London's 'prop' for UK is £40bn

London and the South-East's subsidy to the rest of the country is rising rapidly and is now nearly £40 billion a year compared with just over £20 billion in 2004.

The study by Oxford Economics balances Government spending against tax revenues in each region.

It shows that London, the South-East and the Eastern regions made a net contribution of £37.7 billion to the UK public finances in 2007.

The North, the Midlands and the South-West joined Northern Ireland, Wales and Scotland as a net drain on the Exchequer. While there is nothing new in the South propping up the rest of the country financially, the scale of redistribution is gathering pace, Oxford Economics says.

Even with the capital facing tough times, this will not stop.

"We expect the UK fiscal deficit to rise to £55 billion by 2010. This is likely to be reflected disproportionately in the South, and in London in particular, given the impact of the credit crunch on financial services," the report said.