London’s Economy TodayIssue 210 | February 2020

UK GDP flat at the end of 2019

By Gordon Douglass, Supervisory Economist, and Eduardo Orellana, Economist Also in this issue UK productivity growth expected In February the Office for National Statistics to remain slow...... 2 (ONS) published their first estimate of Q4 2019 UK and EU set out trade deal UK GDP. This showed that UK output did not negotiation positions...... 3 grow in the last three months of the year, down Coronavirus may dampen the from the 0.5% growth seen in Q3 2019 (Figure 1). Chinese economy...... 4 Compared to the same quarter in 2018 GDP was London productivity over 30% 1.1% higher. Over the whole of 2019 the economy above the UK average...... 5 grew by 1.4%. This was only a marginal increase London was the fastest growing on the 1.3% growth seen in 2018, which was the area of the UK in Q2 2019...... 6 lowest growth rate of any year in the 2010s. Economic indicators...... 7 Looking at the GDP data in more detail the ONS observed that the Local authority spending in Services sector and Construction contributed to GDP growth in Q4, London since 2009/10...... 13 although Services sector growth stood at only 0.1% - the weakest Our latest publications...... 18 growth since mid-2016. Growth in these sectors was offset by a decline in the Production sector, which saw output fall by 0.8% (mainly driven Datastore by a continuing fall in Manufacturing output). The main economic indicators for London are available to download In more positive news for the economy the ONS published data in from the London Datastore. February on average weekly wages in Great Britain for the three months to December 2019. This showed that after adjusting for inflation, pay finally passed its pre-financial crisis peak. However, the data continues to show that pay including bonuses remains below its pre-crisis peak and that pay growth has moderated in recent months. London’s Economy Today • Issue 210 • February 2020

Figure 1: UK quarter 6% on quarter and

4% quarter on same quarter a year earlier 2% GDP growth Q1 1999

0% to Q4 2019

-2% Source: ONS

-4%

-6%

-8% 1999 Q1 1999 Q4 2000 Q3 2001 Q2 2002 Q1 2002 Q4 2003 Q3 2004 Q2 2005 Q1 2005 Q4 2006 Q3 2007 Q2 2008 Q1 2008 Q4 2009 Q3 2010 Q2 2011 Q1 2011 Q4 2012 Q3 2013 Q2 2014 Q1 2014 Q4 2015 Q3 2016 Q2 2017 Q1 2017 Q4 2018 Q3 2019 Q2

Quarter on previous quarter growth (%) Quarter on the same quarter a year earlier growth (%)

UK productivity growth expected to remain slow New research from the University of Sussex and Loughborough University has found that productivity growth in the ten years following the financial crisis “is nearly double the previous worst productivity shortfall ten years after the start of a downturn”. They added that “on this criterion the slowdown is unprecedented in the past 250 years”. Looking forward the Bank of England published their latest forecasts for the UK economy in their Monetary Policy Report at the end of January. In this they reduced their assumptions about long-term productivity growth in the UK. They now think that productivity growth over their forecast period will average around 0.5% a year, similar to the 0.4% seen over the last decade, but lower than the 1% previously expected. Given the weak expected growth in productivity and the already tight labour market the Bank thinks the UK economy will only grow at an average of 1.1% over the next three years. This is significantly below the stated goal of the previous Chancellor of the Exchequer, Sajid Javid, of raising growth to 2.8% per year on average. If growth is slower in the long term than previously expected this may limit the new Chancellor Rishi Sunak’s room for manoeuvre on spending and taxes in the upcoming Budget. The Bank also noted the slow growth at the end of 2019 and expects growth to stand at just 0.2% for the first quarter of 2020. Still for the coming year or so the Bank thinks that the easing of global trade tensions, a stabilisation in the global economy, and better business survey results supports their “forecast of a near- term recovery in growth”. And regarding interest rate rises, the Monetary Policy Committee (MPC) observed that if the economy behaved as it forecast then “some modest tightening of policy may be needed to maintain inflation sustainably at target”.

