London is about to get a lot poorer

London is about to get a lot poorer – 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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