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London’s Economy

11 am

Mr. Andrew Dismore (Hendon) (Lab): I am pleased to have secured this important and timely debate on London’s contribution to the UK economy. The number of unsolicited but helpful briefings that I have received emphasise the importance of the debate. There is not time to do them all justice, but I am grateful to everyone who wrote to me from a wide variety of organisations that I did not even know existed. That shows how topical the subject is.

In many respects, London is the great success story of the past few years. Its strengths are that it is a diverse, vibrant, open and outward-looking city. Hon. Members may have seen the prominent story in The Times last Tuesday which suggested that London is overtaking New York as a financial centre and is overtaking Paris as a cultural centre. That was not the first straw in the wind to that effect. London’s business and financial services, creative industries, retailing and tourism are all growing. World-class businesses have gathered in London to contribute to our high-growth economy. Forty per cent. of the UK’s export growth in 2000-04 came from London, mainly from the financial sector.

What benefits London also benefits the rest of Britain. Some estimates have placed London’s annual net tax exports to the rest of the country at £8 billion at the bottom of the range and other estimates are as high as £20 billion or more. The capital accounts for 15 per cent. of total UK employment and 18 per cent. of its gross domestic product, with productivity 27 per cent. higher than in the country as a whole. London produces far more in tax than it ever receives in state funding, benefits and services.

David Taylor (North-West Leicestershire) (Lab/Co-op): Does my hon. Friend recognise that the midlands of England are larger, have a greater population, make a bigger contribution to the economy, and are more significant in academic, cultural and sporting terms, so the special pleading for London that is about to start does not ring true to midlands ears? We must rebalance UK society away from the metro-centricity of which this speech is typical.

Mr. Dismore: I was about to say that I thank my hon. Friend for his contribution, but I do not think I can, because I do not agree with what he said. He has not yet heard my speech and he is prematurely off the mark. The fact remains that the statistics speak for themselves: London is the economic powerhouse that drives this country.

The continuation of London’s success and the scale of its contribution to the rest of the UK cannot be taken for granted. We are reminded every day of the growing economic strength of the emerging economies of China, India, Russia and now Brazil; nor can we assume that historic competitors such as New York will not respond effectively to London’s success.

In an increasingly competitive global environment for investment, London must stay one step ahead of the game. That requires significant and continued investment in those areas in which the city is weakest: transport, housing and skills. It is also essential that resources are
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available for the capital to respond to emerging problems and their consequences, such as the challenging security environment and the real threat of climate change.

Mr. Mark Field (Cities of London and Westminster) (Con): I shall not reprise the comments of the hon. Member for North-West Leicestershire (David Taylor), but I agree with everything that the hon. Member for Hendon (Mr. Dismore) has said so far. However, is there not also an issue—he may want to develop this—that London’s power is becoming almost overwhelming? In many ways, it is something of a city state within the UK, which I suspect is an issue that might be in the minds of his hon. Friends from other parts of the country. Could he explore that, as well as doing the right thing by the bankers of NW4 and the lawyers and accountants of NW7, who make up an important part of his constituency?

Mr. Dismore: I simply say that although parts of my constituency are wealthy, some are very poor, and I shall refer to them shortly. The hon. Gentleman makes an interesting point. I certainly do not advocate a return to the city states of ancient Greece, nor a London nationalist or separatist movement, but London’s problems are unique in many ways and require special solutions that do not necessarily match with national policy across the board.

The starting point must be public transport, because the contribution of its network to London’s economic viability, and therefore the nation’s, is undeniable. London businesses consistently cite transport constraints, such as delays and overcrowding, among their greatest concerns. There are significant cost implications when people are late for work, because loss of productivity and lost business inevitably follow from unreliability. People arrive at work, or at home after the working day, stressed out from their journeys on public transport. In 2005, the cost of transport delays to central London workers and businesses was estimated to be £1.2 billion a year.

Sir Rod Eddington's study, which was published last December, emphasised the importance that transport plays in supporting a strong and growing economy. His report stated:

and that

Mr. John Horam (Orpington) (Con): I congratulate the hon. Gentleman on securing this debate, and, so far, I have enjoyed what he said. However, he touched a raw nerve when he mentioned overcrowding on public transport, and I am sure that he is right to bring that issue up early in his speech. There have been complaints about increasing overcrowding on journeys from Orpington, and the solution is not, as is sometimes said, more and more high-level investment. The Secretary of State for Transport recently promised another 1,000 carriages by 2014. That is an amazing promise, and went down like a lead balloon in Orpington. Short-term, relatively cost-free improvements can be made simply by running more carriages and having a licensing and franchise system
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that encourages licensees to do that. I would like the Government to pay attention to that short-term arrangement, rather than just to the long-term farragoes.

Mr. Dismore: The hon. Gentleman’s comments are interesting. I do not know the particular problems of travelling from Orpington to central London, but I shall refer generally to the south-east and mainline rail links. He makes some important points, and I shall refer specifically to Thameslink, which serves my constituency, because similar issues arise.

