Alexander Jan: Radical devolution will be vital to London’s post-Covid recovery

Alexander Jan: Radical devolution will be vital to London’s post-Covid recovery

For many weeks, the public health impact and personal tragedies inflicted by Covid-19 have dominated newspaper headlines. That is likely to continue. But this crisis, as with previous ones, has other dimensions too. One of the most important, now gaining attention, is economic recovery. Delivering it is going to be an enormous task.

Covid-19 has the potential to inflict one of the most serious economic upheavals Britain has faced since the Great Slump of 1440 – a potential heightened by the battering the UK’s economy and public finances took from the 2008 global crisis, and from which they had yet to fully recover when the latest disaster struck.

Mainstream forecasters are suggesting the economy could see a double digit contraction this quarter. Further big reductions are slated for the remainder of this year. The more pessimistic think the numbers could turn out to be even worse. The ramifications of a huge relief package today, followed by rising costs of borrowing, higher taxes, austerity and, ultimately, inflation represent an enormous medium-term risk to the economy – and that is before the consequences of Brexit-induced disruption come into play.

As we put together the pieces of the recovery puzzle, it is clear that London faces particular challenges. In a report by Arup for the London Property Alliance – produced in March, before the implications of the coronavirus could be quantified – it was estimated that Central London and the Isle of Dogs (home of Canary Wharf) between them employ more than 1.9 million people. Together, they generate over £200 billion of output. Put another way, 11 per cent of UK economic activity comes from just 0.01 per cent of its land mass, along with many billions of taxes to fund public services across the country.

But London’s high dependence on high density now risks becoming its Achilles’ heel. It looks as if a policy of “social distancing” is going to be required in some shape or form for the foreseeable future in order to minimise coronavirus transmission. At a stroke, this threatens the business-as-usual model for Central London, which thrives on and, indeed, demands a high degree of density to function.

Consider public transport dependency: long celebrated as a core strength and highly sustainable, the system may only be able to carry a third of its pre-crisis ridership during the morning peak – perhaps even less – if new public health restrictions are put in place. Central London’s commercial real estate market has been busy packing workers into smaller spaces, driven in part by the explosion of the gig economy and co-working and also by some boroughs’ reluctance to allow development. The average office worker in 2019 had only 80 per cent of the space he or she enjoyed 20 years ago. And the capital’s dependence on density doesn’t end there. Hotels, theatres, restaurants, clubs, shops, pubs and bars make up a higher percentage of London’s economy than elsewhere. Then there is our reliance on tourism and busy international transport hubs, such as Heathrow, London City Airport and St Pancras station.

Taken together, these phenomena present formidable challenges to how London will operate in the future. Its path to some sort of new normality is likely to be long and winding. Getting there will require a deep understanding of the city, along with policies and programmes that may need to be radical and innovative. These could range from building up centres of business activity outside of Central London to permitting much more office space in the middle.

There may be a case for a major expansion of public transport provision to reduce overcrowding, or for rationing its use to achieve the same aim. Longer opening hours for retail and entertainment could ensure shops and the creative industries survive, although residential areas would need to be protected by beefed up rules and regulations. And then there are the financial challenges of collapsing farebox revenue and a business rate system that has been turned upside down. New taxes and charges may need to be found and old ones pared back or abandoned.

More than ever before, London’s City Hall and Town Halls will need to be allowed to come together with residents and businesses to address these challenges. This will require London government to be provided with greater powers, more flexibility in how it operates, and access to the resources needed to secure London’s recovery.

Central government’s response to the Covid-19 crisis has shown, yet again, how difficult it can be to deliver on the ground using a one-size fits-all approach. If there are early lessons to be drawn from abroad, one of them appears to be that strong regional and local government institutions have helped national governments deliver public health services more efficiently and effectively.

Now, more than ever, Whitehall needs the London economy to recover to help return the national economy and its shattered public finances to health. It should do whatever it takes to allow the Mayor and the boroughs to get on with the job.

Alexander Jan is Chief Economist at Arup and non-executive chair of the Midtown Business Improvement District covering Holborn, Clerkenwell and Farringdon. Follow him on Twitter.

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