Telegraph – Scrap the Green Belt to Increase GDP by 7%

Matthew Lynn

The simple flaw in this argument is that sprawl along the M4 etc. is not a ‘highly productive hub’ the diseconomies of scale – from congestion and increased commuting length – would eat it all up.  If you want to benefit from ‘highly productive’ urban hubs and the economies of urban agglomeration you have to build new ones.

House prices are way too high. The transport system is creaking. The schools are impossible to get into, and if you want to get a doctor’s appointment this side of 2020, good luck. We all know the reasons why people leave London for somewhere with a better quality of life. Only this month, it was reported that numbers quitting the capital had hit fresh records, up by 80pc over the last five years. Not surprisingly, some people are starting to argue we have reached “Peak London”.

But while that might be understandable on a personal level, for the economy it is a disaster. London is by far our greatest asset, with a unique blend of finance, technology, law, culture and politics, which has made it one of the most productive places in the world.

It is a myth that when a worker moves out to Bristol or Winchester he or she is just as productive. In fact, we should be aiming to staunch that outflow. How? By ripping up the green belt so that the population of the city can grow to 12 or 13 million people. Forget reversing Brexit – it is reversing Lexit we should really be focusing on.

There have always been people who decided to move out of London, especially when they start a family. But according to research from Savills, in the last year the number of people getting out of the capital hit 93,000, almost double the level of five years ago. For every age group apart from the 20-somethings there was a net exodus.

The 30-somethings, who should be really hitting their stride in their careers, were the group most likely to leave. Overall, the report predicted the city’s population would still grow, but only because of a healthy birth rate, and new arrivals from overseas. The British are getting out, and, at 8.8 million people, London appears to have reached its limits.

Of course, you can argue that is for the better. Over the years, successive governments have worked at ways of rebalancing the British economy, with a succession of schemes to distribute wealth more evenly across the UK. The massive concentration of money in London can create a country that is dangerously unequal, and fuel resentment outside the capital. If a software firm or publishing house ups sticks and moves its offices and staff to York or Swindon that might level up the score a little, as well as reducing the pressure on public services.

 The trouble is, it is bad for the economy. Over the last three decades, London has developed a unique economic system that has made it one of the most productive places in the world. According to Office for National Statistics calculations, the gross value added (GVA) per person in London is £43,000, compared with £25,000 for the country as a whole. The next closest region was the South East on £27,000.

When you break it down by employee, GVA per capita in London comes in at a massive £70,000, compared to £40,000 for its closest rival, Manchester. On Eurostat figures for regional GDP per capita across the European Union, Inner London West is the richest place in the whole continent, achieving 580pc of the average.

Overall, London accounts for 22pc of the UK’s GDP, even though it only accounts for about 12pc of the population. Even better, it is still growing. Oxford Economics predicted last week that London’s economy would carry on expanding by 2.3pc a year up until 2021, compared with 1.6pc for Paris and 1.5pc for Frankfurt.

Sure, a few bankers will have to move to Frankfurt to comply with EU passporting rules, and a couple of regulatory agencies will have to find a new home after we have finally negotiated our way out.

 And yet, and even through it contains more hardcore “re-moaners” per square mile than anywhere else in Britain, London is actually the region of the country that trades the least with the rest of Europe.
London, despite its fantastic ability to generate wealth, is no bigger now than it was before the Second World War

According to a study by the Regional Studies Journal, the two regions in the UK that trade the least with the EU are Inner London and Outer London – for Central London only 7.2pc of GDP was dependent on trade with the EU, and for the rest of the city it was 7.6pc (the region with the highest score was Cumbria on 13.2pc, in case you were wondering).

Fairly obviously, it doesn’t matter to London very much if we don’t get a good trade deal with Brussels – 93pc of the economy won’t notice the difference. Whatever turbulence the next few years bring, London will keep on forging ahead.

Regional planners work on the assumption that when a worker or a firm moves out of London they are just as productive. But there is not a lot of evidence of that. Indeed, one American study found workers’ output simply declined when they moved out of high-productivity hubs like San Francisco or New York.

It reasoned that planning restrictions limiting the growth of its most energetic cities had cost the American economy about 20pc of lost GDP over the last decade. The same logic surely applies just as strongly in this country.

 London, despite its fantastic ability to generate wealth, is no bigger now that it was before the Second World War. It hit 8.6 million people in 1939 and it is still 8.6 million today after dipping in the Sixties and Seventies. The solution? Let London grow.
No country would decide to put a limit on the size of its most successful companies – we wouldn’t tell The White Company it couldn’t go above 100 shops, and we wouldn’t tell Rio Tinto it couldn’t open any more mines. Nor would any sane country put restrictions on the size of its most successful industries. So it doesn’t make much sense to put a limit on the size of our most successful wealth-creating hub.

In fact, there is a simple fix. We should rip up the green belt that rings the city. There is no point in having lots of farmland along the M4 corridor, along the M11 or on the fringes of Kent and Sussex. Let London expand in size to gobble it up, growing the city to 12 or 13  million people, while also making sure they have decent-sized homes with parks and schools around them. To make sure there was no net impact on the environment, every scrapped acre of protected land could be replaced with another one in a less productive part of the country.

 If London had another 4 million people, and half of them were working at the same productivity levels as the rest of the country, then that would generate £140bn of additional output, and GDP would be slightly more than 7pc higher than it is today. It would be the single move we could make that would have the greatest impact on growth over the next decade – which makes it very odd that we haven’t already decided to do it.

One thought on “Telegraph – Scrap the Green Belt to Increase GDP by 7%

  1. 1. Our choice of taxes slants demand and investment towards London/SE. A flat tax system, where the rental value of land was used as revenue and taxes on output reduced/eliminated, would not just grow the economy as a whole but shift demand and investment away from London/SE to where capacity and the potential for growth is highest.

    2. While the SE has low unemployment, London has the second highest rates in the UK. This would appear to suggest that productivity is not being hampered by a lack labour mobility. For sure it must be happening to a certain extent due to our choice taxes, but is small compared to other factors such as that described above.

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