GLA Economics 2 London’s Economy Today • Issue 210 • February 2020

UK and EU set out trade deal negotiation positions

Following the withdrawal of the UK from the EU on the night of 31 January, both sides have been outlining some of their negotiating positions ahead of the start of talks in March. The UK foreign secretary Dominic Raab has stated that the UK will “not be aligning with EU rules” in any trade deal, while in a speech in February the Prime Minister, Boris Johnson, stated “we want a comprehensive free trade agreement similar to Canada’s”. He also stated that he did not want a role for the European Court of Justice (ECJ) in settling future disputes. The pound reacted by falling against both the euro and dollar following the speech on increased worries about the possibility of no trade deal being struck. In response to Mr Johnson’s speech Michel Barnier, the EU’s chief negotiator on all things Brexit related, said that “the UK answer will be fundamental to the level of ambition of our future relationship and the UK must know this”. The draft negotiating mandate from the EU published in February wants the UK to maintain EU state-aid rules, and rules on the environment and labour market. In exchange the EU is willing to offer the UK a quota and tariff-free trade deal for goods. The EU further said its deal would cover services. However, it also wants the ECJ to settle future trade disputes between the two and for a fishing agreement on a similar basis to the current one. From these opening positions there remains a number of areas of uncertainty around future trading arrangements. One area of particular concern to London and also the UK economy surrounds Financial services. In relation to this Michel Barnier has stated that there should be “no illusions on this issue; there will be no general, global or permanent equivalence on Financial services”. In February the Government also announced details of their proposed new migration regime, for after the end of the current transition period which is due to finish on 31 December 2020. This migration regime will require migrants to collect 70 points, 50 of which must cover speaking English, having a job offer from an approved sponsor and having a job above a “skills threshold”. To gain the remaining 20 points migrants can either earn at least £25,600, have a PhD in a relevant field to their job offer and earn above at least £23,040, have a PhD in a STEM subject relevant to the job or have a job offer in “a shortage occupation”.

GLA Economics 3 London’s Economy Today • Issue 210 • February 2020

Coronavirus may dampen the Chinese economy

The coronavirus outbreak in China has so far had limited influence on the global economy beyond stock market falls, but there have been concerns that as it continues its economic bearing could increase. In particular, its effect on Chinese production and therefore China’s exports and wider global supply chains could cause delays and disruption that may dampen short-term global growth. Looking at the impact on the Chinese economy in more depth, Deutsche Bank thinks that Chinese growth could be 1.5% lower in Q1 2020 compared to Q1 2019 due to the disruption caused by the virus. Other countries in East Asia have been responding to the impact the virus may have on their economies as well. Singapore has unveiled a S$6.4 billion stimulus package for its economy, while the President of South Korea, Moon Jae-in, has said that they will take all possible measures to support the economy, adding that given the current seriousness of the situation “we need to take emergency steps in this time of emergency”. Beyond this Japan had a poor end to 2019 with its economy contracting by 6.3% on an annualised basis in Q4 2019, its fastest pace of shrinkage in six years. A contraction had been expected after a rise in the consumption tax in the autumn, but the scale of the contraction was much larger than the annualised 3.7% that forecasters had been expecting. Still in more positive news for the global economic outlook there was a further easing in trade tensions between China and the US this month when China announced that it plans to halve tariffs on over 1,700 goods that it imports from the US. Closer to home the Eurozone economy showed very little growth at the end of last year according to the flash estimate of the Zone’s Q4 2019 growth rate from Eurostat. This data showed that the Eurozone economy only grew by 0.1% at the end of last year, down from the 0.3% growth seen in Q3 2019. There was also a wide variation in growth within the Zone with France and Italy seeing their output fall by 0.1% and 0.3% respectively and Germany seeing 0.0% growth, whereas Spain saw its economy grow by 0.5% in Q4 2019. Looking forward there are concerns about the impact of the coronavirus outbreak in Italy on its economy with Ignazio Visco, the governor of the Bank of Italy, saying that the health crisis could take 0.2 percentage points off this year’s growth.

GLA Economics 4 London’s Economy Today • Issue 210 • February 2020

London productivity over 30% above the UK average In February the ONS published regional productivity statistics for the UK for 2018. These statistics again showed that London was the most productive area of the UK with output per hour worked standing 31.6% above the UK average (Figure 2). The only other UK area with productivity above the UK average was the South East where output per hour worked was 9.1% above the average in 2018. However, for growth in productivity, London, although its productivity rose, saw slower growth than other areas of the UK in 2018, with Scotland (2.3%), the East Midlands (2.1%), the South East (1.7%), the West Midlands (1.6%), and the East of England (0.6%) seeing faster growth in output per hour worked in 2018 than London (0.5%). The Industrial Strategy Council has been looking at regional productivity differences in the UK and published a report on it this month. This highlighted “three key explanations” for regional differences: zz “Place-based fundamentals: Geography, local culture, governance and infrastructure are important factors determining the economic activities of a region…; zz “Agglomeration: Places attract clusters of economic activity which become self-sustaining…; zz “Sorting: Workers, especially highly-skilled workers, also choose to cluster…”. Based on this they argued that it would be beneficial to “introduce a new degree of continuity into UK regional policy to ensure a strategic approach to achieving long-term economic goals”, to “seek to foster local growth strategies that are robust to the different narratives” they have outlined, and to “keep the spotlight on places whose productivity levels and growth rates are well below the national average”. Figure 2: Output per hour by NUTS 1 region London relative to the UK South East average, 2018 (%) Scotland Source: ONS East of England

