London’s growth deal:
focusing on the centre
Devolution is increasingly seen as part of the solution for promoting national and local economic growth, by helping places to move more rapidly and certainly towards fulfilling their economic potential. The Government sees cities as the priority for England’s future economic development, and has prioritised city devolution for policy action. Government cities policy has generated a series of policy innovations, including the creation of a Cities Minister post, two waves of City Deals, and the forthcoming Growth Deals across England. Whilst the jury is still out on the long-term impact of City Deals, those agreed in the Core Cities include reforms with potential long-term significance and impact. For some time now London has been the elephant in the room in the recent devolution debate. Since the late 1990s the capital has become used to leading the way on self-governance, boasting an elected mayor, a city assembly, and an integrated transport authority. As London’s arrangements have bedded in, its government at all levels is increasingly keen to progress to the next phase of devolution.
In 2013 the Government issued an explicit invitation for London to submit a Growth Deal proposal, setting a formal process in train.1 English City Deals are in the process of creating an evolving set of bespoke agreements, devolving limited powers and resources to local authorities and to Local Enterprise Partnerships. The agreements reached with the largest English cities outside London in particular have set a precedent for future devolution in the capital. However, London needs the opportunity to make bespoke proposals for the next phase of devolution. The London Finance Commission report added intellectual and policy weight in 2013 with proposals to tackle the capital’s relative lack of financial autonomy. It identified a need for a new phase of reform to introduce fiscal devolution for London, building on progress made through the establishment of the GLA and an elected mayor, including tax-raising powers for the Mayor of London. The report asserts that London’s city government “could readily wield more power and fiscal autonomy, and that this is required to allow the city to provide for a rapidly growing population”. 1. HM Government (2013) Growth Deals: Initial Guidance for Local Enterprise Partnerships London: HM Government
London’s growth deal • March 2014
Centre for Cities
London has the strongest city economy in the UK, and the strongest growth record of recent times. It is in an unparalleled position to commit to ambitious targets as the basis for a devolution deal, offering the Government improved economic performance, a greater contribution to the national economy, and reduced demands on central revenues. In return, it would need a different type of Deal to those offered to date, reflecting the complex challenges created by growth and economic success.
This paper sets the context for London’s Growth Deal by analysing the London economy; placing central London in the context of the wider city region and the national economy; and suggesting priorities for devolving policy levers and resources to London-level.
Importance of central London
There is a strong case for central London to be the focus of the London Growth Deal in order for the central London local authorities and the GLA to respond to the unique pressures and opportunities at the heart of the Capital. These local authorities have the most in common of all London sub-regional groupings, and the strongest motivation to present a distinctive case to the Government for greater control of their own economies. Central London is the focus of much of London’s economic activity and dynamism. For example:
• Central London authorities house 44 per cent of London’s jobs,2 more than one million in 2011. • London’s businesses are located predominantly in the centre. For example, in 2010 the City of London housed an average of 26 small firms in every parcel of land the size of a football pitch.3
• The largest concentration of businesses in Britain is in the West End of London. 4 • London’s visitor economy, focused on central London, makes it the world’s most popular tourist destination. • London’s Central Activities Zone (CAZ) is the largest retail location in the UK. • Visitor numbers in 2011 were 30 million, and the tourism sector employed 14 per cent of the London workforce.5 • Central London’s economy is knowledge intensive and diverse. Five growth sectors - financial services, professional services, business administration, arts and culture, and wholesale and retail business - are all concentrated within the London CAZ.6
• The largest number of start-ups firms in the capital are found in central London, despite higher costs which might be expected to reduce their numbers.7
• Jobs are increasingly concentrating into central London more than twice as fast as the average for other large UK cities.8
• Central London has a very high concentration of private sector services employment, accounting for 71 per cent of jobs in 2013, in comparison to contributions in Greater London and UK of 63 per cent and 51 per cent respectively.9
• Central London’s total employment in 2013 was 2.4 million, which represents 45 per cent of Greater London’s workers and 7 per cent of the UK total.10
• On average, central London’s workers are more productive than those in Greater London and the rest of the UK. GVA per worker averaged £71,500 in 2013 measured in 2010 prices, 70 per cent higher than the national average.11 2. Central London Forward (2011) Central London Economic Assessment London: Central London Forward 3. Smith, R. Sivaev, D. & Swinney, P. (2012) Size Matters, London: Centre for Cities 4. Sivaev, D. (2013) Inner London’s Economy, London: Centre for Cities 5. Mayor of London (2011) The London Plan, London: GLA
6. Sivaev, D. (2013) Inner London’s Economy, London: Centre for Cities 7. Sivaev, D. (2013) Inner London’s Economy, London: Centre for Cities 8. Swinney, P. & Sivaev, D. (2013) Beyond the High Street London: Centre for Cities 9. Briefing on Central London Economy, Oxford Economics (2014) 10. Briefing on Central London Economy, Oxford Economics (2014) 11. Briefing on Central London Economy, Oxford Economics (2014)
London’s growth deal • March 2014
Centre for Cities
Figure 1: Employment Structure, 2013
Trade and hospitality
Information and comms
Primary and secondary
Transportation and storage
Admin and real estate
Source: Oxford Economics
The future growth and economic success of London requires central London to be successful. However, the pressures of success are also clear in central London. Increasing numbers of residents, commuters, businesses and visitors place growing pressure on capacity, from school places and public transport to pavements, while the costs of managing a night-time economy are greater than in any other UK city. Responding to these challenges is likely to deliver significant rewards. If London can better control the levers needed to support its growth this will benfit not only the Capital but the whole of the UK.
However, it is important to note that central London’s or indeed Greater London’s economic and governance challenges are not confined within the limits of the GLA boundary. The reach of the London economy goes far beyond any reasonable expectation of London governance and, more immediately, the area of built-up London and the London travel-to-work area stretch way beyond the GLA’s control. The Growth Deal for London needs not only to address the optimum scale for collaboration among boroughs and with the GLA, but look closely at mechanisms and incentives for collaboration with surrounding Local Enterprise Partnerships (LEPs) and local authorities both within and beyond the M25. Bodies such as the Coast to Capital LEP and the London-Stansted Corridor Consortium reflect the economic relationships that tie London to its economic hinterland, and this requires decisions on growth drivers such as housing, skills and transport to be made in partnership with places that supply and house much of the London workforce.
Challenges and potential responses
Despite three decades of success, London’s role as the main driver of the UK economy should not be taken for granted. Economic growth has brought new pressures to bear on the capital’s workforce and its infrastructure. Just as the size and nature of the London economy is unique within the UK, and globally is only found among elite cities, the demands the city has to deal with are also on a different scale to other UK cities. Its population growth is bri...