The slowdown in London is the cause of weak UK productivity, according to research published on Thursday which shows that the capital has lagged behind other countries and similar global cities over the past 15 years.
In a report, the Center for Cities think-tank said the value of output per hour worked in London since 2007 had trailed Paris, New York and Brussels, and said more devolution by central government would help reduce post-Brexit and post-Brexit. the challenge of the coronavirus that has already achieved output.
London’s weight in the national economy means Britain’s gross domestic product will be £54bn higher in 2019 if its productivity rises in line with Paris, New York, Brussels and Stockholm since the 2008-09 financial crisis, the think-tank said. . Tax receipts, it added, would be £17bn higher.
However, an analysis of official data found that the capital’s annual growth in productivity – defined as the value of output per hour worked – has averaged only 0.2 percent since 2007, slightly below the national average of a weak 0.3 percent.
At the same time, productivity growth averaged 0.9 percent in Paris – almost twice the average for France – and 1.4 percent in New York, against an average of 1 percent for the US.
Low performance is important as productivity remains higher in London, with an economy based on “superstar” companies in the professional services, IT and banking sectors, than in other regions. Employment has also grown faster in the capital, which means that it increasingly determines the national trend.
Prime Minister Rishi Sunak’s government and the Labor Party under Sir Keir Starmer both see improving productivity as vital to revitalizing economic fortunes. In the long run, higher productivity is necessary if wages are to rise, and living standards improve, without causing higher inflation.
The report said the main reason for London’s decline was the performance of the most productive businesses in the center of the capital, while productivity in developing areas on the outskirts was increasing rapidly.
Noting that this sharp decline predated Brexit, City Center said it could not be explained by macroeconomic trends – such as an excessively long monetary policy – as it had not happened in other global financial centres.
However, it is suggested that the rise may be the result of increasing the cost of commercial property, which has crowded out more productive intangible investments. It added that high housing costs and a weaker pound were making London less attractive to skilled overseas professionals.
Paul Swinney, City Centre’s director of policy, said that London’s selling point was to “offer benefits above costs”, so “if the benefits erode and costs rise, it becomes less attractive”.
He added that, if it continues, subpar productivity risks compounding the challenges of Brexit and homework, which will lead to further declines.
The think tank said planning reforms could lower housing and office costs, while new fiscal powers could allow mayors to impose payroll taxes or introduce city sales or tourism taxes.
He added that other ministerial priorities should be to push for skilled migration and work towards better arrangements with the EU for trade in financial services, which is still London’s forte.
HM Treasury said the chancellor had drawn up plans to boost productivity, and the government was also setting out “ambitious” financial services reforms, while also reviewing EU-derived rules in other critical growth sectors.