North West

South West

West Midlands

North East

East Midlands

Northern Ireland

Yorkshire and the Humber

Wales

-20 -10 0 10 20 30 40

GLA Economics 5 London’s Economy Today • Issue 210 • February 2020

London was the fastest growing area of the UK in Q2 2019

A number of other statistics of interest to London were published by the ONS in February. In its latest estimate of regional quarterly GDP growth, it found that in Q2 2019 London was the fastest growing area of the UK with GDP increasing by 1.0%, whereas the West Midlands and North West of England had the lowest growth standing at -1.6%. Of the UK nations both England and Scotland saw GDP fall by 0.1% and 0.2% respectively, while Northern Ireland and Wales grew by 0.3% and 0.4% respectively. Besides output the labour market picture in London has remained resilient, with ONS data showing that London’s 16-64 employment rate stood at 75.5% in the three months to December, up by 0.9 percentage points on the previous quarter and 0.7 percentage points up on the year. For the UK as a whole the employment rate rose by 0.6 percentage points on the previous year, reaching 76.5%. At the same time the unemployment rate (the number of unemployed people as a percentage of the labour force) in the capital was near its lowest ever level at 4.3%, 0.3 percentage points down on the previous quarter and 0.2 percentage points down on the year. The UK unemployment rate was estimated at 3.8%, 0.1 percentage points down on the quarter and 0.2 percentage points down on the year. In other news the Government confirmed in February that construction of HS2 would go ahead, with a number of London-based construction projects to follow from this announcement. In conclusion, it would appear that London’s economy continues to perform well against a continuing backdrop of economic uncertainty which could dominate the news in the coming few months.

GLA Economics 6 London’s Economy Today • Issue 210 • February 2020

Indicator 1: TfL passenger journeys

EconomicTitle Both bus and underground indicators passenger journeys fell in the latest period Both bus and underground passenger journeys fell in the latest period zz ABullets total of 232.6• Amillion total ofpassenger 232.6 million journeys passenger were registered journeys betweenwere registered 8 December between 2019 8 andDece 4mber January 2020, 61.8 million less than 2019the previous and 4 January period. This2020 large, 61. 8decline million is less a normal than thepattern previous during period. the Christmas This large period, where the number of passengerdecline journeys is a normal usually pattern reaches during its minimum the Christmas for the year.period, Bus where journeys the decreased number of by 35.5 million and Undergroundpassenger journeys byjourneys 26.3 million. usually 91.2 reaches million its of minimumall journeys for were the Underground year. Bus j ourneysjourneys while 141.4 decreased by 35.5 million and Underground journeys by 26.3 million. 91.2 million million were bus journeys. of all journeys were Underground journeys while 141.4 million were bus journeys. zz The 13-period-moving average in the total number of passenger journeys reduced from 276.3m to 276.0m. • The 13-period-moving average in the total number of passenger journeys zz The methodology used to calculate the number of bus passenger journeys was changed by TfL on 1 April 2007. reduced from 276.3 million to 276.0 million. For a detailed explanation, please see LET issue 58 (June 2007). • The methodology used to calculate the number of bus passenger journeys was Source: Transport for Londonchanged by TfL on 1 April 2007. For a detailed explanation, please see LET issue Latest release: February58 2020, (June Next 2007). release: March 2020

Chart Passenger journeys by mode of transport (adjusted for odd days) 250

200

150

100

50

0

Passengerjourneys, millions 1993/94 1997/98 2001/02 2005/06 2009/10 2013/14 2017/18

Indicator 2: Annual growth in TfLLU passengerSeries1 journeysSeries2 Bus Series3 LUSeries4- moving average Series5 Bus - moving averageSeries6

