The West Midlands is losing its young talent to the draw of the UK capital, a think tank has warned.

During 2004, almost 4,000 young people migrated from the region - the worst loss in the UK - Reform found.

The West Midlands had one of the smallest graduate workforces at 14 per cent of the working population - only Yorkshire & Humberside and the North East were lower. In London 26 per cent of workers are educated to degree level.

The research also highlighted the widening economic imbalance between the South East and the rest of the country.

While wealth creation and enterprise is concentrated in London and the south, other regions experience high welfare dependency and public spending.

London, the South-east and the East currently pay half of the personal income tax of the country but receive only a third of public spending, Reform said.

The West Midlands pays 7.3 per cent of personal tax but receives 8.5 per cent of government spending.

Report author and health economist Nick Bosanquet said: "The regional imbalance of the UK economy is already stark.

"The danger is that it will become self-perpetuating, with some regions increasingly starved of talent and investment and reliant on income transfers from the South-east."