London’s slowdown is the foundation reason for the UK’s weak productiveness, in line with analysis printed on Thursday exhibiting that the capital has lagged the remainder of the nation and comparable world cities over the previous 15 years.
In a report, the Centre for Cities think-tank mentioned the worth of output per hour labored in London since 2007 had trailed that of Paris, New York and Brussels, and argued extra devolution by central authorities would assist ease post-Brexit and post-coronavirus challenges which have hit output.
London’s weight within the nationwide economic system meant UK gross home product would have been £54bn larger in 2019 if its productiveness had grown consistent with that of Paris, New York, Brussels and Stockholm because the 2008-09 monetary disaster, the think-tank mentioned. Tax receipts, it added, would have been £17bn larger.
As a substitute, evaluation of official knowledge discovered that the capital’s annual progress in productiveness — outlined as the worth of output per hour labored — had averaged simply 0.2 per cent since 2007, barely under the already feeble nationwide common of 0.3 per cent.
Over the identical interval, productiveness progress averaged 0.9 per cent in Paris — nearly twice the common for France — and 1.4 per cent in New York, towards a mean of 1 per cent for the US.
Such underperformance issues as a result of productiveness stays far larger in London, with its economic system based mostly on “celebrity” firms within the skilled providers, IT and banking sectors, than in different areas. Employment has additionally grown sooner within the capital, that means it more and more determines nationwide tendencies.
Prime minister Rishi Sunak’s authorities and the Labour social gathering beneath Sir Keir Starmer each see boosting productiveness as essential to reviving the fortunes of the economic system. Over the long run, larger productiveness is important if wages are to rise, and dwelling requirements enhance, with out this feeding larger inflation.
The report mentioned the primary motive for London’s slowdown was the stuttering efficiency of the most efficient companies on the coronary heart of the capital, whereas productiveness in rising areas on its fringes grew quickest.
Noting that this sharp slowdown predated Brexit, the Centre for Cities mentioned it couldn’t be defined by macroeconomic tendencies — such because the lengthy interval of ultra-loose financial coverage — as a result of it had not occurred in different world monetary centres.
As a substitute, it advised the rise could possibly be the results of rising business property prices, which had crowded out extra productive intangible funding. It added that top housing prices and a weaker pound made London much less enticing to extremely expert abroad professionals.
Paul Swinney, Centre for Cities coverage director, mentioned London’s promoting level was that “it presents advantages above the prices”, in order that “if its advantages are eroded and its prices are rising, then it’s much less enticing”.
He added that, if it continued, subpar productiveness risked compounding the challenges of Brexit and homeworking, which might trigger additional decline.
The think-tank mentioned planning reforms may decrease the prices of housing and workplace area, whereas new fiscal powers may allow the mayor to levy a payroll tax or introduce a metropolis gross sales or vacationer tax.
It added that different ministerial priorities must be to spur high-skilled migration and pursue higher preparations with the EU for commerce in monetary providers, on which London’s fortunes nonetheless hinged.
HM Treasury mentioned the chancellor had set out a plan to spice up productiveness, and the federal government had additionally set out “formidable” monetary providers reforms, whereas additionally reviewing EU-derived guidelines in different vital progress sectors.