London is the largest city, within the largest country, in the United Kingdom. Alongside housing Parliament and government departments, the capital also contains the majority of national media, national galleries and museums, the Bank of England and the national football stadium.
In 2017, nearly 20 million international tourists visited London, and 78 million passengers passed through Heathrow, the busiest of the capital’s five major international airports. London is home to several of the world’s top universities and is the number one city in the world for foreign direct investment. 7 As Henry Mance of the Financial Times describes, London ‘dominates its country politically, culturally and economically like few other cities; it is the birthplace of modern democracy, Charlie Chaplin and Pret a Manger.’ 8
But this slightly bizarre list of historic achievements belies a more serious point. Commenting on the effects of London’s dominance on the 2016 EU Referendum for an American audience, Cambridge historian Peter Mandler observed, ‘It’s as if Hollywood, Wall Street, the Beltway, and the hipper neighborhoods of New York and San Francisco had all been mashed together.’ 9 For Mandler, this amounts to a ‘toxic combination’. 10 London’s dominance in so many areas is not entirely deliberate, nor necessarily planned. Nor is it unique internationally. But there are elements of London’s current position, and its relationship with the UK as a whole, which are unique, and warrant attention. And London’s sheer size cannot be ignored.
This chapter outlines some key facts about London, and about Londoners, in order to inform the following chapters. Some myths are rebutted, and some important realities are highlighted in an attempt to better inform debate about what should be done to improve London’s relations with the rest of the UK.
London is the only UK city to be treated as a statistical ‘region’ in its own right. This Greater London region has a larger population than most other UK statistical regions, but comparing London with Scotland or the South West is not comparing like-with-like and has some issues. London is governed primarily as a city, rather than a region. In practical terms, London is economically tied to the ‘Wider South East’, including the South East and East of England. However, comparing the Wider South East to other regions, or London to other UK cities is also imperfect, given the huge size disparities. The Office for National Statistics treats London as a region, and so the data below is the best available, but it is worth bearing this caveat in mind throughout.
London’s economy is crucial to the rest of the UK. In economic terms, London is:
1. Performing better than most
London generates a significantly higher rate of GVA per head (the most widely used measure of economic output) than the UK average, and the gap between London and the UK average is also growing, as Figure 1 demonstrates. Whilst it appears that productivity growth has slowed or even stalled in London, the capital’s economy still continues to grow and pull away from the rest of the UK. 11
2. A fiscal redistributor
London has been a net exporter of taxes to the rest of the UK for well over a decade, ‘paying in’ an average of £12.7 billion a year more through taxation than it received in public spending in the ten years up to 2014. 12 All other regions of the UK, outside of London and the ‘Wider South East’, have fiscal deficits – in other words, their residents receive more in public spending than they pay in through taxation. And the extent to which Londoners subsidise other parts of the country has only increased in recent times, with London’s ‘fiscal surplus’ reaching £32.6 billion in 2016/17. 13 Londoners (like the rest of the Wider South East) have been ‘paying in’ more and more per head on average each year, as Figure 2 demonstrates. 10
3. An economic hub
London-headquartered businesses are responsible for 1.9 million UK jobs outside of the capital, or 5.8 per cent of non-London jobs in the UK. Overall, London is responsible for 29.5 per cent of all jobs in Britain. 15 London’s role as the UK’s global hub, drawing international investment to the country, can also then see investment and jobs travel outwards from the capital to elsewhere in the UK. Two thirds of financial services jobs in the UK are based outside of London, for example, but nearly 40 per cent of all of these are in a London-based firm. 10 Between 2003-15, 12 per cent of all UK Foreign Direct Investment projects outside London stemmed from an investment in the capital. These ‘London+’ investments contributed £7.6 billion to the UK economy over that period and were responsible for creating over 38,000 jobs. 17
In addition, London is responsible for a sizeable amount of intra-UK trade. The Greater London Authority (GLA) estimated that London bought over £405 billion’s worth of goods from the rest of the UK in 2014, with around £290 billion’s worth going the other way. 18 Supply chains for London-based projects provide jobs across the country – two thirds of jobs in Transport for London’s (TfL’s) supply chain are outside of London, for example. 12
4. A high public spending city
Whilst London contributes notably more to other regions through taxation, via the Treasury, than it receives from central government, it does still receive a substantial amount of public money overall. The British Academy has observed that in 2016/17, London was the English region that received the highest amount of overall public spending per head, with the South East receiving the least. 20 But London’s higher spending is at least partly due to the higher costs of providing services in the capital – infrastructure and staffing costs are higher in London, for example. 21 Additionally, as Figure 3 demonstrates, if London is treated as a part of the ‘Wider South East’ (as Manchester or Birmingham are within their regions) then the amount of money that this region receives is just below the UK average. 10
Nevertheless, public spending in London often has more visible outcomes. Over the last five years, Londoners have received twice the UK average per capita spent on transport. 23 A much higher share of total public spending in London is attributable to capital investment than is the case outside of the Wider South East. 21 Much of this investment creates highly visible infrastructure projects, generating understandable resentment. Crossrail (most recently estimated at £15.4 billion), the regeneration of King’s Cross station (which has seen approximately £3 billion of construction investment), or even the Olympic Park (the legacy of an Olympic Games that cost £8.77 billion) are obvious examples.