The Eddington report supports my case, because London can certainly be described as growing, congested and definitely urban. Around 1 million people use public transport to get into central London on weekday mornings, and 6 million people use London’s buses on any given day. Last December, the tube carried 4 million people on a single day, which was a record for the network.

It is blindingly obvious that increased investment and consequently more reliable services with greater capacity would make a real and fundamental difference to the ability of London’s transport network to support the economy as a whole. Bus use in London uniquely has increased by 40 per cent. since 2000. The congestion charge has cut traffic and congestion, and a seventh carriage has been added to every Jubilee line train. Those improvements alone have contributed to a 5 per cent. shift from private car to public transport. That is unprecedented elsewhere in the world in major cities like London.

Much more must be done, however, to provide for the population and job growth that London will experience over the next 20 years. There will be an extra 1.1 million people and 900,000 jobs on top of the 760,000 increase since 1989, which is equivalent to absorbing the population of Leeds already, with Sheffield to follow. Public transport demand will increase from 10 million journeys a day to 12.8 million by 2025.

Transport for London has carried out an extensive analysis of this, and recently published “Transport 2025” on a transport vision for a growing world city. Unless London’s transport system benefits from increased, sustained funding over the coming years, the limitations of the current transport network will subject London’s economic development and its vital contribution to the country's economy to slow and inevitable strangulation.

“T2025” sets out the priorities for London’s transport network. The current position with the vital Crossrail project seems to be positive. The recent meeting in Downing street and the Prime Minister’s unequivocal support is encouraging, but it is essential that the funding package needed to deliver this robust and costed scheme is agreed as quickly as possible to prevent further hold-ups for this long overdue plan. It is vital that the House appreciates both the project’s benefits and its urgency. It is estimated that Crossrail will generate £31 billion in additional GDP, which in turn will yield around £12 billion back to the Exchequer. That investment in London will generate substantial benefits for the rest of the economy.

In the global competition for financial and related services, we must provide location options. Businesses want to locate where they can expand, and they will soon choose not to come here, or to anywhere in the
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UK, without Crossrail. They will decide instead to go to another global financial centre. In the meantime, central London office rents will continue to rise, and new offices will be refused planning permission because of the absence of any transport links. The costs of delaying Crossrail are estimated at £4 million each day, or £1.5 billion a year. It is vital that all elements of the scheme, including financing, come together, so that construction can get under way as soon as possible—perhaps even as early as 2008.

On the underground network, the public-private partnership must be made to deliver for Londoners. The full public-private programme can and will deliver significant benefits—not only modernised stations, but almost 30 per cent. additional capacity. The Northern line, which serves my constituency, will have a new signalling system and more of its track will be replaced, but it will be a number of years before the project is completed.

Last summer, I visited the maintenance crews working on the night shift, and the conditions in which they have to work—the heat and the dust—and the heavy labour that they undertake are amazing. What they are able to deliver—unseen and underground when the network is closed—is a real benefit to Londoners, and we ought to pay tribute to their work. I was very impressed by what I saw—by their commitment and hard work down there, unseen by anyone else. As problems have been resolved, however, new difficulties have arisen from, for example, the train maintenance contract. The trains were new 10 years ago, but the contract has tied up their maintenance in red tape, and the work is not done as well as it should be.

For Londoners living away from the Tube network, as some of my constituents do, dependent as they are on Thameslink, mainline rail is a vital part of the picture. The Thameslink 2000 scheme is vital to opening up the suburbs, and it must be funded when the comprehensive spending review is announced this summer. In the meantime, improvements can be made to the network, as the hon. Member for Orpington (Mr. Horam) said. One of our problems has been the loan of the special trains that are needed for the Thameslink service to other parts of the network, because if we had them back, its reliability and the service in general would significantly improve. We have had one train back so far, but 12 others should be returned.

There are a high proportion of national rail passengers in London and the south-east, and further spending must reflect their desperate need for extra capacity. Sir Rod Eddington’s report on transport spending priorities strongly supported that view. The T2025 programme should reduce journey times by 10 per cent., and when the wider economic benefits are included, its overall cost-benefit ratio will be 9:1. It is essential that the Government make the necessary commitment to that project and to projects that support it, so that London’s transport system can continue to play its key role in supporting London’s growing economy.

It is no secret that London faces a severe housing shortage throughout all key sectors: social housing, affordable housing and intermediate homes. Owing to the absence of urgent action, the shortage is becoming a crisis, blighting the lives of hundreds of thousands of Londoners who are condemned to live in homes that are temporary, overcrowded, unfit for habitation or, in many cases, all of the above. On top of the damage that such
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conditions inflict on the quality of life and on the health and the life chances of people living in such accommodation, they are seriously detrimental to the economic competitiveness of London. The shortage of suitable housing decreases the attractiveness of the city to inward investment, and it is pricing many key workers out of London.

