New report reveals a strategy to reverse London’s productivity problem
London’s new local industrial strategy must focus on strategic investments and devolving fiscal power to the capital, a new report by the capital’s independent think tank, Centre for London, argues.
The capital’s economy is key to the nation’s prosperity. It represents around 25% of the UK’s output, despite only 15% of the UK living there, providing over 6.5 million jobs and contributing 21% of the UK’s tax revenue.
London is more productive than any other region in the UK. Yet its productivity growth, measured in growth in economic output per hour worked, has slumped from approximately 3% from 1998-2007 to just 0.1% since 2007.
In our post-Brexit, post-pandemic world, London must develop a new model for driving economic growth. One that reboots the capital’s economy, making it more productive, while becoming more inclusive and sustainable – improving living standards and facing up to the climate crisis.
Rebooting London’s Economy identifies three key ambitions for a new local industrial strategy: to make London a better place to do business; attract workers and develop their skills; and rationalise our tax and governance systems. Within these three ambitions, the report outlines seven key areas for change, highlighted below:
Making London more attractive to productive businesses
- To reduce the high cost of living and doing business in London, government must fund more affordable housing and better resource the planning system. Together, the government and the Mayor of London should set up an expert commission to identify small sites in London’s Green Belt for housebuilding near rail stations—these should compensate for any loss of nature. These changes would free up investment for more productive uses, such as research and development (R&D), on which London is currently underperforming compared to the UK as a whole.
- Our transport system helps millions access the capital’s brilliant opportunities. However, London’s public transport network must improve to connect the millions living in Outer London to the capital’s most productive jobs and unlocking more of London’s talent. The Department for Transport should work with Transport for London to improve the reliability, speed and frequency of services in outer London by devolving suburban rail services and providing funding for the necessary capital investments.
Attracting workers and developing their skills
- London’s workforce has the highest proportion of university graduates in the UK, but faces significant skills shortages. Given that one in five Londoners are economically inactive, government should reform the apprenticeship system to make it more flexible and devolve its administration to London, so that local government can tailor the system to the capital’s needs.
- Post-Brexit immigration policies have changed London’s migrant demographics, with an increase in non-EU migration. While this hasn’t had the negative effect on skilled migration to London that was feared, more must be done to make London attractive to high-skilled workers by reducing the cost of getting a visa and the barriers to settling for the long-term.
- London is heavily dependent on high-skilled migration from abroad. Government should safeguard the Graduate Visa and extend its term from two to five years, to encourage highly trained individuals to work in the UK.
Reforming governance and taxes to boost growth
- The UK is one of the most centralised developed countries in the world. Fiscal devolution, if executed right, is associated with increased GDP per capita and productivity. National government should devolve control over property taxes to London, so that the Mayor and local authorities can raise funding for long-term strategic investments.
- Council tax, stamp duty and business rates are all taxes in desperate need of an overhaul. Government should move towards a proportional property tax to replace council tax and stamp duty, and London government should explore potential replacements for business rates, like a land value tax.
Antonia Jennings, chief executive at Centre for London, said: “Despite 15 years of stagnant productivity growth, our report shows that transforming London’s economy, and that of the UK, remains within reach. Together, we can make real strategic change, by focusing on attracting businesses and skilled workers and reforming the capital’s governance.
These policy changes could increase London’s productivity, catalysing good economic growth that would contribute to rising living standards both in London and across the UK. As we approach the general and Mayoral elections this year, I’m calling on our next political leaders to expedite the development of a new industrial strategy for London”
Cllr Claire Holland, deputy chair of London Councils, said: “Boroughs play a vital role in driving economic growth across the capital’s communities – but for too long we’ve been starved of the powers and resources we need.
London’s devolution journey is not yet over. As this report sets out, rebooting the capital’s economy must include bringing control over resources and services closer to the communities they serve.
From devolving parts of the Apprenticeship Levy through to reforming the local government funding system, there are policy changes required at a national level that will bring benefits not only to Londoners but to the UK economy as a whole.”
The report has been sponsored by City of London Corporation.