London still contributes substantially more to the national purse than it takes out, and transport investment in the capital is essential to maintaining this level of contribution. Additionally, central government’s contribution to London’s infrastructure is reducing substantially, with London and Londoners contributing more than is often recognised (none of the three projects mentioned above were funded by central government alone). However, the visibility and scale of London’s projects can still lead to the perception that London gets more than its fair share. This should also be put within the context of at least three decades of historic underinvestment in infrastructure nationwide – and particularly transport infrastructure – when the UK is compared to other OECD countries. 25 Debates over the regional allocation of transport spending are discussed in more detail later in this chapter.
5. Still controlled by central government
As the London Finance Commission has found, despite its size and importance to the UK economy, London has comparatively little control over the money it raises. Reporting in May 2013, the commission found that 74 per cent of London’s income was received through central government grant, compared to 37 per cent in Madrid, 31 per cent in New York, 26 per cent in Berlin, 18 per cent in Paris and only 8 per cent in Tokyo. 26 The Commission called for a range of taxes to be devolved to London (and other UK cities) with a corresponding offset in central government grant to ensure that these devolutionary measures were ‘neutral on “day one”’. In other words, London’s government should have more control over how the money it raises is invested within the city, but the amount that is redistributed across the rest of the UK should not reduce. 27
The case for further devolution was only strengthened by the outcome of the EU Referendum. With central government focused on negotiations, the ability of London and other cities to make long term commitments amongst a climate of uncertainty is even more important. 10 Whilst some limited progress has been made on devolution, the capital and other English cities remain highly reliant on central government in almost all aspects of their development. Speaking at Centre for London’s 2018 London Conference, the Mayor of London, Sadiq Khan, called on central government to ‘reboot the devolution agenda’ post-Brexit: ‘It will be localism and devolution – rather than nationalism and greater centralisation – that will mitigate us from the negative consequences of globalisation.’ 29
London and the UK’s towns and cities
Whilst London’s economy has thrived in recent years, almost all other UK cities have been consistently less productive than the national average. 30 London’s prosperity does appear to have a positive economic impact on those near it. Cities in the Wider South East are on average 44 per cent more productive than their counterparts elsewhere in the UK, 31 and the average annual rate of economic growth was 50 per cent higher in the Wider South East than the rest of the UK between 2006 and 2016. 32 It is also worth restressing that London is simply a very big city compared with others in the UK. The city region of Greater London is home to almost nine million people, part of a Wider South East of over 24 million inhabitants connected (by a massive transport network) to the core of London. No other UK city or city-regional hinterland comes close in terms of scale and density.
But the UK’s other big cities are underperforming when compared to their European counterparts. 31 Nine out of ten UK cities are less productive than the European average, with over half ranked in the least productive 25 per cent on the continent. 10 If all UK cities were as productive as those within the Wider South East, it has been claimed that the economy would be as much as £203 billion larger – ‘equivalent to four extra city economies the size of Birmingham’. 35 Initiatives such as the Northern Powerhouse and Northern Powerhouse Rail are attempts to provide Northern cities with an opportunity to reap the ‘agglomeration benefits’ seen in London and the Wider South East, but it is too early to say whether they will succeed.
Recent political events, including general elections and the EU Referendum, have highlighted both the frustration felt in, and arguably the increasing national electoral importance of, smaller towns across the UK. 36 The Centre for Cities has claimed that ‘cities versus towns’ is a false dichotomy, and that improving Britain’s cities would have positive ramifications for its towns, many of which are within the commuter belt or hinterlands of big cities that are current underperforming. 37 Improving economic performance outside of London need not be a ‘zero-sum’ game.
