A growing and ever changing economy

1.17 London’s economy has made good the loss of jobs associated with the recent recession and in the year to June 2013 the number of jobs grew by 3.9 per cent^[1], more than any other UK region. It is likely to see strengthening growth in the medium term, as well as continuing change and challenges.

1.18 The world economy experienced dramatic changes between 2007–9, with a credit crunch, bank failures and a severe downturn in the real economy, with increases in business failures and unemployment. The UK also experienced sluggish growth, compounded by financial upheaval and economic problems in the Eurozone. It seems increasingly clear that in so far as these have impacted on London, they have not signalled the kind of fundamental long-term economic change here seen, for example, in the 1980s. The London Plan has to look beyond what is happening today. It does seem likely that globalisation, supported by mass production, technological innovation, reducing transport and communication costs and countries across the world continuing to open their markets to international trade, will support resumed economic growth. The world economy will be yet more integrated by 2036 and larger, with China, India and other currently ‘emerging’ markets having greater economic weight and providing wider markets for products and services. Closer to home, a growing London population is likely in itself to support an expanding economy, with growing demand for leisure and personal services, health and education.

1.19 Figure 1.4 shows employment in London between 1984 and 2011. There have been huge economic changes as London’s once very strong manufacturing sector declined, and was more than made up for by a growth in services. In 1984, there were nearly half a million manufacturing jobs in London. A decade later there were 260,000 and by 2011 only 129,000. The picture for the ‘professional, real estate, scientific and technical services’ sector is almost the opposite, with 322,000 jobs in 1984, 424,000 a decade later and 670,000 by 2011.

Figure 1.4 London’s employment 1984 – 2011

1.20 Employment grew during the service sector-dominated upturn of the late 1980s, reaching 4.28 million in 1989. The significant downturn of the early nineties saw employment falling to 3.8 million by 1993. There was then a period of substantial, if uneven, service driven growth, and by 1999, total employment had reached 4.4 million. London’s real GVA output expanded by some 40 per cent between 1992 and 2001, while employment increased by nearly 20 per cent over the same period. There was a further slowdown in 2002 following the collapse of the dot.com boom and the 9/11 terrorist attacks in the United States but output and employment rebounded, only to fall respectively by 3.6% and 2.1% between 2008 and 2009. Since then both have recovered, with total employment by June 2013 (5.2 million jobs) above the previous, 2008 peak. History shows London is an innovative city, which constantly reinvents itself and has made the most of components of business services, such as computing, which are now important but which simply did not exist to the same extent thirty years ago.

1.21 This background means we can put the current situation into some perspective, and can take a balanced view about the likelihood of sustained growth. London continues to be seen as a pre-eminent global business location; the 2011 European Cities Monitor ranked London as Europe’s top city business location (a position it has held every year since 1990). This was reinforced by the Global Financial Centres Index (published in 2007, 2008, 2009 and 2010 by the City Corporation and in 2012 and 2013 by the Qatar Financial Centre and Z/Yen Group), the latest of which ranks London as the world’s top financial centre (with New York), and by the MasterCard Worldwide Centres of Commerce Index published in 2007 and 2008, showing London first, ahead of New York. Among the reasons for this are London’s world class higher education and research institutions, its status as capital, seat of Government and legal centre, and the widespread choice of English law for dispute resolution.

1.22 For all these reasons, the projections prepared for this Plan, and those of the four independent forecasters who monitor the London economy, are all based upon London experiencing a cyclical recovery following the recent recession, followed by longer term positive job growth thereafter. The projected jobs growth is lower than that in earlier versions of the London Plan, reflecting changes to the economy in recent years.

1.23 Without economic growth, the situation would be dire for London. It will be essential to make sure the growing number of Londoners of employment age (16–64) over the period to 2036 have the range of opportunities they need – an issue likely to be all the more acute if jobs grow more slowly than population (although the population and economic projections underpinning this Plan do not suggest this will be the case). A city with an economy as dependent upon the private sector as London also needs growth to ensure its fabric and infrastructure receives the public investment it requires. If it does not, London will not be able to go on making a significant net contribution to the national exchequer. Fortunately, the evidence available suggests no reason why growth should not happen, even if there are some changes to the size and shape of London’s financial and globally oriented business services sectors in the short to medium-term.

1.24 What changes might we see to the kind of economy London has over this period? Projections prepared for this Plan suggest that the total number of jobs in London could increase from 4.9 million in 2011 to 5.8 million by 2036 – growth of 17.6 per cent or an additional 861,000 jobs over the period as a whole. Manufacturing is projected to continue to decline, from 129,000 jobs in 2011 to 34,000 by 2036, while employment in ‘professional, real estate, scientific and technical activities’ could grow from 670,000 in 2011 to 1.09 million in 2036, representing 49% of net new job growth projected over the period.

1.24A Growth is also expected in ‘administrative and support service’ (+210,000); ‘information and communications’ (+168,000); ‘accommodation and food’ (+158,000); ‘health and education’ (+114,000) and, to a lesser extent, ‘other services’ (+52,000) and ‘arts and entertainment’ (+41,000). Relatively little growth is projected for the ‘retail’ sector (+19,000) and London looks set to lose employment in ‘transport and storage sectors’ (-66,000); ‘wholesale’ (-66,000); ‘public administration’; (-48,000); ‘financial and insurance’ sector (-22,000); ‘primary and utilities’ (-18,000), and ‘construction’ (-7,000). We can also expect changes to the way London works, as firms adjust to the imperatives of climate change and make more use of information and communications technology. Figure 1.5 shows some of these projections in the context of change since 1984.

Figure 1.5 Employment projections 2011-2036 and historic data 1984-2011 (selected sectors)

1.25 Where in London are these jobs likely to be? Employment is expected to grow fastest in absolute terms in central and inner areas of London – unsurprisingly given that those business services strongly related to it tend to concentrate there, while sectors with lower levels of growth or declines tend to be more dispersed. There has been particularly strong growth in inner London. The trend towards a comparatively lower level of employment growth in outer London, despite it being where the majority of Londoners live, suggests that this part of the capital might not be realising its full potential to contribute to London’s success.

Map 1.2 and Table 1.1 show the location of projected employment growth over the period of this plan.

Map 1.2 Distribution of employment growth 2011-2036

^[1] London’s employment has since risen from a low point of 4.8 million in the last quarter of 2009 to 5.5 million in the first quarter of 2014 (source: Workforce Jobs, ONS). More recent independent projections (Cambridge Econometrics, 2013; Oxford Economic Forecasting, 2014; Experian Business Strategies, 2014; and UK Commission for Employment and Skills, 2014) suggest higher levels of near term employment and employment growth than that indicated in Table 1.1. However, methodological considerations suggest that for a long term strategic plan it is sound to draw on the projections set out in Table 1.1. The Mayor will continue to monitor these trends very closely.