London's Economic Growth

05 Dec 2014
Ms Diane Abbott (Hackney North and Stoke Newington) (Lab): 

It is a great pleasure to address this House on the question of London’s economic growth. I am a Londoner born and bred and the prospects for London is an issue very close to my heart. I have recently thrown my hat in the ring to be Labour’s candidate for Mayor, which gives a particular emphasis to my concern about these matters.

We are having this debate a few days after the Chancellor’s autumn statement, which I think Members on the Government Benches regarded as some kind of triumph. The reality of the Chancellor’s autumn statement is that the positive macro-economic numbers he was able to set out are based on a housing bubble, and we have seen a failure to garner the tax receipts that the Chancellor hoped for because his recovery is, if not a jobless recovery, a low-wage, zero-hours contract recovery, and nowhere feels the problems of that more than London.

London stands at a crossroads economically. The City of London, for so many years the powerhouse driving London’s global growth, is now reputationally tarnished by a series of scandals and is still getting to grips with the ramifications of the 2008 financial crisis. We hope that harsh lessons have been learned from the crisis. We as politicians are aware, now more than ever, that an over-reliance on a potentially volatile financial sector is unwise and counter-productive.

There have also been changes in circumstances outside this country’s borders over which we can exert little control. The Prime Minister has already warned of another potential global slowdown, and I must ask what the Government are doing to safeguard the growth of the UK in such an unpredictable financial climate. The eurozone crisis has rocked the European markets in recent years and had an impact on our largest export market, while the global growth of emerging international economic powerhouses such as India and China threatens our ability to compete globally. For how long can we attempt to compete on the basis of low wages and zero-hours contracts? To ensure that London and the UK are at the forefront of global markets, we must ensure that London’s economy is balanced, sustainable and fair.

Before I move on to the economic issues, I want to talk about the devolution of powers. Ever since the independence referendum, we have had a tremendous amount of debate in the House, in the media and among the public about the devolution of powers to Scotland. London has the population of Scotland and Wales combined, and it contributes twice the amount to our GDP that Scotland and Wales do combined. I therefore argue that it cannot be right for powers to be devolved to Scotland if similar powers are not devolved to the capital.

London is a powerhouse. It is a leading global city and a premier destination for business, education and cultural exploits. However, compared with its global competitors, it sorely lacks the freedom and empowerment that would derive from increased fiscal devolution. It is staggering that in comparison to New York and Tokyo which receive respectively just 31% and 8% of their income from central Government, 66% of London’s income flows from Whitehall. England must be one of the most centralised countries in the entire western world, and London must be among the cities most constrained by the fact that it can raise so little of its own revenue. Does the Minister agree that London enjoys only a fraction of the financial freedom of its global competitors? For London’s continued and sustainable economic growth, it needs investment in its infrastructure. Above all, the Government need to give the city the freedom to control its own revenue streams to help to facilitate infrastructure investment.

Empowering London and England’s other great cities to raise and spend their own capital would bring decision making closer to the ground, increase the accountability of political leaders and facilitate more integrated investment decisions. With greater autonomy, the office of the Mayor and the Greater London assembly could operate as truly accountable bodies, enhancing the benefits that increased localism brings and moving away from centralisation to create a more democratic and efficient system that listens to the needs of people on the ground. London and other cities currently compete for many central Government grants—a system that is inefficient, wasteful and slow. Devolving power over tax revenues would ensure that London could contribute more and took less from the national pot.

A number of recent reports have spoken about the importance of London having more power over its tax revenues, especially in regard to property taxes. They were produced by, among others, the London Finance Commission and the Royal Society of Arts City Growth Commission. After consultation they recommended that, among other things, London should be given control over the following property taxes: stamp duty land tax, business rates, the annual tax on enveloped dwellings and capital gains property development tax. I would add one other tax that is yet to come into being: the mansion tax. Given that so much of the mansion tax would be raised in London and the south-east, and that those are the areas that have suffered from an inflated housing market, it is right that we should be allowed to keep, in common with other cities and municipalities, a fair share of the mansion tax. As the London Finance Commission report detailed, such an approach would increase City hall’s retention of the capital’s total tax base from only about 5% to 12%, but that small change in the national Government’s revenue would be a hugely important and empowering one for London.

We often hear an argument made against London’s growth that the city is becoming an almighty behemoth, siphoning off talent and capital from other parts of the country. However, as Michael Bloomberg, the successful mayor of New York—and no socialist—once noted:

“Empowering cities to invest in their own futures not only makes them stronger, it makes their nations stronger too.” Such proposals would not only benefit London’s economy, but would enhance the Treasury and the entirety of the UK.

Greater financial autonomy for this country’s great cities is part of a growing consensus, and it is clear that such measures are vital in order that London may continue to innovate and grow, and to ensure that the remains a top international destination for business, entrepreneurship and education. So I ask the Minister: what work has been done on the devolution of powers to England’s great cities, particularly London?

