by The slowdown in London is the root cause of poor UK productivity, according to research published on Thursday showing the capital has lagged behind the rest of the country and similar global cities over the last 15 years.
In a report by the think-tank Center for Cities, he found that the value of production per hour worked in London since 2007 was lower than in Paris, New York and Brussels, and argued that more decentralization by central government would help mitigate post-Brexit and post-Brexit the coronavirus challenges that have hit production.
London’s weight in the national economy meant Britain’s gross domestic product would be £54bn higher in 2019 if its productivity rose in line with that of Paris, New York, Brussels and Stockholm since the 2008-09 financial crisis said the think tank. He added that tax receipts would be £17bn higher.
Instead, an analysis of official data showed that the capital’s annual productivity growth – defined as the value of output per hour worked – has averaged just 0.2% since 2007, slightly below the already weak national average of 0. 3 percent
Over the same period, productivity growth averaged 0.9 percent in Paris – almost twice the French average – and 1.4 percent in New York, while the US average was 1 percent.
Such poor performance matters because productivity remains much higher in London, whose economy is based on ‘superstar’ firms in the professional services, IT and banking sectors, than in other regions. Employment in the capital was also growing faster, which means that it is increasingly determining national trends.
Both Prime Minister Rishi Sunak’s government and the Labor Party led by Sir Keir Starmer see increasing productivity as key to reviving the economy. In the long run, higher productivity is necessary if wages are to rise and living standards improve without fueling higher inflation.
The report found that the main reason for the slowdown in London was the stuttering performance of the most productive firms in the heart of the capital, while productivity in developing areas on its fringes rose fastest.
Noting that this sharp slowdown preceded Brexit, the Center for Cities said it could not be explained by macroeconomic trends – such as a long period of very loose monetary policy – as this was not the case in other global financial centres.
Instead, he suggested that the increase may be due to the rising cost of commercial real estate, which has displaced more productive intangible investments. He added that high housing costs and a weaker pound had made London less attractive to highly-skilled professionals from abroad.
Paul Swinney, director of policy at the Center for Cities, said the advantage of London is that it “offers the benefits outweigh the costs”, so “if its benefits erode and costs go up, it becomes less attractive.”
He added that if this continues, low productivity could compound Brexit and homework challenges, causing a further decline.
According to the think tank, planning reforms could lower the cost of housing and office space, and new fiscal powers could enable the mayor to levy a payroll tax or introduce a city sales or tourist tax.
It added that other ministerial priorities should be to stimulate the migration of highly skilled workers and to push for better deals with the EU on trade in financial services, on which the fate of London still depends.
HM Treasury said the chancellor had put forward a plan to boost productivity and the government had also outlined “ambitious” financial services reforms, while reviewing EU-derived rules in other critical growth sectors.
