Centre for London | Rebooting London’s Economy

This report explores to reboot London’s economy, so that it is more productive, while being more inclusive and sustainable.

Stagnating productivity. A technical recession. And an ongoing cost of living crisis. These are not the signs of a healthy economy.

The capital is central to the UK’s economic performance. Only 15% of the UK population lives in London – and yet London’s economy represents 25% of output, provides 6.5 million jobs and contributes £4 of every £10 to UK tax revenue. This discrepancy means when London’s productivity falters, the wider UK economy suffers.

Since the global financial crisis, this is exactly what has happened. London’s productivity growth has fallen from an average of 3% a year (from 1998-2007) to just 0.1% from 2007 to 2021. The city’s flatlining productivity growth means lower economic growth, lower tax revenues, and lower wages for the whole country.

We need a new local industrial strategy to reboot London’s economy – one which lays out a strategic framework to boost productivity which will, in turn, raise incomes, spread opportunity, and prioritise sustainability.

Our report identifies three key ambitions for a new local industrial strategy:

• Make London a better place to do business

  • Developing London’s infrastructure is key to economic growth. The city’s soaring real estate costs are too high for fast-growing businesses to consider, while high housing costs are deterring high-skilled workers from settling in the capital. In addition, businesses want access to a wide talent pool. As such, reliable and expanded connectivity to London is vital to attract productive businesses.

• Attract workers and develop their skills

  • The UK has 200,000 new job vacancies needed in green jobs alone. Meanwhile, crucial infrastructure sectors such as construction and nursing, and economically productive industries such as the screen industries are battling for skilled workers.

• Rationalise our tax and governance systems

  • OECD analysis shows greater devolution of fiscal power for local government is associated with increased productivity and GDP per capita. In comparison to other global cities like New York and Paris, London has very little control over its funding. As such, London local government is reliant on regressive taxes, like council tax, which undertax the ultra-wealthy and do not sufficiently incentivise economic growth.

Our recommendations for how to tackle these issues are outlined below. Full details are included in our report.

Making London more attractive to productive businesses

We recommend:

• Together, the government and the Mayor of London should set up an expert commission to 10 sites in London’s Green Belt near rail stations for new development corporations – compensating for any loss in biodiversity.
• National government should adequately resource local authority planning departments, through expanding grants. To make up for the low supply of new homes in recent years, this means returning funding to its 2010 level, if not more, to address the backlog of planning cases.
• The Department for Transport should work with Transport for London to improve the reliability, speed and frequency of services in outer London. This involves devolving suburban rail services terminating just outside the southern GLA boundary to Transport for London, as well as funding the necessary capital investments to improve the network.

Attracting workers and developing their skills

To plug the skills gap, we suggest:

• Management of the Apprenticeship Levy should be fully devolved to London and other Mayoral Combined Authorities. This would allow London government to increase the proportion of the levy which can be transferred to SMEs from 25% to 50% and tailor apprenticeship programmes to the capital’s economic and social needs.
• National government should return the Adult Education Budget to its pre-austerity funding level.
• The Graduate Visa should be retained and extended from two to five years, provided restrictions on post-graduation work are put into place to ensure high-skill migration.
• National government should review the cost of applying for a Skilled Worker Visa and reduce charges for applying for indefinite leave to remain to retain skilled workers already contributing to economic growth.
• London’s share of the Immigration Skills Charge (ISC) should be devolved to the city, to be spent on green skills provision.

Reforming governance and taxes to boost growth

We believe:

• The government should devolve control over property taxes to London government. Devolution would allow the Mayor and London local authorities to update the values underlying council tax bands and add extra bands, accounting for house price increases over the last 30 years.
• In the longer term, government should move towards a proportional property tax to replace council tax and stamp duty, with supportive repayment models or the possibility of deferring payment for those who may be pushed into unaffordability.
• London government should explore potential replacements for business rates.
• National government should trial allocating a portion of income tax to local and regional government in London, along with other Mayoral Combined Authorities and Combined Authorities to financially incentivise local authorities to unlock productive jobs.
• National government should allow local and regional government to design and implement ‘tourist taxes’.