Why the UK Economy is Too Reliant on London

this video was brought to you by ground news the UK has some of the worst Regional inequality anywhere in the developed world not only is the southeast significantly richer than the rest of the country but it also accounts for an outsized fraction of the UK's overall GDP and few economies are as singular reliant on a single city as the UK is on London what makes this predicament particularly acute however is that the UK's overreliance on London seems to be getting worse not better with the capital also accounting for an every increasing share of wellp paid

jobs so in this video we're going to take another look at the UK's London problem how it's creating a sort of jobs crisis and why this presents labor with a difficult [Music] dilemma before we start if you haven't already please consider subscribing and ringing the bell to stay in the loop and be notified when we release new videos so let's start with a bit of context as mentioned in previous videos Regional inequality has been a long-standing problem for the UK with London and the surrounding areas in the Southeast being way richer than the rest of

the country well the Gap has actually closed slightly in the past decade or so London wages are still way higher than those in the rest of the country with the medium weekly pay coming in at 853 roughly 20% higher than the national average of £728 according to the latest on data on top of this Regional pay Gap there's also a regional wealth Gap again according to most recent on data in March 2020 the median household wealth in London stood at about 340,000 roughly 13% above the national average of £300,000 well 133% might not sound like

that much it's largely because London has some of the worst wealth inequality of any region in the UK which means that the median doesn't take into account quite how wealthy the wealthiest London households actually are this fact becomes more apparent when you use mean rather than median by this measure all but one of the UK's wealthiest regions are either in London or in its surrounding areas and by far the wealthiest area in the entire country is in inner West London where the main wealth stands at £ 622,000 according to analysis by John bur Murdoch at

the financial times London's GDP per capita is roughly 70% higher than the UK's second place city of Manchester largely because productivity in London is 32% higher than the national average and if you removed London the UK would have a GDP per capita lower than the poorest region not just in the US but also in the Netherlands now while a lot of other countries do suffer from a degree of regional inequality what makes the UK's predicament relatively unique is not just quite how much the UK economy relies on a single City but also that this Reliance

has actually been growing over time in quite a few other countries Regional inequality has actually decreased over the past few years in the US for instance the economic center of gravity has recently moved away from Superstar cities like New York and San Francisco towards relative upstarts like Austin in Texas or Denver Colorado however in the UK the reverse is true London continues to occupy as Central a role in the UK economy as ever and its share of well-paid knowledge intensive jobs has actually increased from less than 50% of the UK total in the 2000s to

about 75% today now this is bad for at least four reasons firstly it's just politically toxic understandably the UK's other regions feel left behind which is why Boris Johnson's talk of leveling up was so electorally successful back in 2019 second it exacerbates the UK's pre-existing housing crisis if all of the good jobs are in London this means that any young person who wants to get on in life is basically required to move to the capital not only does this mean that all young people have to spend a load of money on housing costs because London

has the least affordable housing in the UK even once you take the higher wages into account but this constant influx of job Seekers puts further pressure on London's housing market thirdly the fact that only London is really generating significant numbers of well-paying jobs is one of the reasons that the UK has such an acute overqualification crisis with tons of well-qualified University graduates but not enough high-skilled jobs which forces these graduates into low skill and often poorly paid work according to an oecd survey published earli this month 37% of UK employees aged 25 and over claim

that they're overqualified for their jobs I.E report having higher education levels than those required by their employer up from 30% in 2012 and the highest anywhere in the oecd the fourth problem is that this over Reliance on London has made the UK's economy conspicuously dependent on certain professional service Industries like Finance law and Consulting these are lucrative and high growth industries but they don't employ all that many people and some commentators worry that the UK's over Reliance on these Services has created a sort of service-based Dutch disease for context Dutch disease refers to an economic

phenomenon which occurs when a country relies too heavily on a single export which forces up the value of its currency and therefore makes its other export-based Industries basically uncompetitive usually this happens when a country's exports rely too heavily on a single commodity like oil but there's an argument that the UK is experiencing a similar thing with its Professional Service Industries like Banking and law which are inflating the strength of the pound and thereby undermining the competitiveness of British manufacturing and this would explain why manufacturing as a share of UK GDP has fallen consistently since the

late 90s and is now well below the international average so with those four factors in mind can labor actually do anything about this well but this predicament actually creates at least two further problems for starma the first is that the dynamic we just described will make it harder for labor to actually achieve its stated ambition of rejuvenating British Manufacturing in their recently published industrial strategy invest 2035 labor say that they want the UK to become a world leader in sectors like Advanced manufacturing and clean energy but this would require creating new high productive areas outside

of London and the viability of these industries might be undermined by the Dutch disease Dynamics we just described the second more General issue is that this creates a sort of fiscal dilemma for labor at the moment London and the southeast are the most productive regions in the UK the quickest and easiest way to boost growth therefore is to essentially piggyback on these highly productive areas by say building more housing in London Cambridge and Oxford allowing more people to move to these places and take up well-paid jobs but this would simultaneously retrench the UK's Regional inequality

in the long term it will probably be both more politically and economically sustainable to invest in the UK's Left Behind regions helping them to at least partly catch up with London but this will be both expensive and incur a short-term hit to growth which neither labor nor the British elur would be all that Keen on and although the London problem does present a major dilemma for labor it's far from the only fiscal problem that the UK faces at the moment with UK's economy actually Contracting by 0.1% in October despite this government's real focus on growth

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