Title SourceThe movingTransport average for London annual change in passenger journeys fell to 0.1% in the period The movingbetween average 8 December annual change 2019 and in passenger4 January 2020 journeys fell to 0.1% in the period between 8 DecemberLatest 2019February and 4 2020 January 2020 release Bulletszz The moving• The average moving annual average growth annual rate in growththe total rate number in the of totpassengeral number journeys of passenger decreased journeys from 0.3% to 0.1%. zz TheNext moving decr Marchaverageease 2020 annuald from growth 0.3% rateto 0. of1 %bus. journeys fell from -1.0% to -1.2%. zz Therelease moving• T averagehe moving of Underground average annual passenger growth journeys rate of went bus down journeys from fell2.5% from to 2.1% -1.0 in% theto -last1.2% period.. Source: Transport• T forhe London moving average of Underground passenger journeys went down from 2.5% LatestFile release: FebruarytoWorksheet 2.1 %2020, in 1theNext in Y:last release:\0 periodY Drive March. 2016 2020\1 Macro\LET\Data\LET Charts.xlsx location Chart Annual change in passenger journeys by mode of transport (adjusted for odd days) 12% 10% 8% 6% 4% 2% 0% -2% -4%

Annual percentagechange -6% 1995/96 1999/00 2003/04 2007/08 2011/12 2015/16 2019/20

LU - moving average Bus - moving average Total - moving average

SourceGLA Economics Transport for London 7

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London’s Economy Today • Issue 210 • February 2020

Indicator 3: Unemployment rates in London and the UK In Q4 2019, both London and UK unemployment rates were at or near historic lows zz AroundTitle 212,800In Q4 residents 2019, both16 years London and andover UK were unemployment unemployed inrates London returned in the to lasthistoric quarter low sof the year 2019. zz The unemployment rate in London was 4.3% in that period, 0.2 percentage points lower than in Q3 2019. zz TheBullets UK’s unemployment • Around 2rate12, 8stayed00 residents at the historic16 year srecord and over low wereof 3.8% unemployed in Q4 2019. in London in the last quarter of the year 2019. Source: ONS Labour Force Survey Latest release: February• T 2020,he un Nextemploymen release: tMarch rate 2020in London was 4.3% in that period, 0.2 percentage points lower than in Q3 2019. • The UK’s unemployment rate stayed at the historic record low of 3.8% in Q4 2019.

Chart Unemployment rate (16 years and over, resident basis) 16% 14% 12% 10% 8% 6% 4% 2% Unemployment rate 0%

London UK Indicator 4: Real GVA growth in London and the UK

London’sSource economy ONS Labour grew Forceby 3.7% Survey in the year in the third quarter of 2019 Title London’s economy grew by 3.7% in the year in the third quarter of 2019 zz London’sLatest annualFebruary real GVA 2020 growth fell from 4.5% in both Q1 and Q2 2019 to 3.7% in the third quarter of the year basedreleaseBullets on GLA •Economics London’s estimates. annual real This GVA is thegrowth highest fell fromrate for4.5 the% in third Q1 andquarter Q2 2019 in the to last 3.7 three% in years. zz In the UK, output theannual third growth quarter for of Q3 the 2019 year registered based on the GLA lowest Economics rate since estimates Q1 2018. This (1.0%), is the and was 0.2 percentageNext pointsMarchhighest down 2020 from rate thefor theprevious third quarterquarter. in the last three years. zz London’srelease real GVA• In quarterly the UK, estimatesoutput annual for both growth the forperiod Q3 Q12019 1999 registered to Q4 2012 the lowest and the rate most since recent quarter have Q1 2018 (1.0%), and was 0.2 percentage points down from the previous quarter. been produced by GLA Economics. Estimates for the intervening period are outturn data from the ONS which does File Worksheet• London’s 3 in real Y: \GVA0 Y Drivequarterly 2016 estimate\1 Macros for\LET both\Data the \periodLET Charts.xlsx Q1 1999 to Q4 2012 not publish quarterly estimates for London´s real GVA prior to 2013. locatio and the most recent quarter have been produced by GLA Economics. Estimates Source: ONSn and GLA Economicsfor the intervening calculations period are outturn data from the ONS which does not publish Latest release: February quarterly2020, Next estimates release: Aprilfor London´s 2020 real GVA prior to 2013.

Chart Annual percentage change in real GVA 10% 8% 6% 4% 2% 0% -2% -4% -6% Annual percentagechange -8% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

London UK

GLA EconomicsSource ONS and GLA Economics calculations 8

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London’s Economy Today • Issue 210 • February 2020

London’s annualIndicator employment 5: Employment growth rates in Londonrate rebounded and the UK in Q4 2019 zz Around 4.75Title million LondonLondon’s residentsannual employment over 16 growth years rateold reboundedwere in employment in Q4 2019 during the last quarter of 2019. zz The rate of annual employment growth in the capital was 1.7% in that period, a surge from Q3 2019 (-0.6%) and the highest rateBullets in one• year.Around Some 4.75 ofmillion the Londonvolatility residents in the overLondon 16 years series old may were be in aemployment consequence of survey sampling processes, rather than beduring an accurate the last quarter reflection of 2019. of actual trends. • The rate of annual employment growth in the capital was 1.7% in that period, a zz In the last quarter of thesurge year, from the Q3 UK 2019 employment (-0.6%) and ratethe highest grew annuallyrate in one at year a .rate of 1.0%, the same increase as in Q3 2019. • In the last quarter of the year, the UK employment rate grew annually at a rate of 1.0%, same increase as in Q3 2019. Source: ONS Labour Force Survey• Some of the volatility in the London series may be a consequence of survey Latest release: February 2020, samplingNext release: processes, March rather 2020 than be an accurate reflection of actual trends.

