LPA’s Chief Economic Advisor, Alexander Jan discusses the London Growth Plan.
The London Growth Plan launched in a blitz of publicity last month paints an optimistic picture for the city’s future, driven by innovation, inclusivity, and sustainability.
The combined plan between the Mayor of London and London Councils, with support from central government, represents a sea-change politically for the city. It is hard to imagine such a joint initiative for the city’s future being possible even 18 months ago. Perhaps in a sign of the political coming together of London, the event was held at Imperial College just off the Exhibition Road which of course is in one of the few remaining Conservative controlled councils in London.
The launch highlighted that London works best with other parts of the UK when it acts as an international gateway for talent and investment. This would otherwise go to New York, Paris or Hong Kong. After years of austerity and doughnut economics (where progress comes from reallocating the economic “pie” rather than making it bigger), support for economic growth as the number one priority appears to be back. The event perhaps also signalled that GDP (our best if by no means perfect measure of wealth creation) is once again important not just to economists but those who care about the prosperity of Londoners and indeed the country as a whole.
For the plan to succeed where previous attempts have not really done so, national government will need to return more powers to City Hall and the boroughs. This needs to include the ability to retain more of the financial resources the city generates locally. There is too, the need for at least a debate about how central London is governed. This comparatively small but super productive area has unique needs and problems that really need to be tackled. Sixty years after the creation of most of London’s local government structure, the advent of a Mayoral Development Corporation in Oxford Street is a reminder that balancing the needs of London’s centre to perform its international and national economic functions as well as local roles is not quite a settled argument.
The Growth Plan rightly looks to address pressing social and environmental challenges that affect many London citizens. It is important for supporters of economic growth to stress the need for an inclusive approach that recognises both the opportunities and the inherent complexities involved in delivering a growing city.
London Property Alliance’s report on Good Growth of last year highlighted the crucial role of central London in any plan for increased prosperity. The key to addressing challenges elsewhere in the city and indeed beyond its boundaries, is the use of powerful incentives for growth to be activated in its core and the periphery such as local retention of more the taxes generated alongside investment in public services. A world in which more than 90% of the business rates paid to some central London local authorities is taken away is unlikely to bring much in the way of higher output or indeed residential support for growth.
At a more macroeconomic level, the report highlights the importance of increasing productivity, aiming for an annual growth rate of 2% over the next decade. Until the financial crisis of 2008 this would have been perceived as a modest target to say the least. But given that productivity growth has stagnated since the global financial crisis, two percent is actually quite ambitious. And whilst we all (now) agree that boosting productivity is essential for raising living standards and funding public services, the London Growth Plan must also address the underlying factors contributing to stagnation. This means, a focus on innovation, knowledge intensive business services and emerging sectors such as artificial intelligence.
It also means sorting out our economic relationship with the EU – our biggest trading partner – and getting the right sort of immigration policy in place to allow all houses and other infrastructure to get built, as well as tackling labour shortages in sectors such as hospitality and leisure. Such an approach would ensure that these sectors are more prosperous and can in turn create the outputs for Londoners to benefit from.
Nationally, government has done much to get to grips with so-called supply side reform in areas such as planning and land use (although more needs to be done). But for infrastructure in particular, there is a need to tap into wider sources of finance to allow things to get built. This will be a balancing act. No one wants to see a return to some forms of poor value-for-money private finance. But at the same time access to non-central government capital might in some instances be worth having, especially if the alternative is to wait another two decades before for example, another railway gets built.
Finally, the growth plan emphasises embedding climate action within growth strategies. London’s commitment to achieving net-zero emissions by 2030 is designed to position the city as a leader in sustainability. However, the complexities of climate policy implementation are manyfold. There is a need to recognise that sometimes more carbon “intensive” investment will in overall terms be the best way of strengthening London’s position as the least carbon intensive location to locate employment and generate growth. The Growth Plan forms one more important step on the road to doing just that and delivering greater prosperity for present and future Londoners.
Further reading:
Report: Good Growth in Central London
