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London and the UK Economy
Duncan MelvilleSenior Economist, GLA Economics
What is GLA Economics?
GLA Economics provides expert advice and analysis on London's economy and the economic issues facing the capital.
The unit is funded by the Greater London Authority, Transport for London and the London Development Agency (LDA).
This seminar is based on:
GLA Economics Report – “Growing Together: London and the UK Economy”
Available at: http://www.london.gov.uk/gla/
publications/economy.jsp#growing
Three views of London UK relationship:
London grows at the expense of the rest of the UK / “the North”
London is the driver of the UK economy
Both these views are incorrect Relationship is one of mutual and
positive interdependency
Growth in London and UK moved in tandem for at least 20 years
Many channels via which London and UK interact. Here consider: Migration and Commuting Trade and Specialisation London’s role as a World City London’s Tax Export
More out, than in
Net influx into London by people in their early to mid 20s
Probably a net inflow of high skilled
Inflow early in individuals’ careers and then outflow later
Analysis of migration shows:
No one way “brain drain” to London Rather London acts as training ground London gains from the net inflow of
talented young people Rest of the UK gains when people
migrate out of London later in their careers taking their skills and experience with them.
Commuting
Commuting helps to integrate London’s housing & labour markets with those in Greater South East
Just under a fifth of London’s jobs are filled by commuters
Around one in ten of employed residents of South East and East of England regions are employed in London.
Commuting 1991-2001
Census data: 1991 In: 673,000 Out: 150,000 Net: 523,000
2001 In: 723,000 Out: 236,000 Net: 487,000
Commuting Trends 1992-2003Figure 2.10: In, Out and Net Commuting to London
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100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
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London NetLondon Total OutLondon Total In
Commuters in senior occupations
In Commuters more prevalent in Finance
Trade and Specialisation
Trade is driven by specialisation Individuals, regions, and nations
specialise in certain activities and then trade to obtain other goods and services
So the more different the structure of the London economy is from the rest of the UK, the more the potential for gains from trade.
London’s economy is different
London SpecialisationsLondon Employment
Index of Specialisation
London Employment
Index of Specialisation
Professional & Business Services 693098 Transport 126972Legal, accounting, research & consultancy 224805 2.41 Scheduled air transport 39569 6.52Labour recruitment etc 152231 1.55 Activities of travel agencies etc nec 32570 1.94Miscellaneous business activities nec 99511 1.98 Other supporting transport activities 23060 1.81Industrial cleaning 84776 1.39 Activities of other transport agencies 19037 1.92Architectural/ engineering activities etc 59811 1.37 Transport via railways 12736 1.95Investigation and security activities 38835 1.89Advertising 33129 3.57 Media and Publishing 126885
Publishing 58095 3.43Financial Services 291143 Radio and television activities 39970 7.40Monetary intermediation 149163 2.26 Motion picture and video activities 17820 4.31Activities auxillary to financial intermediation 65654 7.52 News agency activities 8033 17.10Other financial intermediation 38943 3.05 Reproduction of recorded media 2967 3.29Activities auxillary to insurance / pension funding 37383 2.11
Property 91972Wholesale, Retail & Catering 249852 Real estate activities 38545 1.80Restaurants 128406 1.62 Letting of own property 32156 1.63Wholesale of household goods 58993 1.54 Real estate activities with own property 21271 2.00Canteens and catering 57045 1.48Retail: second-hand goods in stores 5408 1.71 Entertainment & Recreation 80440
Arts and other entertainment activities 36908 3.24ICT 143332 Gambling & other recreational activities 25756 1.32Software consultancy and supply 61095 1.53 Library, archives, museums etc 17776 1.45Telecommunications 52953 1.47Other computer related activities 25608 1.82 Representative Organisations 17277Data base activities 3676 2.97 Activities of business & professional organisations 12511 4.26
Activities of trade unions 4766 2.53
Creative Industries 317828 2.41 Manufacturing 2003Manufacture of jewellery etc 2003 1.49
London’s specialist strengths:
Almost all in service sector requiring workers with high levels of human capital
Bulk of identified specialist strengths produce intermediate products sold to other businesses
Highly interrelated – finance, business services, ICT
Often co-located e.g. City obvious centre of finance but 36% of employment in business services.
Agglomeration benefits
Specialist input services Specialised labour forces Knowledge spillovers Challenge from competitive neighbours
Productivity Benefits
Agglomeration benefits
A doubling of “City Type” financial and business services reduces unit costs by around 18 per cent.
UK – low cost of capital on OECD – both lending rate and spread between deposit and lending rates.
For UK business the strength of performance of London’s corporate orientated F&B sector is a key source of competitive advantage
London’s regional trade patterns reflect its specialisations.
London’s international trade pattern is distinct.
London is a World City (whatever that is)
World Cities house corporate HQs, corporate financial services and related business services.
Together this bundle of activities allows business establishments within world cities to coordinate economic activity across the world
Empirical analysis centred on the presence & connectedness of finance & business services
London ranked 1, Manchester 101, Birmingham 106
London’s Global Linkages (1)
London’s Global Linkages (2)
London is a global centre of finance and business services.
And this benefits UK business
Potential demand for London’s finance and business services is global.
The magnitude of this potential global demand is a key driving force supporting the concentration of these activities in London.
This leads to greater agglomeration benefits boosting the performance of London’s F&B sectors – to the benefits of its customers.
Attracts Corporate HQs to London
Concentration of strongly performing F&B encourages location of corporate HQs in London
33% of European HQs of Fortune Global 500 companies – well ahead of Paris on 9%, Brussels 6%.
International HQs if not in London are unlikely to be elsewhere in the UK.
Cosmopolitan nature of London is attractive to international migrants
Tax and Public Spending in London
Previous estimates of tax raised in, and public spending in London have consistently suggested that the former outweighs the latter.
So London exports taxes. Only right as London is on average a relatively well off part of the country.
First time we have undertaken a historical analysed this issue – for 1989/90 to 2002/03.
London’s tax export increases with London’s output growth
UK fiscal policy also affects London’s tax export
London’s tax export:
Between £2 bn and £9 bn in 2002/03 London’s contribution to the nation’s
coffers is greater the stronger the performance of the London economy
Hence public investment in London to underpin its economic performance is of benefit to the whole of the UK not just London and Londoners.
Summary and Conclusions
London’s contribution to UK rest on its distinctiveness within the UK economy.
Economic growth in London and the rest of the UK move in tandem.
London continues to export taxes to the rest of the UK and was the source of a very large part of the UK public sector financial surpluses of the late 1990s / early 2000s.