Transport: At the heart of it all
Transport connectivity is key to improving regional productivity, and the regional allocation of transport investment has been a topic of great discussion in recent times. This debate provides a useful example of how the discussion of London’s relationship with the rest of the UK can become polarised and potentially damaging. It also demonstrates the difficulties of measuring regional spending fairly, and ultimately the importance of getting beyond the figures.
In mid 2017 the Secretary of State for Transport announced an agreement in principle to fund Crossrail 2, four days after the cancellation of three rail electrification schemes outside the capital. This caused understandable controversy. 38 In January 2018 the think tank, IPPR North, responded to government figures that suggested the South of England would receive less central government transport spending than the North in the years to come, with alternative figures that suggested London was actually set to receive 2.6 times as much as the North over the next five years. 23 The Transport Secretary subsequently pledged that upgrades to the North of England Transpennine route, and an Independent Affordability Review of Crossrail 2, would proceed in ‘lock step’, with investment in London and elsewhere now linked. 40
There are several variables that alter the regional spending figures, and several different ways of measuring investment. The differences between the government and IPPR North’s figures arise from different timeframes, varying approaches to allocating the costs of national projects, such as HS2, and the inclusion or otherwise of non-central government investment, such as that from the private sector or Transport for London (IPPR North argue that this should also be included in the calculations). Treating London as a region in its own right, rather than a city at the heart of a wider region, has its own issues: ‘per capita’ spending calculations are therefore not comparing like-for-like. Transport for London also argue that ‘per user’ or ‘per journey’ is a fairer way of measuring investment. In 2015/16, the amount spent per passenger journey in London was approximately £6.94, significantly lower than the national average of £10.31. 38
It is not the purpose of this report to spend too much time disputing the figures. But it is important to acknowledge that there is no one correct or universally agreed method for appraising regional transport investment accurately and fairly. This can make for a hostile debate and become tangled with a wider feeling that London-based national politicians do not understand, or even care, about issues outside of the capital. This was further demonstrated when the introduction of new timetables by Govia Thameslink and Northern Rail caused chaos and cancellations in May 2018. Some commentators argued that London-based media focused on the issues this caused for the South East and the capital, ignoring the North. 42 Mayor of Greater Manchester, Andy Burnham, claimed that the Northern Rail crisis was preventable, but had been ignored because ‘disruption here is not as important to [the Department for Transport] as disruption in London and the south.’ 43 In June 2018 the Manchester Evening News launched a petition, alongside 30 other regional publications, attacking ‘the government’s failure to understand the severity of the North’s plight from its London bubble.’ 44
Projects such as Crossrail 2, it is argued, are essential to keep London moving by increasing capacity and relieving congestion across the Wider South East, in a city and region whose population is expected to continue to grow. 45 Projects such as Northern Powerhouse Rail have the slightly different goal of unlocking previously suppressed growth across the North, a region with a population and economic potential to equal London. 46 These justifications are different, but equally valid and important. Whilst London needs continued investment to manage the consequences of its growth and keep it prosperous, other parts of the country may need investment to stimulate or enhance growth and make them prosperous. In a similar fashion to ‘towns versus cities’, it is not helpful to view this as an ‘either-or’ decision.
In 2018, a press release from the Mayor of London’s office called explicitly for national government to invest in infrastructure outside of the capital: ‘Sadiq believes that infrastructure investment should not be seen as a “zero-sum game”, where one region of the UK loses out to another. He believes that all parts of the UK need to see an increase in transport and infrastructure investment from the government in order to support future growth and job creation as Britain exits the European Union.’ 47 This change in narrative is notable, and to be welcomed. With London increasingly paying for its own infrastructure, there is no reason why transport investment in the UK should be an ‘either-or’. Nor is there a ‘lump of labour’: there is no fixed total of jobs (or earnings) within the UK economy. Infrastructure investment, like all measures to boost regional growth, cannot be a zero-sum game.
Who are Londoners?
We have seen how London’s economy relates to the rest of the UK. But what of Londoners themselves?
