Blog Post

The Chancellor’s plans to restart the economy are welcome, but may not be enough for London’s global centre

The Chancellor’s plans to restart the economy are welcome, but may not be enough for London’s global centre.

Central London can seem curiously friendless in political debates – too metropolitan for national politicians but not resident-focused enough for local and regional authorities. But Central London’s economic recovery is essential to the capital and the UK as a whole, and it is currently exposed to a unique and highly toxic cocktail of risks.

London’s Central Activities Zone (the core commercial and office districts of the West End, the City and their fringes) makes an outsized contribution to the national economy: recent Centre for London research indicated that it generated 10 per cent of national economic output in an area covering just two per cent of London.

But the area’s importance extends beyond the dry data of economic output. Central London is the anchor of the UK’s tourist industry, and the epicentre of the mix of shops, restaurants, museums, clubs, bars, universities and theatres that sustains the UK’s soft power, drawing international students, businesses and workers year after year. Global London is the heartland of Global Britain.

In previous crises, central London has sometimes suffered, but bounced back. In the early 1990s recession, inner London lost manufacturing and manual jobs and saw sharp rises in unemployment, but by the middle of the decade, the service sectors were growing in compensation, with vacant commercial premises in areas like Shoreditch taken over by a new generation of start-ups. And after 2009 employment growth hardly faltered, as central London’s economy was buoyed by quantitative easing and international investment, and emerging sectors such as cultural industries and fintech began to grow as traditional financial services employment stalled. This resilience has bred resentment in other parts of the UK – some of it perhaps justified – but London’s success as the UK’s gateway to the world has been a force for good.

This time it could be different. London’s city centre emptied out faster and deeper than other UK urban centres when lockdown started at the end of March, partly reflecting the higher proportion of jobs – predominantly higher paid professional and office worker jobs – that could be undertaken from home. Lower paid workers in hospitality and retail also stayed home, but mainly on furlough in the short term – many will be wondering if they have jobs to return to. Anyone who has been into central London recently will have noticed how empty its streets remain, while life returns to more residential neighbourhoods.

The question of how many workers will come back to central London offices, and how quickly, is still an open one. For every elegy to the end of the office, there is an equally confident hymn to the social and productivity benefits of teams working in the same place, the spillover and innovation benefits nurtured by proximity. But it does seem that the lure of central locations may be diminished for some employers.

This storm might be weathered on its own, but combining a reduction in office workforce, with a sharp slowdown in domestic and international tourism, and a public transport system with heavily constrained capacity could be deeply damaging. Central London needs people, the throng of workers, shoppers, residents and tourists. Its retail, hospitality and cultural industries serve and entertain the world; they cannot survive on the area’s 330,000 residents alone. The tax breaks and discounts announced by the Chancellor yesterday may be a boost to neighbourhood pubs, cafés and restaurants across London, but they won’t bring crowds back to Zone 1 on their own.

Weakening central London’s visitor and commuter economy as a result of short-term shutdowns and slow resurgence over the coming months could store up deeper problems in the future, permanently undermining London’s soft power and global reach – the things that bring students, tourists and investors to the UK in the first place – as well as endangering the viability of the district that accommodates 40 per cent of London’s jobs.

So central London is particularly at risk, and damage to its economy could reverberate across the country. What can be done?

The first thing is to enable people to get back to central London as quickly as is compatible with managing the risks of coronavirus resurgence. At the height of the epidemic, Londoners were told to stay away from public transport, and that message has struck home. Now that face masks are mandatory, and infection rates much lower, a cautious return to public transport should be encouraged – not least as evidence from international studies and modelling of the spread of the virus in London in March indicate that public transport is not a major source of outbreaks. As Andrew Adonis has suggested, staggered working hours, clarity on cleaning standards and a change of messaging from the Mayor could all help bring people back into central London.

Getting people back on the tubes and buses will help, but will not be enough to make up for the loss of tourism and potential loss of workforce. It is likely that more targeted help will be needed, in particular for theatres, gig venues and other performance spaces. The West End accounts for 60 per cent of annual revenues for UK theatres, so allowing it to wither would be a body blow to the industry nationally.

The government’s new support package will help support cultural institutions while live performance is limited, but distributing cultural vouchers across the country could also play a part once theatres and other venues start to re-open (perhaps following the approach being tried out by Andrew Lloyd Webber). ‘Helicopter culture’ would be a gift in tough times to UK audiences, while drawing people back into city centres across the country, where attending a play or performance could be accompanied by food, drink and even shopping.

A return to public transport and support for entertainment might help sustain London’s centre as the virus recedes and tourism revives, but there will inevitably be shops, cafés and pubs that fail, and office space that is surrendered as firms reconsider their spatial needs and their employees’ appetite for remote working. There may be a case for allowing some growth in residential development: central London’s residential population has grown sharply in recent years but is still way below what it was in the 1930s. However, all the logic of business clustering, and the sunk costs of decades of infrastructure investment, argues that London should sustain a strong business core.

Rather than surrendering London’s business core, boroughs, the Mayor and government should work together on incentives to enable new enterprises to flourish, as they did in previous recessions. While rents are falling – and being linked to turnover in many cases – business rates are anchored to rental values from 2015 and so remain prohibitively high in many parts of central London. In the long term, business rates need reform, but in the short term, tax breaks for start-ups could include business rate discounts or holidays, and capital allowances for investment in office and shop fit-outs – an enterprise zone for the city centre.

Getting cross about central London – the crowds, the tourists, the prices, the pollution, the bustle – is a pastime that most Londoners can normally share with people across the country. But diluting its punchy and sometimes chaotic vitality would be a tragedy for the whole nation. London will bounce back in the long term, but may need some help over coming months as it faces a perfect storm of challenges.



Richard Brown is Deputy Director of Centre for London. Follow him on Twitter. Read more from him here.