Appendix 1 Economy Committee - 21 June 2016 Transcript of Item 10 - London’s Economy Fiona Twycross AM (Chair): Thank you. That brings us to today’s main item, a discussion about London’s economy. Before I introduce and welcome our guests for today, I would like to clarify that due to the fact that we are still in the pre-referendum period, we will not be covering issues relating to [the United Kingdom’s membership of the European Union]. We have tried to clarify ways in which we could have a discussion and it has also been clarified that we cannot go into closed session should we stray into matters European. Hopefully, we will still be able to have a meaningful discussion about London’s economy, but please bear with us because we understand that the Electoral Commission has been very clear about its expectations of this Assembly. I would like to welcome - with that proviso - our guests today. I am delighted to welcome Lord Adebowale, Chair of the London Fairness Commission; Graham Fisher, Chief Executive of Toynbee Hall - thank you for coming - and Richard Brown, Research Director for the Centre for London; Laurie Heselden, Campaigns and Policy Officer for Southern and Eastern Region, Trades Union Congress (SERTUC); Colin Stanbridge, Chief Executive of the London Chamber of Commerce and Industry; Matthew Waite, Senior Economist from the Greater London Authority (GLA); and Clare Ludlow, Director of Innovation from the Timewise Foundation. To kick-start the session, Matthew is going to give us a short overview presentation on London’s economy, after which we will start a discussion among Members and invited guests. Matthew Waite (Senior Economist, GLA): My name is Matthew Waite and I was asked to give a presentation on an overview of London’s economy to help inform the work of the Committee going forward. To do that, I will spend a little time outlining the broad economic forces impacting on London’s economy in order to better understand the context in which London’s economy operates. I will then show what this has meant for London’s economy before moving on to some more practical - if you like - issues that face London’s economy as a result of this analysis. Given the time [available], most of this will be necessarily brief, but hopefully I will be able to answer any questions on the thrust of the presentation at the end.1 Looking at where London is today and how it got here, globalisation has been a big - if not the biggest - driving force. By “globalisation”, I primarily mean the increasingly integrated and interconnected nature of the international economy, a state that has arisen in large part by huge increases in trade over time. Trade is important because, at its simplest, it increases the size of the market that businesses can sell into and that is important because, the bigger the market, the more economically viable it is to focus on specialised products or services. As a result of globalisation, there has been a structural change in the UK and world economies with resources moving from less productive uses to more productive uses. This chart [Slide 2] highlights the structural change seen in London’s economy over the past four decades or so. In the big picture, the bottom line is manufacturing, production and utilities. There was a fall in manufacturing, construction and utilities employment over the last four decades. The top line is professional and businesses services. There has been a big growth in professional and business services. 1 A copy of the presentation is attached at Appendix 2 to these minutes. 1 [Slide 3] As a result of this force towards specialisation, London currently specialises in business services, financial services and some other service sector activities. This chart shows what we call the “index of specialisation”. That is how much employment occurs in London as compared to Great Britain as a whole. If anything is on the red line, it means that London looks like the rest of the country and looks like Great Britain. Anything to the right of that line is an area that London specialises in and where London has more employment than the rest of the country. Anything to the left of that line, London has less employment than the rest of the country. The top right-hand corner shows you that financial and insurance activities are the most specialised area of London’s economy with more employment in London than the rest of the country. Also, specialisations in information and communication, professional services and real estate are other areas of specialisation. The vertical axis tells you the relative size of that sector in London’s economy in terms of its output. Not only is financial and insurance services the most specialised area; it is also the biggest area of London’s economy in terms of its output, accounting for about a fifth of output. Those other three specialisations - information, professional services and real estate - account for about another two-fifths of London’s economy in terms of output. Perhaps what this chart shows, unsurprisingly, is that London is not specialised in relation to the rest of the country in what might be considered more land-intensive uses like agriculture and traditional manufacturing, for instance. [Slide 4] Some of the specialisations are internationally competitive specialisations, things like air transport, film, TV, music, finance, legal, accounting and advertising, all of which have a significant concentration in London. Some of these internationally competitive business services concentrate very significantly in London with this chart showing you the share of employment in London compared to the rest of the country. In some of these sectors, over 50% - or more than half - of the country’s employment is located in London. This sectoral specialisation has also to a degree manifested itself in a spatial specialisation or concentration and so particular and many functions of London’s economy tend to locate in particular areas of London, primarily central London. That is because central London offers a number of things that cannot be found in combination in many other places. Central London offers very good access to a large pool of highly skilled labour. It offers good access to complementary inputs, like finance houses putting together merger deals, say, and having access to legal services, audit services, management consultancies, accounting. Many businesses located in central London want to be near one another, as evidenced as many of these surveys, as shown on this slide. [Slide 5] [Slide 6] One of the reasons businesses are attracted to London is the access to staff that London offers. This map shows the number of people who can get to the particular highlighted ward within 45 minutes by public transport. It shows that at least 2.5 million people could get to the dark-red areas within 45 minutes. That illustrates both the attractiveness of central London to businesses particularly reliant on labour and also the impact of the public transport system on business location decisions. The transport system’s ability to pull a large pool of labour into a relatively small space provides central London businesses with the opportunity to locate close to one another. [Slide 7] As a result of all these factors, there is a big concentration of employment in the centre of the city. This chart shows the number of employees per square kilometre. This concentration drives significant - what are called - “agglomeration economies”, benefits that extend to the wider economy beyond those benefits that derive to the individual firms themselves. Such agglomeration benefits support economic activity in London by providing firms with access to high-skilled labour, a range of complementary input and output markets and the benefits of spill-over effects such as the speedy diffusion of innovation and knowledge. These economies further underpin London’s international comparative advantage, with research suggesting that the areas in 2 which London specialises - financial and business services - are those areas that benefit most from agglomeration economies. This competition for space at the centre of London puts upward pressure on the price of land and means businesses have to be very productive and competitive to survive. [Slide 8] This chart shows the Office for National Statistics (ONS) measure of productivity across the regions of the UK and shows London is over 30% more productive than the UK average. Globally competitive activities that require a large pool of highly skilled labour and need to feed off one another tend to do business and tend to locate in the centre of the city, while other sectors, specifically those serving more local markets, which therefore need to be located near consumers - things like retail, health, education and local government - tend to have their employment spread much more widely across London. This international competitiveness means, on many measures, London has a very successful economy. For instance, London exports a significant level of services to the rest of the world. [Slide 9] This chart is drawn from our work on the London Business Survey. It is estimated that London exports around £147 billion and accounts for a significant share of the UK’s service exports. London provides a significant injection to the UK economy as a whole through trade, a situation that is very different at the national level with a trade deficit. [Slide 10] London’s economy has been growing more quickly than the rest of the country for the past couple of decades or so. This chart shows quarterly growth in London’s gross value added (GVA) over time as compared to the UK as a whole.