obvious absurdity. Similarly, Queen's Park ward drops 2,000 places to 2,608th and with that could lose eligibility for local people to apply for funding from the Department of Education for a new information technology centre and other future initiatives.

We have been able to unpick some of the reasons for the huge extent and scale of the changes. One of the effects of the statistical techniques used has been to downgrade significantly the impact on the rankings of the numbers of local schoolchildren who have English as a second language. This twist in the game - a concealed but classic exemplar of institutional racism - is one of the explanations for London's changed showing.

In hiding the data the Government was flying in the face of recommendations from its own Social Exclusion Unit, whose "champion" minister, Hilary Armstrong, was naturally in charge of introducing the new index. The Social Exclusion Unit had recommended any new index should include indicators for crime and the state of the physical environment - both included in the previous index. These elements of deprivation have been excluded from the new index, again explaining part of the bias against London and other urban areas.

Two conclusions flow from this - in addition to the blatant bias of the system used for calculation.

First, the aim is to deprive London of resources for aiding its most deprived areas. This will further heighten the contrast between the most deprived and richest parts of the city. The effect will be to make London a worse place for all its inhabitants, as it is impossible to prevent the consequences of deprivation, including its impact on fields such as crime, from spreading into the rest of the city. Add to that large shortages of personnel in the police, due to unattractive salaries, and the consequences are evident.

Such a worsening of the situation in London is against the interests of every part of the country. In the new globalised economy much foreign investment will either come to London or it will not come to the UK at all. By attempting to bias its criteria against London, the Government is simply killing a goose that can lay golden eggs - to no benefit, quite the reverse, for the rest of the UK.

Second, these changes highlight the need to introduce regional government into England. The North-east is quite right to want a regional assembly to press its interests. One of the biggest problems that London faces is precisely that it cannot effectively carry out policies to tackle the extremes of wealth and poverty.

This issue of regional government in England was avoided by the Labour government in its first term. It is a big issue that is not going to disappear in its second.