Chart

Annual percentage change in employment (16 years and over, resident basis) 6%

4%

2%

0%

-2% Annual percentagechange

-4% Mar-MayMar-MayMar-MayMar-MayMar-MayMar-MayMar-MayMar-MayMar-May Indicator 6: House prices 1993in London1996 and1999 the2002 UK 2005 2008 2011 2014 2017 London UK

Title LondonSource hONSouse Labour prices Force increased Survey by 2.2% in annual terms in London last December London house prices increased by 2.2% in annual terms last December Bullets • LatestIn DecFebruaryember 2020 2019 , the average house price in London was £483,842 while for zz In Decemberrelease 2019,the UKthe itaverage was £2 house32,866 price. in London was £483,842 while for the UK it was £232,866. zz The annual growth rate in average house prices in London was to 2.2% in December 2019, compared with 0.4% in • NextThe annualMarch 2020 growth rate in average house prices in London was to 2.2% December November. Thisrelease2019 is the, comparedlargest monthly with 0growth.4% in rateNovember in house. This prices is theyear-on-year largest monthly since October growth 2017. rate zz Similarly, averagein househouse prices inyear the- onUK- yearrose sinceby 2.1% October in annual 2017 terms. last December. This was 0.4 percentage points higherFile compared Worksheet to the 5 previousin Y:\0 Y Drivemonth 2016 and\1 Macrothe largest\LET\Data increase\LET Charts.xlsx in the rate in one year. • locatioSimilarly, average house prices in the UK rose by 2.1% in annual terms last Source: Land Registryn Dec andember ONS . This was 0.4 percentage points higher compared to the previous Latest release: February month 2020, and Next the release: largest March increase 2020 in the rate in one year.

Chart Annual percentage change in average house prices (seasonally adjusted) 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% Annual percentage change

London UK

GLA SourceEconomics Land Registry and ONS 9

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Indicator 7: PMI Business Activity Index for London and the UK London’s Economy Today • Issue 210 • February 2020

Title London business activity recovers strongly

Bullets • Business activity index at London private firms rose significantly in January 2020 to 56.5, from 51.6 in December 2019. This represents the highest level London business activity recovers strongly of this index since April 2017. zz Business activity index at London private firms rose significantly in January 2020 to 56.5, up from 51.6 in December 2019.• The This UK represents index turned the highest posit levelive (53.of this3) indexin January since April 2020 2017. after five months of decline in business activity. zz The UK index turned positive (53.3) in January 2020 after five months of decline in business activity. zz The Purchasing• TheManagers’ Purchasing Index (PMI)Managers’ survey Index shows (PMI) the monthly survey business shows thetrends monthly at private business sector firms. Index readings above trends50.0 suggest at private a month-on-month sector firms. Index increase readings in activity above on 50.0 average suggest across a firms,month -whileon- readings below indicate a decrease.month increase in activity on average across firms, while readings below Source: IHS Markit indicate a decrease. Latest release: February 2020, Next release: March 2020 Chart PMI Business Activity Index (50 indicates no change on previous month) 70 65 60 - change 55 50 45 40 Index, 50 = no 35 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Indicator 8: PMI New Business Index for London and the UK London UK

Title New business activity in London was strong in January 2020 NewSource business IHS activity Markit in London was strong in January 2020 Bullets zzLatestThe PMI New•February BusinessThe PMI 2020 Index New was Business 56.9 in IndexLondon was last 5 January,6.9 in London up from last 53.8 January in December, up from 2019. 53.8 This represents releasethe highest levelin of Decemb the indexer since2019 May. This 2017. represents the highest level of the index since May zz For the UK, the 201level7 .of this index in January 2020 was 54.1 – up from 50.5 in December 2019 - its highest level Nextsince June 2018.•March For 2020 the UK , the level of this index in January 2020 was 54.1 – up from 50.5 in zzreleaseAn index readingDecember above 50.0 2019 indicates - its highestan increase level in since new ordersJune 2018.from the previous month. • An index reading above 50.0 indicates an increase in new orders from the Source: IHS Markit LatestFile release: FebruaryWorksheetprevious 2020, 7 Next month.in Y: release:\0 Y DriveMarch 2016 2020\1 Macro\LET\Data\LET Charts.xlsx location Chart PMI New Business Index (50 indicates no change on previous month) 70 65 60 - change 55 50 45 40 Index, 50 = no 35 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

