Whilst London’s economy has continued to grow steadily since the last recession our continued success is challenged by the increasing cost of doing business in the capital, the pressure on residential versus office space, and the survival of local high streets and town centres.
The challenges facing London
Increasing cost of doing business in London
London remains an international hub for business, competing with other global cities such as Tokyo, New York and Paris. However, it has become increasingly expensive for companies to operate in the city, which could prove a barrier both to entrepreneurs and innovators, and to small and medium sized enterprises (SMEs). This is driven by a number of factors, including:
- The re-evaluation of business rates, which came into force in April 2017 and significantly increased the average amount paid in London. Some businesses had rates increases of as much as 45 per cent, with London businesses facing a collective business rate rise of up to £1.2 billion.
- Pressures on land in London have reduced the amount of flexible, affordable industrial and office space available as the demand for residential increases. This affects all businesses but is particularly difficult for new companies and SMEs.
- The uncertainties surrounding Brexit compound these issues, making it harder for organisations to plan ahead and mitigate risk.
Office, industrial and creative workspaces are under significant pressure in London, with substantial loss of commercial and office space over the last decade. This is a result of a number of factors, most notably pressure to convert spaces from office to residential use due to the housing shortage. The introduction of Permitted Development Rights (PDR), which gives applicants the ability to convert existing office accommodation or retail units to residential dwellings without seeking planning permission, has been a significant barrier to local authorities maintaining balance in their areas. Between April 2012 and March 2016, 82,000 sqm of office space was lost. The Greater London Authority (GLA) estimates that a further 601,000 sqm could potentially change to residential as a result of PDR. While some areas are able to impose an Article 4 directive to suspend PDR, this has proved a cumbersome tool that is not appropriate in all circumstances, and can be modified by government if they deem it ‘inappropriate’.
London Councils is working with the boroughs and the Mayor to protect and grow workspaces. London needs a variety of workspaces with a range of affordability, purpose and geography in order to be able to respond flexibly to future challenges and innovations.
Local government is central to developing high streets and town centres that are fit for purpose and future-proofed. Boroughs regulate high streets by enforcing policies and maintaining safe trading environments but they are increasingly becoming curators of the
high street – organising events, facilitating networks and developing business capacity.
High streets and town centres are an integral part of London’s economy. Nearly half (47 per cent) of businesses outside central London are on a high street and 1.45 million employees work on or within 200 metres of a high street.
High streets and town centres in London and across the UK are changing rapidly in response to a number of factors such as the rise in online shopping, the increase in business rates in London, and an expectation among residents that high streets become more than just places to go shopping. London Councils is working with the boroughs and the Mayor to lobby national government to give local areas the powers and funding they need to make sure high streets survive and thrive in this new environment.
London Councils lobbies national government on a number of areas relating to boroughs, economic growth and regeneration. These include:
The Industrial Strategy
The Government’s Industrial Strategy aims to help build growth into the UK’s economy as it leaves the European Union. The Strategy hopes to establish better, higher-paid jobs in every part of the UK through investment in the skills, industries and infrastructure of the future. It sets out four ‘Grand Challenges’ that need to be addressed:
1. Put the UK at the forefront of the artificial intelligence and data revolution
2. Maximise the advantages for UK industry from the global shift to clean growth
3. Become a world leader in shaping the future of mobility
4. Harness the power of innovation to help meet the needs of an ageing population.
The latest White Paper sets out a number of ideas on how to tackle these challenges, and since the launch of the paper several funding streams and competitions have been announced. The Strategy does not go in to detail on the role that local authorities will play, with an emphasis on other bodies such Local Enterprise Partnerships (LEPs), businesses and institutions such as universities. A key recommendation however has been the creation of ‘local industrial strategies’ and we are lobbying hard to make sure that the boroughs have a say in what a London Industry Strategy could look like.
Business rates devolution and fiscal devolution
London Councils has argued strongly the business rates should be fully devolved to London government. The government has committed to local government retaining more of its income; as part of the 2018/19 Local Government Finance Settlement, the government announced plans to implement 75 per cent business rates retention from 2020/21.
London government has agreed to participate in the 100 per cent business rates retention pilot pool which launched earlier this year. London Councils believes that we need to go further, and supports the recommendations put forward by the London Finance Commission in 2017 which argued that London government should have much greater control over the full range of local taxation, including business rates, council tax, stamp duty and other property taxes.
Mayoral strategies and activity
London Councils works closely with the Mayor to ensure that the voice of the boroughs is heard. Key strategic documents, funding streams and Mayoral bodies are detailed below.
The London Economic Action Plan (LEAP)
The London Economic Action Partnership (LEAP) is the local enterprise partnership for London. The LEAP brings entrepreneurs and business together with the Mayor and London boroughs to identify strategic actions to support and lead economic growth and job creation in the capital.
The Mayor of London chairs the LEAP Board. London Councils nominates members to sit on the board.
The LEAP oversees the delivery of the Good Growth Fund, worth £70 million. It also oversees the delivery of the European Structural and Investment Funds (ESIF) Programme in London, via the ESIF Committee.
The London Plan
The London Plan is the spatial development strategy for London, and is developed by the Mayor. Boroughs’ local development documents must be in general conformity with the London Plan and its policy must be taken into account when planning decisions are taken in any part of London.
The Plan sets out an ambitious vision to meet the challenges of continued population growth. It is more radical and also more prescriptive than previous Plans. London’s boroughs broadly support the ambitions and direction of travel of the Draft London Plan, although there are concerns about some of its housing targets and prescription.
The focus on protecting and expanding office and industrial space in London is welcome, but balancing the needs for employment and industrial land with land for housing will be a challenge. As well as this, the plan’s 20 year timeframe means that policy needs to be sufficiently flexible to accommodate the jobs of the future.
The London Economic Development Strategy (EDS)
The Mayor of London’s draft Economic Development Strategy, published in December 2017, sets out how the Mayor aims to ensure that all Londoners can benefit from economic growth Mayoral strategies and activity across the capital. London Councils’ response to the draft EDS consultation argues that boroughs and their expertise are key components towards delivering the strategy’s vision. We felt that a more place-based approach was needed.
The Good Growth Fund
The Good Growth Fund is a £70 million regeneration programme to support growth and community development in London. It is delivered through the Mayor’s office and is overseen by the LEAP. Collaborative multi-borough projects are encouraged. It focuses on
activities that enable:
• Londoners to actively participate in their local community and have a say in how their city is shaped
• delivery of co-ordinated place-based strategies that welcome growth in a way that works with the physical character of London’s many places
• diverse and accessible local economies – from our high streets and town centres to industrial areas – to realise their full potential and making London a place of opportunity for all
Round 2 was recently launched, with a further £20 million of funding available.
The London boroughs have demonstrated the ability and drive to support and grow local economies, even in the face of shrinking funding envelopes and economic uncertainty. London Councils continues to lobby hard to ensure boroughs have a say in shaping the Government’s and Mayor’s strategies for local economic growth.
1 2017 London Town Centre Health Check Analysis Report, January 2018
2 High Streets for All, Mayor of London, September 2017
3 Devolution: a capital idea The report of the London Finance Commission, January 2017
The Government’s Industrial Strategy
London Councils: Building on Success - London’s Town Centres
London Councils: Business Rates Devolution Update (member briefing)
London Councils: The draft London Plan (member briefing)
London Councils: Response to the draft London Plan consultation
Mayor of London: draft Economic Development Strategy
London Councils: Response to the Mayor’s draft Economic Development Strategy (member briefing)