London’s contribution to the UK’s public finances is disproportionately positive. While the capital typically runs a budget surplus, most other regions are in deficit, some spectacularly so. The taxes raised in London pay for public services around the country. When people tell you that London gets more than its fair share of infrastructure projects, remind them of that … writes David Smith
You do not have to be Dr Johnson to believe that he who is tired of London is tired of life. The capital, while tucked away in the southeast corner of the UK, dominates the country’s economic and business landscape.
This is plain on just about every economic measure. London’s productivity is, on official figures, 26% higher than the UK average, and much higher than that relative to the poorest performing regions.
London’s contribution to the UK’s public finances is disproportionately positive. While the capital typically runs a budget surplus, most other regions are in deficit, some spectacularly so. The taxes raised in London pay for public services around the country. When people tell you that London gets more than its fair share of infrastructure projects, remind them of that.
London is also the buzzing centre of private enterprise in the UK. There are more businesses per 10,000 people in London than in any other parts of the country.
It is not, of course, just about the economy and business. London is the cultural capital of the UK, with an unrivalled collection of galleries, museums and theatres. It boasts seven Premier League teams, more than a third of the total.
Unlike in come other countries, the UK’s financial capital is also its political capital. Though a degree of devolution has occurred, the power of Westminster and Whitehall continue to guarantee that London dominates UK politics.
All this speaks to London’s lasting success in economic, business, cultural and political terms. So, should we sit back and bask in the warm glow of that success?
The answer to that is a very clear no. Take productivity for example. Although productivity levels in London are far higher than in the rest of the country, the capital has been caught up in the productivity malaise affecting the country as a whole. London’s productivity has stagnated in recent years.
“Over the last 15 years London’s productivity growth has both trailed its international competitors and has been the main cause of the UK’s productivity struggles, costing the national economy tens of billions of pounds per year,” the Centre for Cities said in a recent report.
“If London’s productivity had performed in line with global counterparts such as New York, Paris, Stockholm and Brussels (all of which performed better than their respective national average) this would have added £54 billion to the UK economy in 2019 alone, which would have generated an extra £17 billion for the exchequer to spend,” it added.
“The capital’s slowdown has been most marked amongst its so-called ‘superstar’ firms that had previously been driving productivity growth, and has fallen sharpest in central London, where these firms disproportionately locate. And while finance has been part of the cause of this slowdown, it hasn’t just been limited to this sector, with information and communications and professional services also seeing a slowdown in productivity growth.”
The Centre for Cities found that two factors had hampered London’s productivity. The first was the rising cost of office space, the second the difficulty of recruiting talent, both because of high housing costs and because of Brexit, which had restricted the supply of workers from Europe.
Related to this, there is another large cloud over London. The City, taking in the Square Mile and Canary Wharf, is the most extraordinary concentration of expertise and financial power. London is the world’s second most important financial centre, vying with New York for the number one spot.
It is, though, not what it was. 2024 saw the lowest number of listings on the London Stock Exchange since 2010, and an exodus from London. Only 18 companies listed on the market last year, while 88 delisted or transferred their main listing elsewhere, with New York as the main rival attraction.
“It’s been quiet year for the London Stock Exchange and … headwinds facing the UK’s listings market remain,” said Scott McCubbin of EY. “Ongoing geopolitical instability, slow economic growth and a diminished appetite for domestic equities among pension funds have impacted valuations and liquidity. We also saw the largest outflow of companies from the main market since the global financial crisis as companies sought access a deeper pool of investors and the prospect of improved liquidity on other exchanges.”
There has been much wailing and gnashing of teeth over this, and a government effort to get pension funds investing more in UK equities, and in making London more attractive. All is by no means lost.
“While London faces strong competition from other financial centres, its unique strengths – including a global reputation for financial expertise, strong corporate governance, and a robust legal framework – remain competitive advantages,” said McCubbin. “By leveraging these strengths and implementing strategic reforms, London can reassert itself as a leading global destination for IPOs (initial public offerings).”
London is strong and successful. It can never, however, take that success for granted.
