Poor Sadiq Khan. His Mayoralty has coincided with both the pandemic and Brexit, both of which have hit London by more than the rest of the country. And yet there is a sense that he may have used these problems to disguise some of his own making, notably the negative economic impact of Low Traffic Neighbourhoods.
With the London borough elections due to take place on 5 May this year, it is time to examine London’s relative economic performance carefully to see how the capital has performed.
First GDP growth. In the five years since Sadiq Khan became Mayor in 2016, London’s GVA has grown by 3.0%, almost the same as the 2.9% GDP growth for the country as a whole over this pandemic-affected period. During the previous eight year period when Boris Johnson was Mayor which of course included the Great Financial Crisis, London was the UK’s economic powerhouse, growing by 21.3% compared with 10.9% for the country as a whole.
Second jobs. Again using the same five year period and comparing with the previous eight years, the number of people in working in London rose by 2.2% between 2016 and 2021, slightly faster than the 2.0% for the country as a whole. But looking back again at the 2008-16 period, London also outperformed on jobs, with a 15.8% increase compared with 7.1% for the UK as a whole. Early 2022 data suggests that employment in the capital may be rising more strongly now with a 0.5% rise in jobs in January.
High house prices are not necessarily a good thing and might reflect a failure to build houses to meet demand. But prosperous economies tend to have larger rises in house prices. Yet, the data is consistent with the picture from both the GVA/GDP data and the employment data. From 2016-21 London’s house prices rose by 7.8% compared with 22.6% for the UK as a whole whereas from 2008-16 London’s house prices rose by a massive 65.2% compared with 19.7% for the UK as a whole.
All this data is consistent with a view that London has become less dynamic relative to the rest of the UK. But what it doesn’t show is the cause.
We have looked at three potential issues: the differential impact of Brexit; the differential impact of the pandemic and the Low Traffic Neighbourhood policies.
For Brexit, we have looked at the ex ante analysis by Cebr Brexit and the Metropolitan Areas (which I co-authored with Cebr’s Vicky Pryce) which calculated that a Brexit of the kind eventually negotiated should cost London’s GDP by 1.9% relative to the UK net of any deregulatory gains by 2030.
For the pandemic we have used New York as a comparator. New York property prices in the past two years have been more dynamic than London prices – the St Louis Fed data suggests a rise of 20.5% in the two years to Q4 2021 compared with London’s 8.9%. And New York (state rather than city) GDP grew by 6.6% from 2016-21 compared with London’s 2.9%.
Cebr’s research with Inrix predicted that by 2030 rising road congestion could be costing London about 2% of GDP. Inrix’s annual study estimated that London’s congestion in 2021 made it the world’s most congested city with the average driver losing 148 hours in traffic jams and congestion, roughly the same as pre pandemic levels. We estimate that the rise in congestion since 2016 has reduced London’s GDP by between 0.5% and 1% (probably nearer to the lower end). Given the actual reduction in road traffic volumes over this period, it is presumably policies that have caused this result. It is worth noting, however, that the bulk of the cost of congestion is felt in the additional hours spent by motorists travelling rather than in lower GDP.
It is likely that the GVA data for London fails fully to reflect the buoyancy of London’s Flat White Economy which often takes a number of years to get included fully in the data. Given the buoyancy of the recent employment data for the capital, it would appear that it still has some underlying dynamism, if less so than in the pre Covid period.
So Sadiq’s policies probably have weakened the London economy, though not decisively. Brexit also seems to have negatively affected the economy even if the widespread prediction of many City jobs flowing elsewhere has been only partly reflected in reality – the bigger impact has been from reduced net inflows of European migrants. Together they seem to explain most of London’s GVA growth shortfall compared with New York in recent years.
Author: Douglas McWilliams, Deputy Chairman
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