London UK

GLASource Economics IHS Markit 10

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London’s Economy Today • Issue 210 • February 2020

Indicator 9: PMI Employment Index for London and the UK

Title Employment increased substantially across the majority of London private sector Employment increasedfirms last Januaryacross the majority of London private sector firms last January zz The Employment Index for London was 54.0 in January 2020, up from 52.6 in December 2019. zz TheBullets index also •improved The Employment for the UK Iinndex January for London 2020 (51.7),was 54.0 up in from January 50.6 2020in the, up previous from 52. month.6 in zz The PMI EmploymentDecember Index shows2019. the net balance of private sector firms of the monthly change in employment. Readings above• 50.0The suggests index also an improvedincrease, whereasfor the UK a reading in January below 2020 indicates (51.7) , afrom decrease 50.6 in employmentthe from the previous month. previous month. • The PMI Employment Index shows the net balance of private sector firms of Source: IHS Markit the monthly change in employment. Readings above 50.0 suggests an Latest release: February 2020,increase, Next whereas release: Marcha reading 2020 below indicates a decrease in employment from the previous month.

Chart PMI Employment Index (50 indicates no change on previous month) 65 60

- change 55 50 45 40 Index, 50 = no 35

Indicator 10: RICS house prices for London and England and Wales Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 London UK Title Property surveyors reported the first positive net balance in house prices since February 2016 Source IHS Markit Property surveyors reported the first positive net balance in house prices since February 2016 Bullets • In the three months to January 2020, the net balance of property surveyors zz In theLatest three monthsFebruaryreporting to January 2020 a rise 2020, in house the netprice balances was 28 of upproperty from - surveyors8 in December reporting 2019. a riseThis in was house prices was release 28 up from -8 in Decemberthe highest 2019. level This of thewas index the highest since Augustlevel of 2015the index and sinceits first August positive 2015 figure and its first positive since February 2016. figureNext since FebruaryMarch 2020 2016. zz Forrelease England and• Wales,For England the RICS and house Wales prices, the RICS net balance house prices index netalso balance increased index from also 0 inincreased the period October- December 2019 tofrom 17 in0 thein the period period November October 2019-January-December 2019 2020. to 17 in the period November zz TheFile net balanceWorksheet index2019 -measuresJanuary 9 in Y: \2020the0 Y proportion Drive. 2016 of\1 respondents Macro\LET\ reportingData\LET a Charts.xlsx rise in prices minus a decline. location • The net balance index measures the proportion of respondents reporting a rise Source: Royal Institutionin of prices Chartered minus Surveyors those reporting a decline. Latest release: February 2020, Next release: March 2020 Chart RICS house prices net balance (change in prices during next three months, seasonally adjusted) 100 80 60 40 20 0 -20

Net balance Net -40 -60 -80 -100 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

London England and Wales

GLA SourceEconomics RICS Residential Market Survey 11

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London’s Economy Today • Issue 210 • February 2020

Indicator 11: RICS house price expectations for London and England and Wales

Title House prices expectations in London in January 2020 are the highest they have House prices expectations in London in January 2020 are the highest since May 2015 been since May 2015 zz In the three months to January 2020, surveyors reported the largest expectation of increases in London housing Bulletsprices (43) since• In May the 2015. three This months index was to 29 January in the previous 2020, period.surveyors reported the largest zz London index wasexpectation higher than of the increase index sfor in England London and housing Wales prices in January. (43) since May 2015. This zz Sentiment in Englandindex wasand Wales29 in thewas previouspositive in period. January 2020 (30) – the highest level in four years - up from 25 in December 2019.• London index was higher than the index for England and Wales in January. Source: Royal Institution• Sentiment of Chartered in England Surveyors and Wales was very positive in January 2020 (30) – the Latest release: Februaryhighest 2020, levelNext release:in four March years 2020- up from 25 in December 2019.

