London’s Economy

I congratulate the hon. Member for Hendon (Mr. Dismore) on initiating this important debate. As the Member for the Cities of London and Westminster, it is a pleasure to take this opportunity to highlight the importance of London’s contribution to the nation and to make some points that are important to its continued success. The hon. Gentleman understandably—and quite rightly—did not focus just on London’s economic success, but I hope that he will forgive me if my speech is geared towards the importance of the economy. Not only do I have 70,000 constituents, but almost 1 million people come to work in my constituency every day. He made some important points about certain aspects of poverty and the high rate of unemployment in London, which I hope that the Economic Secretary has taken on board. However, I shall focus on the financial services industry and other industries that are so important to the wealth of London and, therefore, to this country’s continued economic success. London now has the highest unemployment of any region in the UK. We also have the largest number of migrants to this country, an issue which it is often difficult to debate in parliamentary terms, who understandably come to the vibrant area of central London. One of the reasons why it is perhaps so difficult to get back into work is that we have quite a large black economy—its size is unknown. A lot of people are paid cash in hand, which is a strong disincentive to employ and train up many people in the indigenous population, who therefore remain unemployed. Also, a lot of people who perhaps lack the skills and aptitude to hold down a job live in social housing. They find it difficult to improve their lives for the reasons that the hon. Member for Hendon has set out and find it easier to remain unemployed if they thereby qualify for the scarce social housing to which he also referred. There are some major problems in London. I endorse what the hon. Gentleman has said about the need for serious thought about a problem that was thought to be specific to the capital, but which, I fear, now extends beyond its borders. I suspect that many hon. Members with seats in the home counties—for instance, Essex, Kent or Hertfordshire—would recognise precisely the same problem of increasing polarisation. In order to live in many bits of London and the south-east, people need to have inherited property, to work in financial services or a related industry or be so poor that they qualify for social housing. The group in the middle is for ever being squeezed. That polarisation has been an element of life in central London for many decades, but I suspect that it is now every bit as evident in Hendon, St. Albans and Stevenage. That raises major issues—of social cohesion, apart from anything else—that we shall all have to address going forward. Hon. Members may be aware of a report commissioned by the City of London corporation entitled ““London’s Place in the UK Economy, 2006-07””. It highlighted the increased importance of London’s wealth and its potential to generate tax revenue at a time when the overall UK budget balance continues to deteriorate, a point to which I suspect that I shall return not only today, but at some point in the next few days, as we debate the Budget in the main Chamber. London is widely regarded as a world city; indeed, many see it as ““the”” world city—the big global capital—and rightly so. However, the capital’s current standing across the globe reflects the fact that at its heart is a highly concentrated cluster of international business, whose beneficial effects are felt in many parts of the world. However, it would be mistaken to forget the important contribution that our capital city makes rather closer to home. To paraphrase the hon. Gentleman, London made a net contribution of £13.1 billion to UK public finances in 2004-05, which is a figure that I believe has increased fairly steadily over recent years. Data published by the City of London corporation suggest that GDP growth in London stood at 3.9 per cent. in 2006 compared with 2.6 per cent. in the UK as a whole. Further data suggest that London as a whole contributes between 17 and 19 per cent. of UK Government revenues, depending on whether residence-based or workplace-based calculations are used, despite London’s population making up only one eighth of the country. Financial and related business services have played a key role in the acceleration of the capital’s growth, since London is dependent on financial services to a far greater extent than any other region of the UK. The importance of financial services to London is underscored by the fact that more than 40 per cent. of the country’s financial services firms are based in London. Indeed, financial services now account for more than 9 per cent. of the UK’s GDP, compared with just 7 per cent. a decade ago and with as little as 5 per cent. in 1980. It therefore appears that the success of London’s City cluster goes hand in hand with the performance of the economy as a whole. The UK fiscal position as a whole, relative to London, has deteriorated sharply since the turn of the millennium. In the fiscal year 2004-05, for instance, the capital’s net positive contribution to the UK current account was calculated to lie between £6 billion and £20 billion, so a mid-point estimate implies a net contribution of £13.1 billion, the figure to which I have referred. A strong case can be made that London’s tax export to the rest of the UK has helped to mitigate the impact of the increasing UK deficit, which reached £39.7 billion in 2004-05. Without the benefit of that substantial contribution to the Exchequer, the public borrowing requirement would be considerably greater, with stark consequences for public spending as a whole throughout the UK. Furthermore, London imported £110 billion of goods and services from elsewhere in the country in 2005, amply demonstrating that London’s success provides essential support to the rest of the UK economy. As the hon. Gentleman has said, if London does not succeed, the rest of the UK will suffer. London occupies a uniquely competitive position in the UK economy. Its high costs are more than offset by other factors, making it an attractive location for internationally-traded services. London’s high-value-added economy depends upon providing benefits for its highly skilled work force. London has a strong track record in attracting skilled professional and managerial workers from overseas as well as lower-skilled workers, who have filled potential labour shortages in the retail, catering, transport and other sectors and have consequently helped the UK to maintain a relatively liquid employment market. However, all the caveats that I mentioned earlier must be taken into account. It is a great worry that an increasing number of Londoners are being left behind, notwithstanding the efforts of central Government, London government as a whole and the City of London corporation, which plays an important role in Hackney, Tower Hamlets and Islington, in trying to attract from further afield not only the brightest and the best, but others to make their full contribution to the financial services sector. In 2005 alone, 32 per cent. of London’s work force possessed degrees or higher education qualifications, compared with just over one quarter in the rest of the UK. That picture reflects the fact that London is competing internationally. London is truly a global capital and does not sees its competitors as—dare I say it, given the earlier intervention—Birmingham, Glasgow or Edinburgh, but New York and Tokyo and, in the decades to come if not already, Shanghai, Beijing, New Delhi and Hong Kong. London is one of an elite group of cities. New research commissioned by the City of London corporation has for the first time established an index of competitiveness, which tracks 46 of the world’s financial centres. That index—the global financial centres index—shows London and New York as the two global powerhouses, ranking well ahead of Hong Kong and Singapore. At present London is ranked ahead of New York in all five areas of competitiveness—people, business environment, market access, infrastructure and general competitiveness. However, the report highlights widespread concerns about the UK tax regime relative to its competitors. It is also important that we take this opportunity to highlight some of the issues of broader infrastructure. We cannot be complacent about the skills infrastructure, and there are issues of physical infrastructure—in particular the transport infrastructure, to which the hon. Member for Hendon has referred. I should like to make a bid for serious consideration of Crossrail and other aspects of the transport infrastructure, without which London’s great dominance, which has been jealously guarded and created strongly in the past two decades, will begin to be undermined. That would be little short of disaster not only for our capital city, but on a broader basis. Central to London’s ability to retain its competitive edge will be its cultivation of the knowledge economy. The capital is well served by its 43 higher education institutions, but more than ever the best universities compete globally for teaching, students and finance. This debate is not simply about higher education, but we must all face that important issue. Some of our very best universities are suffering as a result of global competition—not least for places, given the numbers of graduates from China and India coming through across the country. There is also a significant brain drain of some of the best academics, who are now going to US universities simply because pay and conditions are so much better. I hope that we shall give great consideration to setting free our best universities. Now a fee structure is in place, I should like there to be a much more flexible structure.