Can he offer me any assurances that devolution of property taxes to London is being considered?A big issue in London is infrastructure, as there is a threat to the continued economic growth of London as a city. It is not just me saying that as a London politician; it is the considered view of London’s business and financial institutions. The capital’s population is expected to exceed 9 million by 2020 and roughly 10 million by 2030. Without urgent investment in housing, jobs, the transport network, schools and leisure, the continued growth of London will be unsustainable. After years of under-investment in skills and infrastructure, and a lack of innovation, serious structural weaknesses in London’s economy are emerging. I am sure that many in the Chamber today would be shocked to know that, according to the World Economic Forum, the UK’s infrastructure is ranked 28th in the world for quality. The Institute of Civil Engineers in its “State of the Nation” report in 2014 highlighted that London’s energy supply, water supply, transport network and flood prevention apparatus all require attention. Anyone in the House who boards a London tube train at peak times will know that we face an increasing issue with overcrowding on our transport infrastructure—it is beginning to creak. It is appropriate to point out that Boris Johnson’s reckless plans to close ticket offices and cut the number of jobs run the risk of a poorer service to the increasing number of customers using our underground service.

Just this September, the chief of Transport for London, Sir Peter Hendy, warned of the problems related to the increased overcrowding on London’s transport networks, saying that the city will face “overwhelming” overcrowding on transport by 2030 without urgent progress on new rail lines. We used to see photographs of the Tokyo underground in which Japanese people were literally being pushed on to the train to be able to squeeze in—the London underground is fast approaching that state. London’s lower-paid workers are now being forced to live on the outskirts of the city, rather than in inner-city neighbourhoods, as in the past, and it will be more difficult for them to access the jobs they require. If that is the case, the city cannot progress and its economic growth will stall. In addition, fares on London buses, the staple mode of transport for outer Londoners, have risen by more than 50% in six years—it is time to look at stabilising fares. It is critical that London raises the required investment in infrastructure and in its own world economic outlook. The International Monetary Fund suggests that borrowing for investment in infrastructure is likely to pay for itself.

The UK has the second worst infrastructure in the G7 leading high income countries, ahead only of Italy. Let me repeat that: the only country that has worse infrastructure is Italy. London’s infrastructure and how we pay for it must be an important issue.

Sadly, we are seeing the rise of a toxic anti-immigrant culture in the nation’s political discourse, with both major political parties trying to out-UKIP UKIP. We need to remember the important role that immigration has played in London’s economic output and growth. London was built by immigrants. Whether we are talking about the Irish labourers who came over in Victorian times to build our early transport infrastructure, the Jews from eastern Europe, West Indians, Africans, Kurds and now eastern Europeans, immigrants have, over the centuries and decades, been woven into the very fabric of the city and have played more than their part in the economic prosperity of the city today.

We hear about the ill effects of immigration, but east European migrants put more into the economy than they take out. We need to start seeing immigration in the light of its contribution to the economic growth, prosperity and the cultural diversity of the great city of London. It is immigration that makes London a great global city.

The economic detriment of the anti-immigrant discourse can be seen in the drop in the numbers of international students applying to study in UK universities. The introduction of more stringent visa regulations has meant that 2013-14 was the first year in 29 years in which the numbers of international students coming to study in the UK fell. That cannot be right for London’s economic growth. London and London’s leaders should be the ground zero in the fight against the anti-immigrant politics engulfing Westminster. We should celebrate the strength in diversity that London has come to represent, and recognise the economic benefits that migrants can play in continued growth.

Although we are all aware that London is growing economically, the key question is whether that growth is healthy and sustainable. Alongside the growth, we are seeing an alarming rise in living costs and spiralling house prices. The result is an ever-increasing inequality gap between Londoners. That gap is not just between the very poorest and the super-wealthy. Those on middle incomes are suffering, too. Average wages in this country have fallen £50 a week in real terms since 2008. Accordingly, many middle-income Londoners are struggling to cope with spiralling housing costs, transport costs, job insecurity and falling standards of living. We see a chasm opening up between them and the international glitterati who flock here in such numbers. It is often not recognised by people who see only London’s bright lights and expensive restaurants that London is more unequal than any other part of the British Isles. The top 10% in London earn four and half times the bottom 10%, and child poverty is a third higher in London than in the rest of England as a whole, and that gulf is widening.

Inequality has so many ill-effects. It has been highlighted just this week that Londoners in their 30s are fleeing the capital because of the ever-increasing cost of living and rising house prices. Figures from the Office for National Statistics show that, in the year until June last year, 58,000 people aged between 30 and 39 left London—a 10% increase on 2010.

I point the Minister to a London Chamber of Commerce and Industry report published in May that highlighted the fact that more than 40% of London businesses said that their ability to recruit and retain skilled workers was negatively affected by housing costs. Does the Minister understand the seriousness of the implications of the link between inflated property prices in London and the difficulties of recruitment for London’s sustainable future?

I believe that if we are to see sustained and fair economic growth in London, we must first work to ensure further devolution of powers, particularly in relation to property taxes. We must take a stand against the pervasive anti-immigrant narrative occupying the column inches and we must take action to ensure that London’s economic growth does not continue to induce a growth of inequality across the city. The growing gulf between London’s super-wealthy elite and everybody else presents our capital with a mortal threat to its future economic development. Cities are living, breathing ecosystems and those that function best function as a whole.

We are a wealthy city and a city that has had enormous expansion and growth, but we must ensure that the smallest boats and the poorest move at the pace of the largest boats and the wealthiest. We need sustainable economic growth that is based not just on financial services and the housing bubble. We need investment in our infrastructure and, in this way, London will continue to be not just a great international city but a city whose sustainable growth helps to bring the entire UK forward.

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