Chart RICS house prices expectations net balance (change in prices during next three months, seasonally adjusted) 100 80 60 40 20 0 -20

Net balance Net -40 -60 -80 -100 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

London England and Wales Indicator 12: Consumer confidence in London and the UK Source RICS Residential Market Survey ConsumerTitle confidence Consumer in confidence London inwas London negative was negative in January in January 2020 2020 zzLatestThe consumer February confidence 2020 index remains quite volatile in London. This index was -4 in January 2020, down from 9 releasein December Bullets 2019.• The consumer confidence index remains quite volatile in London. This index was zz Sentiment for the UK-4 remainedin January negative2020, down in Januaryfrom 9 in (-9) Dece butmber slightly 2019 .less than it was in December (-11). The UK • Sentiment for the UK remained negative in January (-9) but slightly less than it Nexthas not shownMarch a positive 2020 index score since January 2016. release was in December (-11). The UK has not shown a positive index score since zz The GfK index of consumerJanuary 2016. confidence reflects people’s views on their financial position and the general economy over the past year• andThe inGfK the index next of 12 consumer months. confidence A score above reflects zero people’s suggests views positive on their opinions; financial a score below zero Fileindicates negativeWorksheet sentiment.position 11 inand Y: the\0 generalY Drive economy 2016\1 overMacro the\ pastLET \yearData and\LET in the Charts.xlsx next 12 months. location Source: GfK NOP on behalfA ofscore the Europeanabove zero Commission suggests positive opinions; a score below zero indicates negative sentiment. Latest release: January 2020, Next release: February 2020 Chart Consumer confidence barometer 30 20 10 0 -10 Index -20 -30 -40 -50

London UK

GLA EconomicsSource GfK NOP on behalf of the European Commission 12 Latest January 2020 release

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London’s Economy Today • Issue 210 • February 2020

Local authority spending in London

Bysince Spencer Thompson 2009/10, Principal Social Policy Analyst

Local authorities across England, including London, have experienced a highly challenging funding environment at a time of fiscal tightening over the last decade, having to make difficult decisions about reducing spending while meeting their statutory commitments. This article focuses on London’s local authority spending on public services1. It discusses why there has been such a steep decline in spending and describes the difficult choices that local authorities in London have had to make to manage their spending. London’s local authorities, which include London boroughs as well as the GLA, spent around £26bn delivering public services in 2018/19. The largest areas of spending included education, accounting for £7.6bn, adult social care (£3.4bn), police services (£3.4bn), highways and transport (£2.6bn) and childrens’ services (£1.9bn). Compared to other English local authorities, London spends relatively more on police services, housing services and highways and transport, reflecting London’s urban context and devolved powers around transport. In order to assess how public services spending by London local authorities has changed since 2009/10, an adjustment is required for those areas of spending where responsibility has changed between central and local government2. Measured on a real per capita basis, gross spending on public services by local authorities fell by 30% in London between 2009/10 and 2018/19, compared to 20% in the rest of England.

1 As distinct from other areas of local authority spending, such as capital investment. 2 This adjustment involves removing public health and education. Local government was given responsibility, and additional budget, for public health in 2013/14. Similarly, the Free Schools and Academies programmes mean many schools are now funded directly by central government, rather than local authorities.

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The reason why London has experienced a greater fall in spending than elsewhere is related to local government revenue, which has similarly fallen by more in the capital. A paper by the Institute for Fiscal Studies points to three principle drivers of this divergence: zz London boroughs are more reliant on grant-funded revenue streams from central government, such as the Revenue Support Grant, that have seen greater cuts. zz There has been a reduction in funding to the GLA for transport subsidies zz London boroughs have not decided to raise Council Tax by as much as councils in other regions of England3 Figure A1 illustrates the areas of public services that have been relatively protected from spending reductions, and those that have experienced more sizable cuts. Local government in London have reduced spending on planning, culture, highways and transport the most. Spending on planning has fallen by 50% in real per capita terms, culture by 49% and highways and transport by 46%. Social care (adult and child) and housing services have been relatively protected: while overall spending has fallen by 30%, social care has seen a spending reduction of 11%, and housing services by 14%. Environment and fire services have been cut by around a quarter, and police services by 30%, in line with the overall reduction in spending. Figure A1: Change in -11% Social care local authority gross service spending in -14% Housing services London, 2009/10 - -25% Environment 2018/19 (per person, 2018/19 prices) -26% Fire and rescue Source: MHCLG (2020) Local -30% Police authority revenue expenditure and financing England: RSX -38% Central and other

-46% Highways and transport

-49% Culture

-50% Planning

Even within the areas of spending that have been relatively protected, local authorities have had to cut spending on some services. The rest of this article looks in detail at social care and housing services to illustrate this.

