London is underpinning UK economy but
high unemployment remains key concern
A report by the City of London Corporation and Oxford Economics

18 February 2007: The London economy is pivotal to the health and success of the wider UK economy, underpinning and securing investment and jobs throughout the nation, says a new report commissioned by the City of London and conducted by Oxford Economics. The authors say that the strength of London’s economy had been very apparent over the past year, after a period when the potential for recovery was clear but there was less hard evidence. “Overall, the number of employees in London in mid-2006 was 1.2 per cent higher than a year earlier, the fastest rate of growth since 2000 and well ahead of that for the UK as whole. We estimate GDP growth in London of 3.9 per cent in 2006, compared with 2.6 per cent for the UK as a whole.”

In a foreword to the report, Michael Snyder, Chairman (Policy and Resources committee) writes that since 1993 the City of London Corporation had commissioned independent research to quantify London’s economic success in both its regional and national context. “In 2007 the Corporation commissioned Oxford Economic Forecasting to re-evaluate and measure London’s Place in the UK Economy and their findings clearly demonstrate London’s immense – and growing – contribution to the UK’s economic and financial well-being.”

Snyder explains that redistribution of resources to other regions through the tax system was understandable, but Londoners continued to face a very high tax bill, providing between 17 per cent and 19 per cent of UK government revenues (£76-£87 billion, €115-130 billion, US$145-166 billion)) in 2004/05 (depending on whether a residence-based or workplace-based calculation is used). “Yet London only makes up 12.5 per cent of the total population. Certainly London receives a high share of public spending: between £67 billion and £71 billion, or between 13.6 per cent and 14.4 per cent of total UK spending in 2004/05. This may appear relatively high in population terms, but it is not so when measured in terms of employment or GDP. Such expenditure can be more than justified by the need to maintain a successful capital city, which demonstrably and quite rightly benefits the rest of the UK.”

The foreword continues to explain that central to the report was therefore the scale of the net contribution of the London economy to UK public finances. “Depending on the method of calculation used, London directly contributed between £6 billion and £20 billion to the UK Exchequer in 2004/05, with a mid-point net contribution of £13.1 billion. This compares with a mid-point net contribution of £12.2 billion in 2003/04. As the overall UK budget deficit has continued to increase, London’s surplus has become even more vital to the nation’s economic health. In this context, it is also important to remember that London plays a key role in the domestic economy as a trading partner with other regions. In 2005, for example, it imported over £110 billion of goods and services from the rest of the UK.”

The 2007 report demonstrates that London’s economy has grown strongly, despite weaker growth nationally, driven in large part by the strength of the financial services sector. It is estimated that London will continue to outperform the UK average growth rate next year. The report notes, however, a number of structural issues that continue to prevent even faster economic growth and which are likely to become more critical in the future as London’s population growth accelerates.

Snyder named as his key concerns London’s high unemployment rate, which is most acute in the inner London boroughs, as well as the affordability and supply of housing, and our overstretched transport infrastructure. “Clearly, if London is to continue to contribute to the wealth of the nation, further investment must be made available to upgrade and enhance London’s physical infrastructure to accommodate population growth and sustain economic development.”

The report London’s Place in the UK Economy 2006-07 also contains a special chapter identifying significant issues for the future. It provides an overall view of the capital’s education and training needs, highlighting London’s skill shortages and gaps. Snyder points out that with London at the forefront of the knowledge economy, the research also analysed how the city benefits from the presence of a number of world-class universities. “Finally, the chapter looks ahead to the challenges in maximising the benefits of the proposed development of the Thames Gateway. While this area has tremendous potential to absorb the pressures associated with London’s rapid economic growth, achieving the goals will be difficult. Many of the housing and retail developments are dependent on significant infrastructure improvements which will place yet more strain on the scarce resources available.”

The overall picture painted by this report is at once positive and challenging. “The relationship between London and the rest of the UK is a constructive, two-way process, which benefits not just London and the regions, but the nation as a whole. For it to continue to grow and prosper, we must continue to work hard to ensure that its contribution is not just recognised by policy makers, but also supported by ongoing investment and effective management of the public realm.”