The economic performance of London compared to that of the rest of the UK since 2000 - Essay Example

? The economic performance of London compared to that of the rest of the UK since 2000 and Contents Introduction 3 Economic growth patterns 4 Changes in earnings 5 Measures of inequality 7 Conclusion 8 Reference List 9 Introduction There has been mixed views regarding the economic relationship between London and the rest of the UK. Some people argue that, London grows at the expense of the rest of the country while other hold the view that London is the focal point of the UK economy. Nonetheless, the truth of the matter is London’s economy and that of the UK is one of positive and mutual relationship. As pointed out by Aldridge, the UK will not prosper without seeing the prosperity of London and similarly London will not prosper without progress of the rest of the country.1 The economy of London continues to perform better after the bubble aftermath and banking crash. According to MacInnes, Parekh and Kenway, majority of other UK parts have experienced economic shrink compared to London.2 Previous research indicates that the city of London and South Eastern UK are the only two part of Great Britain that is progressing at a faster rate towards economic prosperity. During the boom that lasted up to 2006, south Easter of UK and London accounted for 37% of the UK’s economic growth. This share has incredibly continued to rise as it was recorded in 2007 at 48%. 3 Notably, with the exception of the Scotland, the other parts of the UK have recorded economic decline over the similar period. Massey highlights that a quarter of the British population determines the UK economic growth whereas the remaining three quarters share the national economic wealth from the minority rich.4 Notwithstanding the recent global financial crisis, London remains a dynamic city in the world due to its living appeal and commercial superiority. Undeniably, London is the UK’s leading base for export oriented employment, high value businesses and therefore, its position relative to other UK cities portrays no sign of abating. Economic growth patterns Ideally, the nature of London’s economy is quite different from that of the other parts of the UK. According to Dolton, Rosazza-Bondibene and Wadsworth London has a great concentration of professional and wholesale financial businesses.5 This form of business enables London in specific and the UK in general to benefit from international trade. London as an economic hub exports businesses to the rest of the UK. Notably, the world class nature of these businesses gives London a competitive advantage when it comes to engaging in business with the rest of the nation. Considering that London is one of the premier world cities, its economic performance in terms of financial a business services helps the entire nation through tax revenues received from public spending. Undoubtedly, London’s economy is strong and as such it benefits the rest of the UK. During financial year 2002/2003, London generated $ 2 billion and $ 9 billion more in taxes than it received from public spending. However, London economy experienced relative slow down in 2002 compared to the rest of the UK economy making the overall UK public sector debt move from $ 15 billion to $ 25 within the same period.6 London economy varies from that of the rest of the country. Even though London is popular with its unique financial services, its economy is not only hinged on financial activities, but has other revenue generating activities including management and business consultancy activities which it score highly in specialization index. This kind of ranking not only shows how London supplies such services to the other parts of the UK but also to other countries. Other economic activities which makes London rank highly in economic performance compared to other UK cities include tourism, telecommunications and consultancy services among many others. Such sectoral specialization has indeed helped London to contribute to over half of the UK’s exports for activities such as financial intermediation and provision of legal services. Changes in earnings According to Cunliffe, London economy relies on sectors with faster growth in productivity.7 As such, faster growth in output per person and rise in wages is equally expected to be higher than the rest of the country. With that, consumer spending in London is expected to outpace that of other parts of the country. Over the past decade, there has been increased inflow of people from overseas majority of who are professionals. According to EHRC, the inflow by far exceeds the outflow thereby slowing the attractiveness of other cities in the UK compared to that of London.8 In addition, the London population comprises of a higher proportion of young people and as such outpaces the economic prosperity of other cities since majority of people in other cities comprises of aged people who are not highly economically productive. In this respect, London labor taxes continue to yield much in terms of economic earnings for the city. Total receipts from PAYE income has recorded growth in financial year 2012/2013 which could be attributed to uncertainties in the Euro zone, but it is poised to rise to about 5% in the coming years as confidence improves. Nevertheless, the rate is expected to rise to a high of 7% in 2016/2017 financial year at a time PAYE incomes is expected to hit a high $ 100 billion. 