London’s slowdown is the basis reason for the UK’s weak productiveness, in keeping with analysis revealed 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 financial system meant UK gross home product would have been £54bn greater in 2019 if its productiveness had grown consistent with that of Paris, New York, Brussels and Stockholm for the reason that 2008-09 monetary disaster, the think-tank mentioned. Tax receipts, it added, would have been £17bn greater.
Instead, evaluation of official information discovered that the capital’s annual development 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 development averaged 0.9 per cent in Paris — nearly twice the common for France — and 1.4 per cent in New York, in opposition to a median of 1 per cent for the US.
Such underperformance issues as a result of productiveness stays far greater in London, with its financial system based mostly on “superstar” firms within the skilled providers, IT and banking sectors, than in different areas. Employment has additionally grown quicker within the capital, which means it more and more determines nationwide tendencies.
Prime minister Rishi Sunak’s authorities and the Labour celebration underneath Sir Keir Starmer each see boosting productiveness as essential to reviving the fortunes of the financial system. Over the long run, greater productiveness is critical if wages are to rise, and residing requirements enhance, with out this feeding greater inflation.
The report mentioned the principle 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.
Instead, it recommended the rise may very well be the results of growing business property prices, which had crowded out extra productive intangible funding. It added that prime housing prices and a weaker pound made London much less engaging to extremely expert abroad professionals.
Paul Swinney, Centre for Cities coverage director, mentioned London’s promoting level was that “it offers benefits above the costs”, in order that “if its benefits are eroded and its costs are increasing, then it is less attractive”.
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 house, 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 “ambitious” monetary providers reforms, whereas additionally reviewing EU-derived guidelines in different crucial development sectors.