Transcript London and the UK Economy

London and the UK
Economy
Duncan Melville
Senior 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/ec
onomy.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
-
2003 Autumn
2003 Spring
2002 Autumn
2002 Spring
2001 Autumn
100,000
2001 Spring
2000 Autumn
2000 spring
1999 Autumn
1999 spring
1998 Autumn
1998 spring
1997 Autumn
1997 spring
1996 Autumn
1996 spring
1995 Autumn
1995 spring
1994 Autumn
1994 spring
1993 Autumn
1993 spring
1992 Autumn
1992 spring
Commuting Trends 1992-2003
Figure 2.10: In, Out and Net Commuting to London
800,000
700,000
600,000
500,000
400,000
300,000
200,000
London Net
London Total Out
London 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 Specialisations
London
Employment
Professional & Business Services
Legal, accounting, research & consultancy
Labour recruitment etc
Miscellaneous business activities nec
Industrial cleaning
Architectural/ engineering activities etc
Investigation and security activities
Advertising
693098
224805
152231
99511
84776
59811
38835
33129
London
Index of
Employment Specialisation
Index of
Specialisation
2.41
1.55
1.98
1.39
1.37
1.89
3.57
Financial Services
Monetary intermediation
Activities auxillary to financial intermediation
Other financial intermediation
Activities auxillary to insurance / pension funding
291143
149163
65654
38943
37383
Wholesale, Retail & Catering
Restaurants
Wholesale of household goods
Canteens and catering
Retail: second-hand goods in stores
249852
128406
58993
57045
5408
ICT
Software consultancy and supply
Telecommunications
Other computer related activities
Data base activities
143332
61095
52953
25608
3676
1.53
1.47
1.82
2.97
Creative Industries
317828
2.41
2.26
7.52
3.05
2.11
1.62
1.54
1.48
1.71
Transport
Scheduled air transport
Activities of travel agencies etc nec
Other supporting transport activities
Activities of other transport agencies
Transport via railways
126972
39569
32570
23060
19037
12736
6.52
1.94
1.81
1.92
1.95
Media and Publishing
Publishing
Radio and television activities
Motion picture and video activities
News agency activities
Reproduction of recorded media
126885
58095
39970
17820
8033
2967
3.43
7.40
4.31
17.10
3.29
Property
Real estate activities
Letting of own property
Real estate activities with own property
91972
38545
32156
21271
1.80
1.63
2.00
Entertainment & Recreation
Arts and other entertainment activities
Gambling & other recreational activities
Library, archives, museums etc
80440
36908
25756
17776
3.24
1.32
1.45
Representative Organisations
Activities of business & professional organisations
Activities of trade unions
17277
12511
4766
4.26
2.53
2003
2003
1.49
Manufacturing
Manufacture of jewellery etc
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
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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,
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.