9As such, the rate of revenue growth is expected to grow faster in London as opposed to other parts of the country. London share of other business taxes is comparing higher that from other parts of the country. As noted earlier, London’s sector specialization gives it a competitive advantage which allows it to tap global revenues compared to other parts of the country. London serves as the focal destination for both tourists and local and international shoppers hence indirectly boosting prosperity of firms within the city. Further, demand for commercial property has been on the rise since the year 2000 and its expected growth relative to other parts of the country will boost the city’s revenues through increased corporate taxation. London has also been on record as a preferred city for holding international sports such as Paralympics and Olympics games which indeed led to increased consumer spending and injection of foreign currencies to the city’s economy. London tax revenues are expected to continue growing as a result of increase in disposable income and increased revenues from activities such as retail business and tourism attractions. The house prices are also expected to grow by around 4.5% per annum as compared to 2% in the Northern part of the country and 3% in the Midland areas. In overall, London revenues continue to rise relative to the rest of the UK.10 Notably, London increased expenditure has contributed immensely to its growth relative to that of other parts of the country. Measures of inequality Comparing, the economic trend of the London and the rest of the UK, it is clear they move in similar direction. This is also reflected by comparing more detailed breakdowns of the UK and growth of London. According to Browne and Levell, London’s economic progression tends to move upwards and downwards with the rest of the regions. 11 In 2000/01 accommodated 15% of the UK population and accounted for 23% of entire nation output. London population compared to other parts of the country has been relatively young, better qualified and most likely work as managers or in other professional careers. Buck et al. established that in 2000, the economic growth rate of London was similar to that of the rest of the country.12 From 2004, the economic growth rate started to accelerate while that of the rest parts of the country lagged behind. As mentioned earlier financial services propelled London’s economic growth as manufacturing sector continued to dwindle. The cost of housing continued to raise relation to other parts of the UK. Nevertheless, London was as poor as the rest of the country. In this vein, the city’s poverty rate stood at 27% in 2007/2008 compared to 22% of the rest of the country. 13Inequality gap between rich and the poor in London continued to widen relative to other parts of the country. In this regard, the National Equality Panel established the gap between rich and poor to be in ratio of 9:1. Similarly the wages gap for men and women was also wide in London relative to the rest of the country. In the year 2007, the low cost houses and the lower wages paid to lower income earners confirmed that the poor could not afford basic housing in London compared to other parts of the country. Between the years 2006-2010, inequality in earning widened in London relative to the rest of England. The 9:1 ratio increased by 8% in London as compared to 5% for the other parts of the country. There was also increased decline in household income in London as compared to other parts of the country. Other kinds of inequalities were experienced in physical, financial and property wealth which London recorded higher rates. Between the years 2006-2010, the wealth index amongst the disadvantaged people remained constant in England while 14% was recorded in other parts of the country. During the same period, the wealth among the top tenth rich group rose by 8% in London relative to other parts of the country. In this vein, the gap in capital wealth among the two divides which was already high in 2006 had risen even further in 2010.14 Conclusion As earlier stated, London’s economy has a mutual relationship with that of other parts of the UK. This goes contrary of some views held by some people who held believes that the entire UK economy relies upon that of London. The present study has established that even though London’s economic growth performs incredibly well compared to that of other parts of the country, the city also relies on those other parts in generation of revenue. For instance, this study found that most big businesses were established and are based in London, but at the same time they have established branches to the other parts of the country. Similarly, London population comprises of the young generation which in real senses migrates not only from foreign countries, but also from other cities and rural areas. According to Fenton, the other parts of the UK offer a place for older people who opt to retire from productive work in London.15 London is one of the leading economic cities in the worlds after Washington, Los Angeles, Seoul and Tokyo. In this vein, London boasts as a hub for some of the big financial institutions and health facilities. The presence of major businesses coupled with increased economic activities has enabled London generate the bigger part of the national revenues. However, inequality gap between rich and the poor continues to widen as the economic conditions worsens. This study has established that the richer few continue to get richer whereas the poor majority increasing gets poorer as depicted by low incomes and inability to acquire property within the city of London as opposed to other parts of the country. Reference List Aldridge, H., et al., Monitoring poverty and social exclusion. York, the Joseph Rowntree Foundation, 2011. Browne, J., and Levell, P., The distributional effect of tax and benefit reforms to be between June 2010 and April 2014: a revised assessment. IFS, Briefing Notes. London, Insititute for Fiscal Studies, 2010. Buck, N., et al., Working Capital, Life and Labour in Contemporary London. London, Routledge, 2002. Cunliffe, J., Forthcoming: Research note on the distribution of economic outcomes in London. London, Centre for Analysis of Social Exclusion, 2013. Dolton, P., Rosazza-Bondibene, C. and Wadsworth, J., The regional labor market in the UK. In The labor market in winter: the state of working Britain. Oxford, Oxford University Press, 2013. EHRC, Financial Services Inquiry: Sex discrimination and gender pay gap report of the Equality and Human Rights Commission, London, Equalities and Human Rights Commission, 2009. Fenton, A., Small-area measures of income poverty. CASEpaper No 173. London, Centre for Analysis of Social Exclusion, 2013. Massey, D., World City. Cambridge, Polity Press, 2007. MacInnes, T., Parekh, A. and Kenway, P., London’s Poverty Profile 2011, London, New Policy Institute, 2011. Read More