From the TUC

One London: under the coalition, the capital’s economy moved even further from the rest of the UK

06 Jul 2015, by in Economics

As the government’s flagship regional initiative seemingly flounders under the failings of investment in the railways and ahead of potential Budget announcements, it is worth reviewing just how far the regional reality is from the rhetoric.

For over the period of the coalition, London moved even further away at an even faster pace (for GDP, no less faster for employment) from other regions.  London’s GDP grew twice as fast as the rest of the UK, and its employment almost three times as fast. But even for London, there has been a levelling down on productivity, suggesting that in recent years activity has been fuelled predominantly by low-paid work.

Regional economic growth

Over the four years 2010-2013, London grew by 14.5% and the UK excluding London grew by 7.4% – 2.0 times as fast.  London grew over three times as fast as the two slowest growing regions/nations, the North West (3.2  x) and Northern Ireland (3.3 x). 

GVA growth, 2010-2013

 reg_gva 

[NB regional growth figures are derived and presented by the ONS as gross value added (GVA) rather than gross domestic product (GDP), looking at national income from the point of view of the firm, and excluding certain taxes and subsidies like VAT. Note also that the discussion here compares London with the UK excluding London; the earlier TUC releases were comparing individual regions and then the UK as a whole with London]

In terms of GVA, London not only moved further away from the rest of the UK but also did so faster than before. In the four years ahead of the crisis (2005-2008), London grew by 19.7% and the UK excluding London by 13.9% – still considerably faster, but ‘only’ by 1.4 times.

Regional employment growth

On employment, the gain to London was even more skewed. Over 2010-2014 (labour market data are more timely) employment in London grew by 11.5%; employment in the UK excluding London grew by 4.2% – so London was 2.8 times as fast. In the case of the regions/nations with the slowest jobs growth, London jobs grew 6.3 times faster than in the North West and 4.3 times faster than in Wales.

Regional employment growth, 2010-2014

reg_emp

In the five years ahead of the crisis (2004-2008), employment in London grew by 8.6% and the UK excluding London by 3.2% – 2.8 times as fast, the same as before the crisis – and again no progress made not only on rebalancing, but also on the pace at which imbalances are intensifying.

 

Productivity

But the flip side of all this is less rosy for London. Given the relative gains on employment are even bigger than those on GDP, this means that productivity in London fell behind relative to the rest of the UK over the period of the coalition.

This is unsurprising given widely recognised national trends, though as the chart shows the regional distribution of the national fall in productivity rather than being shared uniformly across regions appears fairly arbitrary.

Regional productivity, change 2010-2013

reg_prod1

In fact there has been a marginal reduction in regional inequalities in productivity, with London’s productivity far and away the highest and Wales and the North East the lowest. The chart below is indexed so that UK productivity (i.e. the average of all regions) = 100. Productivity has hence levelled down very marginally.

Regional productivity, indices, UK=100

 

reg_prod2

In terms of economic interpretation, this reduction in productivity in London suggests that while work has been created it has been in lower value-added – and hence predominantly lower-wage – industries, and there has been a more limited expansion or even contraction in higher value-added activities.

But overall, in spite of this modest reduction, productivity remains greatly more skewed to London than both employment and jobs. In 2013 London accounted for 22.2 per cent of UK GDP and 13.3 per cent of UK jobs; its productivity was 36.6 per cent above the UK average. Comparing with regions excluding London, its productivity is around 50 per cent higher than everywhere else (on a rough average).

This regional perspective hence serves as a reminder of the extent to which high value-added activities have been located in London, most obviously the City and other commercial property and business services.  

In recent years the goose has proved far from golden, and moreover the extent of the shortfall in productivity for regions outside London behind shows the wrongheadedness of the way finance dominates the economy and the absence of a more substantial industrial base. Certainly it is right to have a regional strategy, but in the absence of any concrete action to resolve wider imbalances in the UK economy let alone any significant cash resources at a time of austerity, these severe imbalances are unlikely to be resolved.

As TUC General Secretary Frances O’Grady said this morning:

We need a recovery that works for the whole of the UK, but cuts to infrastructure and services have hit places that are most in need of investment. We now have an unbalanced recovery that is too weak outside of London, too dependent on families getting into debt, and too focused on jobs in low-paid service industries.

UK regions won’t become powerhouses of growth and job creation unless they are powered-up by investment in skills, infrastructure and decent public services – but the Chancellor’s extreme cuts will mean pulling the plug.

We need a better economic plan that prioritises balanced growth across the UK by targeting investment to communities that are most in need of modern infrastructure and more decent jobs.