London businesses held back by red tape and underinvestment

LONDON is falling behind other international capitals as “superstar” businesses are strangled by red tape and years of underinvestment, a think tank has warned.

The Centre for Cities also blamed soaring house prices for a dismal rise in living standards that meant London’s annual productivity rose by an average of just 0.2pc between 2007 and 2019.

This compares with an annual average of 1.4pc in New York and 0.9pc in Paris, with London’s underperformance costing the UK economy £54bn in 2019 alone, economists said.

Blaming London for almost half of the UK’S productivity slowdown since the financial crisis, the Centre for Cities said a key reason for the slump was a “sharp slowdown of the city’s ‘superstar firms’ – which have typically been in the financial, information, and professional services sectors”.

Its warning is likely to add further pressure to Jeremy Hunt, the Chancellor, ahead of a large increase in corporation tax next month. Business groups have warned that the rise, from 19pc to 25pc, will further damage investment.

The think tank also called on Sadiq Khan, the Mayor of London, to work harder to fix the city’s public transport funding model or risk putting its worldclass status at risk.

It urged policymakers to reform planning to ensure London can develop more affordable housing and office space, adding: “The current discretionary planning system makes redevelopment in existing urban areas hard at the scale required, hindering London’s ability to adjust to economic change and grow.”

Productivity – which is usually measured by the amount of output per hour worked – tells us how much the economy can grow without generating too much inflation. When productivity grows, so do company profits and staff wages. This leads to stronger growth, a bigger economy, rising tax revenues and smaller borrowing bills.

London had the fastest-growing labour productivity of any region in the run-up to the crisis, at around 5pc per year, but this collapsed as the banking sector imploded in 2008. The Bank of England has previously blamed the drop on a fall in total factor productivity, often seen as a proxy for innovation.

Bob Wigley, chairman of lobby group UK Finance, has blamed high taxes and red tape for slower growth in the City.

He said: “The taxes the sector faces in the bank corporation tax surcharge and the bank levy do not, however, encourage growth or investment. They have served their purpose, make the UK less competitive than other global financial centres and the Government should set out a roadmap for their removal.”

The Centre for Cities said restricting the ability of London’s service sector firms to compete in EU markets was also hobbling London’s ability to grow.

Andrew Carter, its chief executive, said: “London plays a huge role within the national economy and as such its performance is vital to the future success of the UK. But as this research shows, soaring property prices and a lack of investment in technology innovations and research and development has seen London’s productivity growth trail well behind the standard of its international competitors.”