Childrens’ services Local authorities provide a range of childrens’ services. They are required to provide statutory services aimed at a relatively small, higher-need group of children. Statutory services include services for disabled children, as well as child protection services and services for looked-after children. Statutory childrens’ services accounted for over three quarters of local authority spending on childrens’ services. They also provide non-statutory universal and targeted services, such as school counselling & youth services, which support the child and youth population in general or are targeted at groups deemed to be at risk.

3 IFS (2019), ‘English local government funding: trends and challenges in 2019 and beyond’.

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Figure A2 shows how spending by London’s local authorities on different areas of childrens’ services changed between 2010/11 and 2018/19, in real terms and per head of the 0-17 population. It shows that local authorities have given relative protection to the statutory end of childrens’ services. Spending on looked-after children and family support services have only fallen by 3%, and safeguarding services by 9%. Other areas of childrens’ services have seen sizable spending reductions. London boroughs spent 70% less on services for young people in 2018/19 than they did in 2010/11. They have reduced spending on Sure Start Centres by two-thirds, and on youth justice services by almost half. Figure A2: Change in London local authority -70% Services for young people gross children’s social care spending, -65% Sure Start Children's Centres 2010/11 - 2018/19 (per 0-17 population, -48% Youth Justice 2018/19 prices)

-47% Other Children's and Family Services Source: DfE (2019) LA and school expenditure

-9% Other including safeguarding

-3% Children Looked After

-3% Family Support Services

Adult social care Adult social care supports working-age and older adults with physical, cognitive or age-related conditions in carrying out personal care or domestic routines. People who need help with social care are usually assessed by their local authority social services team to identify what their care needs are, whether they have to pay for their care, and if so, how much. In 2018/19, around 39% of local authority adult social care spending could be attributed to working- age adults, and 36% to those aged 65 or over. They also spent a small amount, 2% of the total, on social support, including substance misuse, carer and asylum seeker support services. The remainder was spent on administering the adult social care system, and includes assessment and review, information, early intervention and commissioning. Between 2010/11 and 2018/19, adult social care spending on older adults fell by 22% per head of the 65+ population in real terms. Adult social care spending on working-age adults fell by 19% per head of the disabled 18-64 population (Figure A3).

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Figure A3: Change in London local authority gross adult social care spending, 2010/11 - 2018/19 (per person, -22% 65+ total population 2018/19 prices) Source: MHCLG (2020) Local authority revenue expenditure and financing England: RO3

-19% 18-64 disabled population

Housing services The bulk of London’s local authority spending on housing services is accounted for by homelessness-related spending. Local authorities have several duties in relation to homelessness. The local authority is required to secure housing for applicants that meet eligibility criteria. Spending on temporary accommodation in order to discharge this duty accounted for 57% of London local authorities’ spend on housing services in 2018/19. Local authorities are also required to produce homelessness strategies to prevent homelessness in their area and have a wider duty around preventing homelessness. Their statutory responsibilities here have changed in recent years. In 2018/19 spending on homelessness prevention, support and administration accounted for 14% of total housing services spend by local authorities. Local authorities also provide a range of other housing services. Some of these areas of spending, such as the Supporting People budget, are also relevant to homelessness. Between 2009/10 and 2018/19, spending on temporary accommodation by local authorities in London rose by 38% in real terms. Spending on wider homelessness administration and services rose 30% and spending on other areas of housing services fell by 45% (Figure A4). Similar to childrens’ services, it is likely that a rising caseload and cost of fulfilling statutory duties around homelessness has resulted in spending reductions in other areas.

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Figure A4: Change in London local authority gross housing services

-45% Other housing services spending, 2009/10 - 2018/19 (2018/19 prices) Source: MHCLG (2020) Local Homelessness: prevention, support and authority revenue expenditure 30% administration and financing England: RO4

38% Homelessness: temporary accomodation

Conclusion Local authorities in London have had to find greater savings in services spending than in elsewhere in England at a time of fiscal tightening. Because of statutory responsibilities in some areas, such as childrens’ social care and homelessness, they have had to offer relative protection to these services at the expense of more universal, non-statutory services that they provide. This has resulted in services such as planning, culture, and youth services undergoing considerable reductions in spending. It is important to recognise that the scale of spending reductions have varied considerably between London boroughs. It is also important to note that local authority services sit alongside other public services provided to Londoners, such as the National Health Service and Jobcentre Plus, that have also experienced spending challenges in recent years. At the same time, changes to the personal tax and welfare system are also negatively affecting many households in London, particularly poorer households4. This may be having an impact on local authority services, such as homelessness5.

4 GLA (2019), ‘Cumulative impact assessment of welfare reform in London’. 5 GLA (2019), ‘Impact of welfare reform on homelessness in London’.

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