London is about to get a lot poorer
telegraph.co.uk – 20 June 2022
An anti-business Mayor and working from home are tipping the capital's
growth into reverse
We might have hoped that the Prime Minister’s ambitious plans to
rebalance the British economy, and to close the massive gaps in wealth,
productivity and entrepreneurship between London and the regions, would have
involved making Bangor, Burnley or Bolton a little richer than they once were.
Instead, it turns out that something entirely different is about to happen –
London is about to get a lot poorer.
The Russian oligarchs who kept the law and PR firms lavishly employed have all been sanctioned. The venture
capital-fuelled tech start-ups are about to start laying off their staff in
droves as the money that kept them afloat evaporates. And the City faces a
bleak few years as the chill of a bear market descends at the same time as
ministers have shamefully failed to compensate for leaving the European Union
with any form of meaningful deregulation.
Throw in a Mayor who seems intent on killing any form of enterprise and
the capital faces a perfect storm. And given that it generates an alarming
percentage of the UK’s output, and almost all its growth, so does the wider
British economy.
With the pandemic over, with Brexit safely behind us, with talent visas
plentifully available, and with its hyper-mobile, cosmopolitan, well-educated
workforce buzzing with new ideas, you might expect London to be booming by
now.
For most of the last two decades, the city was on a roll, turning itself
into one of a handful of global high-growth urban hubs. From 2000 to 2020 its
GDP more than doubled, rising from £200bn to over £550bn. And its growth meant
it dominated the UK to an extent that was rarely matched in its long history.
According to the Office for National Statistics, London alone accounted
for 22pc of total UK output, and if you added in the commuter belt counties
that figure rose almost 40pc.
There was no great mystery about that. There were cities that
specialised in finance, in the arts, in technology, and in government, but
there were very few that excelled in all four and happened to speak English,
the global language of business and ideas, as well.
New York was a close rival, and so, in their own ways, were San Francisco,
Dubai and Singapore. But the British capital was unique. True, London had its
share of problems, there was never any question about that. From over-priced,
cramped housing, to rubbish transport, and pockets of real deprivation
especially among recent immigrants, it could be a difficult place to live. Even
so, it was a huge economic success. The trouble is, right now that is about to
go into reverse - for three reasons.
First, London was the main European hub, and arguably the main global
centre, for Russian money.
Vladimir Putin’s circle of mega-rich oligarchs, along with their wives,
children, mistresses and hangers-on, flocked to the capital. They bought up
football teams, newspapers, Mayfair and Hampstead houses, and they filled the
restaurants, theatres and clubs.
Their money funded small armies of legal, financial and public relations
advisers, charging lavish fees without any questions. And yet, with the war in
Ukraine, all that has come to a sudden end. The oligarchs have (quite rightly,
it goes without saying) been sanctioned, and the spending has been turned off.
That will hit lots of places, but it will hit London hardest of all.
Next, it was Europe’s key tech hub. There was more venture capital money
pouring into whizzy start-ups in Shoreditch than anywhere else in Europe, and
more "unicorns", as new companies worth more than $1bn are known, as
well (London had 47 at the last count, more than double its closest rival
Berlin).
And yet right now, all those companies are starting to lay people off in
droves as the Nasdaq crashes and the easy money dries up. It has started in New
York, San Francisco, and Los Angeles where Netflix, Peloton and the trading
platform Robinhood have all started laying people off, while Meta and Twitter
have frozen hiring. The same thing is about to
happen in London over the course of the summer.
Finally, the City faces a bleak year.
The markets have crashed, and interest rates have started to rise
significantly, and central banks are not printing money any more. There are not
likely to be any more big deals for a while, the performance of everything
other than a few very smart hedge funds will be dismal, and no one will be
making money from trading anything other than oil.
Even worse, the financial sector still has to grapple with losing access
to the Single Market. If the Government had compensated for that with a round
of deregulation to capitalise on all the opportunities of Brexit it should have
been booming by now. But there has been no meaningful liberalisation, and there
is little chance of it now.
If you add in a Mayor who seems intent on causing as much economic
damage as possible, along with rail unions and airlines that make getting in
and out of the capital virtually impossible, and a workforce that is more reluctant to go back into the office than any in the
world (for which, come to think of it, thank the Mayor and the
unions - commuting is far worse than it should be) and one point is surely
clear: London’s economy is about to take a huge hit.
That matters. London not only accounts for a huge chunk of the British
economy, for the last two decades it has accounted for almost all its growth,
and a huge slice of tax revenues as well. We might have been hoping that the
regions were about to get richer. Instead London is about to get a lot poorer -
and that is a big problem for the British economy.
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