The whole UK will suffer if London loses out in the Brexit aftermath
Just over a month on from the EU referendum and some semblance of order appears to be returning to Whitehall. We have a new Prime Minister and Cabinet. Ministers have started talking about things other than Brexit – such as transport policy and defence. Debt markets look calmer for now.
But Brexit is clearly going to dominate Whitehall’s agenda for the foreseeable future. It is also a top priority for Scotland, Northern Ireland and London. For many Morning Wire readers, there is a huge amount at stake surrounding EU negotiations. They could mean the difference between success and failure for the financial and business services sectors and the many thousands of jobs that come with them. How London fares under any agreement is also of critical importance to Britain as a whole. The economic contribution London makes towards paying for public services elsewhere in the country is very substantial.
And herein lies a problem. Britain voted to leave the EU but London voted emphatically to stay. Seven of the top 10 areas of the UK with the highest share of the Remain vote were in London. Overall, the city voted three to two to Remain.
Why did London vote the way it did? Analysis by Eric Kaufmann, a professor of politics at Birkbeck College, suggests that more socially liberal areas had a greater propensity to vote Remain. Those parts of the country exposed to international influences and the benefits of globalisation are more relaxed about immigration and diversity. In a recent survey of British social attitudes, nearly twice as many Brits living in London thought immigrants were a good thing compared to Britons elsewhere. If London had its own way, it may well be in favour of increased freedom of movement of labour rather than the imposition of restrictions.
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So a major question for the new government is going to be the extent to which London’s aspirations and differences should be reflected in any EU settlement. This might take the form of separate allowances for EU migration. But a deal that saw special measures around movement of labour for London (as well as Scotland and Northern Ireland) might be hard for other parts of the country to swallow. Tony Travers, professor of government at the LSE, has highlighted that a key driver for Leave voters may have been long-standing resentment towards London and its economic success. The city where more than a third of all UK immigrants choose to live has thrived on globalisation.
But what of the alternative? From an economic perspective, a one-size-fits-all Brexit policy that damages London would be harmful for the country as a whole. The capital’s success – which is surely built on its openness and ability to attract international labour – has helped to bankroll the rest of the country.
Recent research by the think tank Centre for Cities highlighted that London now generates 30 per cent of all the UK’s “economy taxes”. London “work taxes” alone total an estimated £91bn – equivalent to about two thirds of the UK healthcare budget and more than all the equivalent tax for the next 60 cities in the UK combined. A decade ago the corresponding number was 34. Analysis by the economic consultancy CEBR estimates that one pound in every five of taxes generated by Londoners is used to help pay for public services elsewhere in Britain. London now generates 22 per cent of UK GDP with just 11 per cent of the population. So it is not only in London’s interest for its voice to be heard in Brexit negotiations, it is vital for the economy as a whole.
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With the clouds of economic uncertainty gathering, London needs to take the opportunity to secure a broader platform of reform – on an ambitious scale. Whitehall should push on with handing back London’s tax and spending powers. That would allow the mayor and boroughs to channel more resources into training, housing and infrastructure. A stamp duty holiday should be considered to boost confidence in the property sector. Major decisions on vital new infrastructure should not be delayed. And serious consideration should be given to allowing London to have its own freedom of movement status with the EU.
Ever since the war, attempts have been made to rebalance growth in the UK. Many have failed. Measures to restrain London have typically done little for the rest of the country but have harmed the economy of our city. Ensuring London has the economic and labour mobility freedoms that will allow it to thrive is the best way to secure a prosperous long-term future for the UK as a whole. And for all the city’s citizens wherever they may come from.