London rules | Morning Wire

EXCLUSIVE: Capital’s share of UK economic output reaches its highest ever level as the rest of the country flounders

LONDON’S share of UK economic output is higher than at any point in history, according to figures uncovered by Morning Wire

London’s 21.9 per cent share of output was even bigger than the 21.5 per cent it produced in 1911 when the capital was at the zenith of its heyday as the world’s most important and globalised city, said University of Warwick economic history professor Nick Crafts.

The rise is part of a steady gain from London’s weakest period in the 1950s, when decades of crashing international trade hit the global city heavily.

“It is no surprise that London is increasingly vital to UK success,” London mayor Boris Johnson told Morning Wire “What is good for London is good for the whole UK.”

London’s contribution to the UK’s total gross value added – a measure of the size of the UK economy – rose from 18.8 per cent in 1997, to 21.9 per cent two years ago, according to figures released by the Office for National Statistics (ONS) yesterday.

The wider London economic region – which includes commuter areas in the south east and east – rose from 41.4 per cent of the UK’s total value added in 1997, to 45.2 per cent of the total in 2011.

By contrast, the rest of England and Wales made up 47.9 per cent of the economy in 1997, but just 44.3 per cent in 2011, meaning that a region with 22.7m people produced more than one with 33.4m.

The gulf between London and the rest was even starker when measured by the amount produced by the average worker. Staff based in London put out 32.1 per cent more than those based in the south east, the research showed, 44.6 per cent more than those based in the east, 60 per cent more than workers in the north east and a whopping 66.2 per cent more than Welsh workers.

The difference in gross value added per hour was less stark – as Londoners tend to work longer hours – but workers in the capital still produced 29.4 per cent more per hour than the UK average, and 54 per cent more per hour than in the worst performing UK region, Northern Ireland.

Economists said the evidence suggested that chancellor George Osborne could not yet claim to have rebalanced the UK economy away from a dependence on the wealth generated by the capital.

“This is definitely evidence the UK is not rebalancing,” Rob Harbron, economist for the Centre for Economics and Business Research (CEBR) told Morning Wire “And it seems unlikely anything will change in the near future.”

Harbron laid the blame for the lack of rebalancing on massive government intervention in the economically weaker regions. Earlier CEBR resear­­ch showed that 61.9 per cent of spending in the north east came from the state, along with 66.3 per cent in Wales, and 67 per cent in Northern Ireland.

He said continuous state intervention has allowed entrepreneurialism to seep out of the culture, and that spending cuts will be difficult in the short run, but necessary if the UK is ever to see any meaningful rebalancing.

Other ONS figures out yesterday added to the sense that London is in a different economic league to the rest of the country.

The number of active businesses in London grew 11.5 per cent between 2007 and 2011, the ONS said, versus an expansion of a meagre one per cent elsewhere.

Between September 2007 and September 2012, London added 267,000 workforce jobs, versus a loss of 284,000 in the rest of the UK. This move saw the employment rate for the rest of the UK drop 1.7 per cent over the five year period, while London’s employment rate improved by 0.9 per cent.

And Londoners saw their household disposable income grow to 30 per cent above the UK average in 2010, from 26 per cent above in 2006 – despite soaring housing costs in the capital.

Nominal gross value added grew 12.4 per cent in London, versus 6.8 per cent in the next best performing region – the south west – and 2.3 per cent in the east Midlands, the worst performing region.

And London and its commuter region boosted their exports to the EU by 58.7 per cent over the period, compared a 44.1 per cent gain over the rest of England.

The figures also revealed that Londoners performed well ahead of most of the rest of the country in other measures such as educational qualifications.

The fraction of 16 to 64-year-old Londoners with no qualifications fell from 14.3 per cent in the 2005 calendar year to just 9.3 per cent in 2011, the ONS said, lower than any region except the south east – closely linked to London – and the south west.

By contrast, 14.2 per cent of west Midlands residents of working age had no qualifications, along with 12.4 per cent of 16 to 64 year olds in Wales, and some 21.7 per cent in Northern Ireland.

London’s economic success is reflected in its house prices, which have blasted through pre-recession peaks.

According to the latest official house price index from the ONS, London’s average house price was £398,000 at the end of 2012, dwarfing the peak of £343,000 it reached in July and October 2007. The average price outside London and the south east was £187,000, the ONS said, just below the pre-crisis peak of £188,000.