OPINION - What’s the matter with London?
London is the engine of the UK economy. But according to a new report, all is not well. The Centre for Cities think tank finds that the capital’s productivity growth has plummeted in comparison with international rivals, and that this has cost the national economy tens of billions of pounds a year.
The growth in London’s productivity (output per hour of work) was a soporific 0.2 per cent per year between 2007 and 2019. That represents a fall of nearly 3 percentage points compared with the previous decade, and lags behind international competitors such as New York, Paris and Stockholm which enjoyed annual growth of 1.4 per cent, 0.9 per cent and 0.7 per cent respectively.
If this feels somewhat esoteric then put another way, the report estimates that had the capital performed in line with its global peers, it would have added £54bn to the UK economy in 2019 alone, generating roughly £17bn more to the exchequer. For context, that is substantially greater than the Levelling Up Fund (£4.8bn) and City Region Sustainable Transport Settlements (£5.7bn) combined.
London is still the most productive region in the country by far (not linking to the ONS because its website is, to my horror, down). The reasons for this are varied, from the size and clustering of businesses to higher levels of R&D and greater export intensity.
But crucially, the absolute and relative size of the capital’s economy means a slowdown has a substantial effect on the UK economy. Indeed, the report notes London is “solely responsible for 42% of the UK’s overall productivity slowdown between 2007-2019.” Yikes.
A central reason is that London’s so-called ‘superstar sectors’ including professional services, finance and communications have grown slower both compared with competing economies and the capital’s historical trend.
But there are two more key factors. First, the increasing cost of office space has gobbled up business’s budgets, leaving less money for investment in areas that boost productivity such as software, databases and R&D. The second is rising house prices and restrictive immigration policies which have hindered the capital’s ability to compete for global talent.
So what is to be done? Beyond inventing a time machine or rejoining the EU, the report’s recommendations include:
Reforming the planning system to facilitate the development of housing and offices
Extend the graduate visa to five years to expand the pool of skilled workers
Devolve greater fiscal powers to London to deepen incentives to tackle economic challenges by enabling the capital to keep more of its gains
Greater collaboration with the Mayor to reform TfL's funding model to ensure London continues to have a world-leading transport network
Rebalancing the economy away from the capital retains cross-party consensus. I’ve consulted a map and it is true most of the country is not in London. But allowing the city to wither on the vine helps no one, not least when the capital’s economic underperformance has such an outsized impact on the national economy.
Elsewhere in the paper, Keir Starmer has appointed Sue Gray (yes, that Sue Gray) as his new chief of staff. I know I’m meant to say something sanctimonious like this sort of thing looks bad for civil service impartiality, but if you can’t laugh at this then you’re not having enough fun in show business.
In the comment pages, Defence Editor Robert Fox warns that Britain is vulnerable to Russia and we must change our policy fast. Homes & Property Editor Prudence Ivey says decor should be built to last, but wonders how will the new trend for bold, quirky features will adapt to changing tastes. While Emma Loffhagen fears that the diabetes drug Ozempic is resurrecting the nightmare of toxic skinny.
And finally, as food shortages worsen and grocery prices reach another high, London’s top chefs tell David Ellis the best meals to make using tinned food. (It was either that or the return of abs which somehow felt more depressing.)
This article appears in our newsletter, West End Final – delivered 4pm daily – bringing you the very best of the paper, from culture and comment to features and sport. Sign up here.