Compared to their fellow UK citizens, Londoners are:
- Young, and getting younger: the average Londoner is two years younger than the UK average, and this gap is currently widening. 48
- More diverse: Londoners are significantly less likely to be ethnically white, and more likely to be born abroad, than the UK average. 10
More religious – with more religions: London is the most religiously diverse region in England and Wales, with over a fifth of its population identifying themselves with a religion other than Christianity. 50
Mobile: 2016/17 saw the highest net internal migration out of London to other parts of the UK since 2004. International migration, whilst slowing, remains the main driver of London’s continued population growth, followed by natural change 51
Remain voters (overall): Londoners voted to Remain in the European Union by 59.9 to 40.1 per cent overall, the only English region to do so alongside Remain majorities in Scotland and Northern Ireland. 52
But Londoners are also:
Less socially liberal than commonly assumed: regarding pre marital sex and homosexuality, Londoners are notably more conservative on average than the rest of the UK, although this appears primarily driven by religious factors. 48
Not that different from other UK urbanites: London was the only English region to vote to Remain in 2016, but not the only city – English cities including Bristol, Cambridge, Leeds, Liverpool, Manchester and Newcastle all also voted to Remain.
Not that different from the rest of the UK: Referendum voting patterns in London broadly correlated with levels of higher education, following a pattern seen across England (whereas Scots were more likely to
vote Remain regardless of education). 54
But different from one another: Five Outer London boroughs voted Leave, and whilst 70 per cent of Inner Londoners voted to Remain, the corresponding figure in Outer London was 54 per cent. 55 Recent surveys have shown that Outer Londoners also have a different set of priorities and concerns to Inner Londoners. 10
Struggling with housing costs: London households are actually poorer (on average) than the UK average, after housing costs. 11 London households below the median income have lower disposable incomes than their equivalents in the UK as a whole, once housing costs are taken into consideration. 58
Ultimately unequal: London’s ‘Gini coefficient’, a way of measuring the distribution of household income, is the third highest in the country at 0.444, after only Cambridge and Oxford. 59
More likely to grow up in poverty than non-Londoners: Child poverty rates in London, at 37 per cent in 2013-21 and predicted to increase in 2019-2012, are the highest of any English region or UK country, with the UK average rate at 29 per cent. 62
8.8 million different Londons
London is home to the sixth highest number of billionaires of any global city, and the highest number of multi-millionaires. 63 But London is also home to some of the most deprived communities in the UK. Pockets of extreme deprivation exist even within the most affluent boroughs. The London Borough of Camden is, alongside the City of London, part of the NUTS3* region with the highest GVA per head in the country, 64 but it also has the second highest rate of income inequality of any borough in London, and a child poverty rate of 35 per cent. 65 The London Borough of Tower Hamlets, with the third highest GVA per head in London, also has the highest poverty rate (39 per cent overall, with 43 per cent of its children living in poverty), and the highest unemployment rate (7.7 per cent). 66 Figure 4, which shows the areas with the highest and lowest gross household disposable income within each NUTS1 region in England, further highlights London’s internal inequalities.
*NUTS 1-3 (Nomenclature of Territorial Units for Statistics) are EuroStat’s standard units for subdividing the UK for statistical purposes
As previously noted, the average Londoner is actually poorer than the UK average, and more live in poverty, after housing costs are taken into account. In addition, whilst unemployment is relatively low and improving, the majority of impoverished Londoners are living in a working family. 67 Whilst the rise in property values in the capital in recent decades has benefitted some, housing affordability is at the heart of many of London’s problems: seven in ten households living in temporary accommodation in England are in London, and rough sleeping in the capital has tripled in the last ten years. 10 London may absorb a higher amount of public spending on services than any other region, but public services are more expensive to provide in a London context, and demand is high.
So London is a city of extremes. Whilst there is great opportunity, there is also extreme poverty, deprivation, and complex social challenges across the city. Londoners’ experience of the capital varies hugely between residents of Inner and Outer London, between boroughs, and even within the boroughs themselves. This disparity is not just economic, but political and cultural too. The London Borough of Havering – where just under 70 per cent of residents voted to Leave the EU, the 12th highest percentage in the entire country – is as much a part of London as Lambeth, where 78.6 per cent voted to Remain, the highest Remain vote outside of Gibraltar.
London faces huge and often expensive challenges, and many Londoners do not share in the benefits of the capital’s economic success. London’s leaders have to simultaneously balance multiple, radically different priorities, ensuring that the capital retains an attractive global city role around the world, whilst also addressing the challenges faced by its residents, who range from some of the richest to some of the poorest in the country. If there are many outside of the capital who feel left behind by London’s rapid rise, it would be fair to say that there are also plenty within it who have a right to feel the same: in 2017, 27 per cent of Londoners were living in poverty. 10