The figures are stark: two thirds of UK households in temporary accommodation live in London. The 150,000 London households in overcrowded conditions represent more than half the national total. London has suffered more than any other region in the country from the failure—identified in the Barker review—to provide a new supply of homes to meet a rising population and decreasing household size. It has been exacerbated by the failure to refurbish and renew London’s housing stock, which is older than the average for the rest of Britain. I am constantly criticising Conservative-controlled Barnet council—the local authority for my constituency—about its snail’s pace progress with major regeneration schemes such as Grahame Park, West Hendon and the Spur Road and Stonegrove estates.

In the London plan, the Mayor of London proposes radical action to address the housing shortage. The plan shows that the capital has sufficient land capacity to build more than 30,000 homes each year during the next decade, and if the Mayor’s targets were hit, more than 10,000 would be social rented homes and 4,500 would be intermediate homes, almost doubling the current annual output of social and affordable housing. In making decisions on the allocation of national funding for housing, the Government must recognise the pressing need for investment in London’s housing stock, compared with the rest of the country. Nowhere else is there such a concentration of the problems of shortage of supply, unaffordable homes, overcrowding and unfit accommodation.

Unless London’s severe housing issues are tackled, the Government will be unable to meet their national housing targets. The Mayor has the political will to make progress, but without desperately needed additional resources from national Government, he will be unable to make real progress in tackling effectively the appalling and unfair housing conditions in which many Londoners are forced to exist.

Housing and transport are two key areas in which a Government commitment to support is urgently needed to guarantee the continuation of London’s vital contribution to the UK economy. However, there are other areas in which Government engagement is essential, and tackling poverty, low skill levels and high worklessness in the capital is one of them. London has the lowest working age employment rate in Great Britain at 69.7 per cent., compared with 74.4 per cent. nationwide, and worklessness in London is concentrated in households with children. In 2005, just 68 per cent. of London’s parents with dependent children were in work, compared with 78 per cent. in the rest of the UK. That situation contributes significantly to London having the highest child poverty rate in Great Britain. Some 39 per cent. of children—52 per cent. in inner London—live in poverty, compared with 27 per cent. nationally, and the rate is getting progressively worse compared with the country as a whole.

Some people see the suburbs as prosperous, leafy boroughs, as the hon. Member for Cities of London and Westminster (Mr. Field) said, but in my outer London
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constituency in 2005, 7,700 children—33 per cent. of all children in the constituency—were living in households dependent on benefits. Between 2000 and 2005, the number of children living in families receiving benefit in Hendon rose by 1,100.

Mr. Mark Field: I recognise—I hope that the hon. Gentleman will, too—that in my inner-city constituency, areas of great poverty exist alongside affluent areas. It obviously applies to Hendon, too. However, does he not recognise that in part, the benefit system’s complications, which have become manifoldly worse during the past decade with tax credits and the like, ensure that many parents find it difficult to return to work, because they know that they will lose their benefits? Housing benefit in particular makes such an important contribution to household income in London, and more so perhaps than in other parts of the country.

Mr. Dismore: The hon. Gentleman makes a fair point, and I should not typify all his constituents by comparing them to people who live in Mayfair. Throughout London, the pattern is repeated whereby wealthy people live side by side people in extreme poverty.

The hon. Gentleman’s main point was his concern about the benefit system, but the system is not so much complicated as unable to recognise the London effect. Although the system has been effective at alleviating poverty in the rest of the country, owing to features that are particular to London, such as the high cost of living and, for those in work, the high wage structure, tax credits have not alleviated poverty as they should have. However, he is right to highlight the problem that tax credits have not delivered for London as they have for the rest of the country.

Furthermore, housing benefit can prove a barrier to people finding work because they fear losing their home as a consequence of being unable to pay the rent. However, I am concerned that some proposed reforms to housing benefit may work to the detriment of Londoners rather than to their advantage. The benefit system must be tweaked to reflect problems that are particular to London, and one could make a case for adding London weighting to the old-age pension. I shall not go down that route today, because it is not the main thrust of my argument, but London pensioners incur a higher cost of living compared with the rest of the country.

The policies that increase London’s employment rate support social justice and economic efficiency. Moving into work is the best escape route from poverty, and unemployed people represent an unused resource for London’s economy. Properly designed training programmes can help to tackle worklessness in London and, by improving the skills of people already in work, they can help people to progress in the labour market.

By addressing London’s high levels of worklessness, we could help to reduce poverty in the capital. To that end, the resources, targets and structure of Jobcentre Plus in London should be reviewed to meet London’s special economic requirements—so different from the rest of the country—as part of both the comprehensive spending review settlement and the Mayor’s skills and employment strategy.

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We will not see real progress on the Government’s wide range of national policies and targets without effective action in London. Investment in London will help to ensure that the capital continues to provide its net contribution of billions of pounds to central Government, benefiting the UK as a whole, attracting resources and increasing the whole country’s competitiveness and productivity. London is the country’s golden goose. If it is to continue to lay the golden eggs from which the nation benefits, the investment that I have described must continue.

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