Poor productivity and high housing costs are driving a “living standards exodus” from London

Good advice. Image: Getty.

As a Londoner, I think it’s fair to say that as a city we’re quite good at giving ourselves a pat on the back (though apparently self-loathing Londoners are a thing ,too). It’s often suggested that London is an economic powerhouse, productive, innovative and leaving the rest of the country in its wake. But new research by the Resolution Foundation suggests that London could do with a bit of self-examination, too.

London’s economy is different, and in a good way: the average worker in the capital produces a third more per hour than the UK average. As a share of the workforce, twice as many people work in professional, scientific or technical roles than in other major UK cities. London’s economy has grown faster than the UK as a whole since the crisis.

But wait. When it comes to productivity growth – probably the most pressing economic challenge facing the UK – far from racing away, London’s economy is actually holding the country back. Productivity growth in the capital has been negative since the crisis.

 

How can we reconcile these two stories of economic success and failure? The answer is that London’s economic growth has been entirely driven by increasing employment and hours worked, rather than productivity improvements. This economic shift has had a profound effect on the capital’s living standards over the last decade.

The positive side of London’s new economic growth model is that it has been very good for jobs. Employment is up 5 percentage points since 2011. The capital’s employment rate is at a record high, and closing in on the UK average for the first time since the late 1980s. At a time when other major cities – particularly Birmingham – face low employment challenges London is breaking that mould.

But there’s a flipside to this story of strong employment growth – the quality of new jobs created. The big growth areas in employment across London have been low-paying, low-productivity sectors such as hospitality (up 35 per cent) and administrative services (up 29 per cent). This helps to explain London’s recent productivity problems, and why it’s experienced the biggest pay squeeze of any region of Britain. Depressingly, typical hourly earnings in London are still 7 per cent lower than they were a decade ago.


So, in some senses, London’s economy since the crisis has been a bit like the UK’s on steroids:  lack of productivity growth, a sharp pay squeeze, but lots of jobs.

But just as important as these shared challenges are the relatively unique issues London faces, particularly for those on low-incomes. The most obvious one is housing (though this is now being exported to other cities across Britain).

It will not come as a shock to anyone to learn that housing is expensive in London. But to show just how much housing acts as a drag on living standards, it’s worth noting that it turns Londoners from having the highest incomes in the country (£28,600) to being below average the UK average (£21,350, compared to the UK figure of £22,250).

London’s other unique challenge is inequality. Income inequality is around 25 per cent higher in London, and wealth inequalities are even starker. London is now the only part of the country where the typical family has no net property wealth.

Faced with high housing costs and levels of inequality, the response of many Londoners is to leave. London’s population has exploded since the millennium, driven by international migration – but it’s actually a net exporter of people to the rest of Britain. The number of people leaving London climbed to 90,000 last year, driven by rising numbers of people in their early 30s moving out. The triumph of improving London’s schools over the last 20 years is being outweighed by the disaster that is housing. If London is complacent then this exodus will likely continue.

In the past the city glossed over its problems by pointing to the fact that on most metrics it was performing better than the rest of the country. Although in many respects this is still the case, it is less true than it once was. We shouldn’t stop the heady parties that are synonymous with the capital. But we could do with a bit more sober reflection too.

Stephen Clarke is senior economic analyst at the Resolution Foundation. You can read the full report here.

 
 
 
 

Could more cities charge employers for parking spaces to help fund local infrastructure?

Look at all that lovely, empty space. Image: Getty.

As government budget cuts continue to bite and competition for funding increases, it’s becoming harder for UK cities to secure the money needed to build or maintain good quality infrastructure. For example, Sheffield’s Supertram network faces a £230m funding gap, and could close unless transport executives can raise the funds to renew the network.

But if central government won’t provide funding, there are other ways for city authorities such as Sheffield to generate income for much needed transport infrastructure. One idea is a workplace parking levy, which is a charge placed on all workplace car parking spaces within a specific boundary.

The premise is simple: each year, the business who owns that space must pay the local authority a set amount of money. Businesses may chose to pay this themselves, or pass the charge on to their employees through car parking fees. The money collected from the levy is used to help fund transport projects within the local area, while also encouraging commuters to shift away from cars and onto other modes of transport.

Pioneer cities

After being adopted in Australian and Canadian cities, the levy was first introduced to the UK in 2012 in the city of Nottingham. During its first year, the charge raised £7m and has continued to raise funds since. The money has allowed Nottingham to keep up its contributions to the Private Finance Initiative (PFI) that was used to pay for an expansion of the city’s tram network, along with other important transport improvements.

Currently, the cost per space stands at £402 per year, although there are some notable exceptions to the charge: businesses with fewer than 11 spaces don’t have to pay, and there’s no charge for emergency services and disabled parking.

Other cities have begun to follow Nottingham’s path. Both Oxford and Cambridge have made steps towards introducing their own versions of the levy to fund transport improvements.

Manchester considered the levy as a tool to help improve the city’s air quality, although a proposal was recently rejected by the city council on the basis that the levy would need to be applied across the whole of Greater Manchester to work. Sheffield made a small reference to the potential use of a levy in its recent draft transport vision, although it’s not clear how well developed these plans are.

Together with colleagues from the universities of Nottingham and Southampton, I’ve undertaken research which included interviewing a range of key people from Nottingham’s city council, the local tram operator, the Chamber of Commerce, as well as politicians and managing directors of several Nottingham-based businesses, to find out what made Nottingham’s workplace parking levy a success.


Recipe for success

For one thing, Nottingham is a politically stable city. Labour are the dominant party within the local council and have been since 1991, so councillors are less concerned about suffering electoral losses in response to a poorly received policy, and more confident about implementing more radical ideas.

Nottingham’s boundary is also tightly drawn, which meant that deciding where to apply the charge was more straightforward. Manchester’s experience shows that larger cities may have more difficulty in determining who is subject to the charge.

Initially, some businesses saw the charge as a “tax” on them and opposed the policy; media reports at the time warned of businesses leaving the city and moving to nearby economic centres, such as Derby. But there is no evidence to suggest that these worries have materialised in the longer term.

Identifying a piece of infrastructure, such as a tram system, that will be built using funds from the levy also appeared to be an important argument to “sell” the charge to sceptics. So although there was opposition to the workplace parking levy, there was also a lot of support for the tram expansion and the benefits this could bring.

An opportunity to invest

The workplace parking levy offers cities an opportunity to collect and invest large amounts of money in their own infrastructure; or to leverage even greater amounts of money from other sources, which might otherwise be unfeasible.

For Nottingham, a large part of its success is based on the fact that it preemptively used the money raised through the workplace parking levy to leverage significant finance from the UK government, through the PFI deal. To secure these funds to pay for the tram expansion, Nottingham agreed to commit to repaying 35 per cent of the value of the PFI (estimated at £187m). The council has used the levy on an ongoing basis to help it meet these costs.

The experience of Nottingham and other pioneer cities shows that while the workplace parking levy is based on a rather simple premise, introducing one is not a simple process. There will undoubtedly be opposition; the local authority may need to work hard to emphasise the benefits, in order to adopt the policy. And of course, every city and town is different, so there’s no single path to success.

But as local authorities continue tightening their belts in response to ever more challenging budgets, it may not be long before we see more places taking steps to introduce their own workplace parking levy.

The Conversation

Stephen Parkes, Research Associate, Sheffield Hallam University.

This article is republished from The Conversation under a Creative Commons license. Read the original article.