Don’t ignore the country’s cash cow

Published by The i paper (15th February, 2021)

It is easy to forget London used to be a city in perpetual crisis, a symbol of national decline in the post-war decades rather than its more recent triumphant story as the booming fiscal powerhouse of Britain. When I was growing up in the suburbs half a century ago, the consensus view predicted doom as millions fled its crime-ridden streets filled with abandoned houses, empty industrial buildings and polluted air. Its economy stumbled, the tax take fell. Commuters were fed up with filthy trains and disruption on the tracks. There was good reason why pent-up fury and frustration exploded against the capital’s gloomy backdrop with punk rock in the mid-1970s.

Now London is seen as something different. It symbolised the revival of our nation as its fortunes were transformed by the “Big Bang” reforms of Margaret Thatcher, the capture of European finance and enthusiastic embrace of globalisation.  The number of foreign-born residents surged as millions followed Dick Whittington in hope of making their fortunes in the city, statisticians estimating one in three city residents were born abroad.  This flood of cash and people changed its character and culture. And the city’s rampant growth propped up the nation’s economy; the South East is the only part of Britain paying more to the exchequer than it takes out.

I liked seeing my city burst into life like a brightly coloured butterfly emerging from a dull cocoon – although my admiration was tempered by concern over its arrogance, inequality, laundering of dirty money and sharp divergence from the rest of the country, which contributed to Brexit. The result is a nationalist government focused on the Red Wall of seats won from Labour in the north of England, with a “levelling-up” agenda that ignores London’s higher poverty levels than elsewhere in the country. Now the pandemic, arriving in the wake of Brexit, poses a new question: could the unloved capital become our biggest problem if it spirals back into decline?

This question struck me on a lockdown walk when I saw a row of half-built tower blocks with cranes looming over them silhouetted against the sky. They looked like ghosts from a different era, a time when my home town was filled with bustle and hope. First there is Brexit. There was good reason why London voted strongly to Remain. Its turnaround was built on back of the City becoming Europe’s financial hub. It is too soon to see the full impact but we know law firms registered staff in Ireland, stockbrokers moved trading to Holland and funds shifted to Luxembourg. Data already shows Amsterdam overtook London as Europe’s biggest share trading centre last month while New York is scooping up more of the derivatives market.

Incredibly, the Government pushed ahead with Brexit despite the lack of a deal on financial services, although they contribute 10 per cent of taxes. Philip Hammond, after being appointed chancellor, met with Theresa May to say he presumed they needed to focus on protecting the City in talks with Brussels – only to be told not to bother since this offered the chance to tilt towards other parts of the country. Then Boris Johnson – a former London mayor – ignored the capital in his desperation to secure a deal so the City lost unfettered access to European markets and must find a path through the blizzard of rules from 27 individual nations. The arts, another key part of London’s vibrant resurgence accounting for one in six of its jobs, were also simply abandoned despite their soft power strength in so-called Global Britain.

Then came the pandemic. Every part of Britain is suffering from this catastrophe but many hardest hit sectors – aviation, hospitality, music, retail, theatre, tourism – have huge importance in London. City centre high streets have turned into wastelands, deprived of visitors and struggling to compete with online behemoths; in a striking example of the carnage, one in five shops on Oxford Street are boarded up. Some industries will bounce back when lockdown is lifted and life becomes more normal, freeing up savings built by more fortunate folk. Yet the consequences still threaten to unleash profound change that will corrode the capital’s foundations.

If we can predict anything about the future, office life has changed. Enforced home working will have a long-term impact. In the first week of lockdown, one friend told me he had terminated his fast-growing firm’s rent deal to slash his second-biggest cost after staffing. Many more companies, having seen how they can cut office space and boost productivity, are looking at how to change practices with more flexibility and remote working for white-collar staff. This is unsurprising: it costs one-tenth of the price to set up a decent home office compared with hiring space in central London. Many staff are happier, it helps the environment by cutting commuting and allows access to a wider talent pool than only those prepared to live within daily reach of a fixed base.

The office is a legacy of an age reliant on paper. But this change will heavily affect the capital with its overpriced homes and offices. Studies suggest demand for commercial property will shrink up to 10 per cent this decade, with city centres bearing the brunt.  One analysis of government data has found 700,000 foreign-born people have left London already because of Brexit and the pandemic, while the mayor’s office said the city has experienced its biggest rise in unemployment for 30 years. 

Who knows what is to come when the pandemic dies down and state bills must be paid? Few politicians dare speak up for the capital, let alone for fat cats in the City or “luvvies” in the arts, but we need to focus on wars of the future not battles from the past. If the cash cow of London goes back into decline, the whole country pays the price.

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