
London’s productivity growth has plummeted in comparison to its international competitors, costing the UK economy tens of billions of pounds a year.
London's productivity growth has stalled since 2007, explaining a large part of the UK's 'productivity puzzle' and leaving it trailing behind its global peers.
Centre for Cities’ report, Capital losses: The role of London in the UK’s productivity puzzle, published in partnership with EC BID, shows that 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 report finds that:
National productivity has flatlined since the 2008 financial crisis and while this productivity slowdown occurred right across the country, it was predominantly led by London. Between 2007 and 2019, the Capital grew by just 0.2 per cent per year, accounting for 42 per cent of the overall slowdown nationally.
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. As a point of comparison, that is comfortably more than the monies allocated to the Levelling Up Fund (£4.8 billion) and the City Region Sustainable Transport Settlements (£5.7 billion) combined.
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.
It’s difficult to point definitively to the causes of this with the data available, but the report shows two likely drivers:
To restart growth in London, policymakers need to bolster the Capital’s reputation as a great place to do business.
Government should do this by:
London’s productivity growth has plummeted in comparison to its international competitors, costing the UK economy tens of billions of pounds a year.
A discussion surrounding the UK's productivity struggles and what role London plays in national productivity slowdown.
The first blog of this series shows that London’s moved from leader to laggard in terms of the UK’s productivity growth, costing billions to the national economy.
Weak investment in intangibles may be one of the explanations behind London’s weak productivity growth.