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Economic Growth (London)

Volume 589: debated on Friday 5 December 2014

Motion made, and Question proposed, That this House do now adjourn.—(Mel Stride.)

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 UK 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 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.

I thank the hon. Member for Hackney North and Stoke Newington (Ms Abbott) for securing the debate. At the beginning of her campaign to become the Mayor of London, perhaps we need to develop a technique to grow a bigger crowd. It is quite lonely in here this afternoon.

The hon. Lady has picked up on several issues that I will try to answer, although I have limited time in which to do so. Local growth is an essential part of the Government’s long-term economic plan to secure Britain’s future. By trusting local people, backing businesses and investing in infrastructure, skills and housing we are creating thousands of new jobs. That means more economic security, peace of mind and a brighter future for hard-working people across the country. In London, it is the role of the Mayor, working closely with borough and the private sector, to develop sustainable growth. There is no doubt that London is an economic powerhouse and, as the Mayor rightly and repeatedly says, it is a global city that needs to ensure that its economy performs at an international level.

The Mayor has set out a clear vision for delivering growth in London by creating jobs, building new houses and providing the infrastructure that is needed. The opportunity areas, such as Battersea, the Royal Docks, Greenwich and Stratford, are seeing a renaissance, while new business areas, safe leafy neighbourhoods and vibrant town centres are rising from the ashes of former industrial areas.

Does the Minister not share the concern of ordinary Londoners, at all income levels, that so many of the new jobs being created are on zero-hours contracts, with agencies or on a low wage? People are struggling to survive on their salaries.

I thank the hon. Lady for her question, but as the Chancellor pointed out the other day, 85% of the 1.7 million jobs that have been created are full time. The issue of zero-hours contracts is important, but I suggest that the Labour party gets its own act sorted out first, as I understand from the Independent Parliamentary Standards Authority that some 62 Labour MPs use zero-hours contracts.

Let me return to my speech. The Mayor has overseen a massive investment in London infrastructure to deliver growth from Crossrail, the biggest engineering project in Europe, to the London light railway, the Northern line extension, which has unlocked development in Battersea, or the rail extension in the Barking riverside area, which will allow some 11,000 homes to be built.

In the autumn statement, the Chancellor announced a further £141 million to support the Mayor’s project to create a new cultural and educational facility at the Queen Elizabeth Olympic park that will deliver economic and social benefits for the east of London as part of the Olympic legacy.

I would like to answer the questions that the hon. Lady asked, but I am more than willing to give way.

I am grateful to the Minister. I realise that he does not have much time to get through his speech. The infrastructure that he has spoken about, which has been built in recent years, was all planned and organised in the era of Ken Livingstone as Mayor of London.

Much investment across the country was put at risk by the reckless handling of the economy that left us with a £162 billion deficit and compromised many projects across the country. It is this Government who took a failing economy that was on its knees, with mass unemployment and mass business failure, and in a few years secured growth in this country that is not bettered by any country in the G7. This Government continue to promote, in London in particular, a diverse economy and local growth, which is about not just large-scale regeneration projects, but rejuvenating town centres. There are some 600 high streets at the heart of local communities in London.

The Mayor’s regeneration fund and the outer London fund are helping to support diverse local economies by establishing local businesses districts and improving retail, leisure, culture and arts provision to bring vibrancy back into those communities, and providing more security for those who live and work locally. The London enterprise panel chaired by the Mayor has invested some £111 million as Growing Places funding to create jobs, drive growth and enhance transport links to unlock potential and support small and medium-sized enterprises around London.

Within the Hackney council boundary some 2,530 properties have benefited from the £1,000 business relief that the Government have put in place in 2014-15. That was extended in the recent autumn statement. Significant projects such as MedCity, a £1 million investment, was launched this year, and a £1.5 million project to support SMEs via the National Apprenticeship Service has encouraged take-up. In Hackney and Stoke Newington, some 2,500 young people have started apprenticeships in the past five years.

Time is limited, but the hon. Lady raised some specific questions, one of which related to devolution. We should recognise the enormous amount of devolution that this Government have already offered. The Localism Act 2011 has transferred powers and money to deliver housing and regeneration projects. The Local Government Finance Act 2012 enables councils in 33 boroughs across London to retain a significant amount of business rates. That will grow. Across the country, more money is retained by councils from business rates than is raised through council tax. Through the local growth deal that the Mayor secured, some £63 million will deliver more housing in London.

The hon. Lady raised some important issues which it is worth spending a minute or so discussing. I said earlier that some 1.7 million jobs had been created. That is important, considering where we were in 2010. The massive deficit of £162 billion has been reduced by a half. The hon. Lady spoke about immigration. I agree that London is an amazing multicultural and global city that attracts people. I reflect on my own city, Bradford, a great melting pot of ideas and cultures that offer great depth to the place where I live. I agree that immigration makes a positive contribution to the economy and will continue to do so. As the Mayor says, London is a global city that attracts great people, and it attracts significant investment as well.

Question put and agreed to.

House adjourned.