21 January 2021
London's future trajectory is hard to predict, but we shouldn't plan for decline
Richard Brown and Mark Kleinman
Population and economic decline may be temporary diversions rather than longer-term challenges
London enters 2021 in a very different mood, not just to last year, but to much of the zeitgeist of the last 30. There were fireworks on the Thames on new year’s eve, but no crowds were watching in the streets and parks. The mood of the impressive light and sound show was one of resilience and solidarity, rather than unbridled confidence. As with the opening ceremony for the 2012 London Olympic Games, praise for the National Health Service took a central role, but the tone was less celebratory than seriously grateful.
London has suffered badly, both from the health and the economic impacts of the pandemic, as can be seen in The London Intelligence Economic Tracker. As we write, the NHS in London and throughout the UK is again straining under pressure. The emerging labour market evidence shows a particularly severe downturn in London. The Greater London Authority (GLA) Economics team report that the number of workforce jobs fell 3.8% (229,000) in the capital between March and September – a far greater fall than for the UK as a whole, at 1.8%. They go on to say that while in the earlier stages of the pandemic, there were only modest changes in headline labour market statistics relative to the large falls in activity, this has changed more recently, with large movements in London’s unemployment rate. In the three months to October, the unemployment rate rose a record 1.2 percentage points to 6.3% in London – the largest quarterly rise since the series began in 1992. Only the North East region has a higher current unemployment rate than London, at 6.6%.
As we hobble through the next few months, bigger questions are being asked about the future of cities and of London in particular. Will the “urban age” of big cities leading global trade and growth return? Or does the future lie in more dispersed and fractured economic activity, as globalisation falters, global travel slows and/or the benefits of agglomeration are outweighed by the convenience and safety of working from home?
The debate has been growing in recent years about whether we have reached “peak London”, whether the city’s phoenix-like recovery from post-war deconcentration and urban flight has run out of steam. Like waves of pandemic infections, the turning point of cities’ fortunes are more easily visible after the event: nobody really expected London to start growing again in the mid-1980s.
Population growth has been slowing in London over the past three years. Moreover, recent analysis of Labour Force Survey data by Michael O’Connor and Jonathan Portes suggests that London’s population could have fallen during the pandemic by as much as 700,000 – a huge turnround. And consultants PwC recently forecast a 300,000 person decline by the end of 2021. These are only estimates and projections, and of course much of this change might be temporary. Will 2020 prove to be a blip, reflecting the extraordinary circumstances of the pandemic, or will it be another inflection point like 1987?
The latest demographic projections issued by the GLA in November 2020 forecast a return to growth – though at a slower rate than the past decade, when London’s population grew by almost 90,000 every year. Their “central projections” anticipate growth of around 50-70,000 people per year instead, with the next two years at the lower end of this scale. This would lead to a potential population of around 11 million by 2050 (compared to just under 9 million in 2019).
Population growth is driven by two factors: migration and natural increase. In the year to mid-2019, London’s population was estimated to have increased by 54,000. This consisted of net of 77,000 people to London from overseas, net movement of 94,000 people from London to the rest of the UK, and a net increase of 71,000 people from the balance of births and deaths.
The GLA’s central projection assumes that international migration will be suppressed for the period to 2022, but will then bounce back to average 95,000 (net) every year. The GLA’s expert panel felt that on balance, future reductions in migration are more likely than increases. However, they advised against discounting the possibility of higher levels of international migration, pointing to the resilience of international migration; the possibility that new immigration rules may result in foreign nationals settling in London for longer, and potential reductions in emigration rates of UK nationals in post-Brexit Europe.. The projections also suggest that net domestic migration to the rest of the UK will return to around 100,000 per year by 2030. So most of the projected growth will be fuelled by resurgent natural change (births minus deaths), which has fallen since 2010 but is forecast to stabilise at around 60,000 per year. London will continue to see a rapid churn in population, but its growth will be fuelled from within.
Similarly, the GLA project continued economic growth over the longer term. Their economic projections anticipate contraction and jobs losses in 2021, followed by recovery in 2022, with economic output (GVA) exceeding the 2019 peak by 2022, and the number of jobs in 2022 just reaching the peak of three years earlier. Beyond that, the implication of GLA and other forecasters’ cyclical and trend analyses is for the London economy to resume previous levels of growth, both in output, and perhaps to a slightly lesser extent, employment.
How credible is this? London’s position as a leading global city has taken a hit from Brexit and the UK’s management of coronavirus, but the city is still in a potentially strong position, with strengths in tech, green innovation, financial and business services, education, arts and culture. London needs to remain open and inviting, through immigration policy but also through nurturing and restoring its wounded cultural and hospitality sectors – the “soft power” foundations of its global appeal. The UK as a whole will continue to need London, as a driver of economic growth, for its fiscal contribution and as its gateway to the world. Brexit, and the UK’s potential isolation outside the major trading and economic blocs, makes London’s role more rather than less important.
How much does the government understand this, and will it commit to the infrastructure and other support needed for London to continue to grow? The signals are mixed: national planning policy is now focused on concentrating growth in cities, and the government’s latest algorithm envisages London building more than 90,000 homes every year – many more than the Mayor’s London Plan proposes, the GLA’s projections would imply, or that London is actually building at the moment.
Given this expectation, and the economic importance of London and South East, you would expect the government to want to invest in the capital’s infrastructure. But worryingly, in the National Infrastructure Review last November, the government suspended support for Crossrail 2, the next phase of major transport infrastructure investment in London, beyond safeguarding work. As Alex Jan has commented, Crossrail 2 is “pretty integral” to the London Plan, though all major infrastructure projects have their ups and downs – Crossrail 1 was first mooted in the 1970s, with roots in the Abercrombie Plan of 1944. Government commitment to “levelling up” regional imbalances in the UK is welcome, but this should not happen by starving the capital of much-needed public investment.
We will not know for some time whether short-term population and economic decline are temporary diversions or longer-term redirections of London’s future. We do not know whether 700,000 people really have left London over the last year, or whether and how quickly they may come back. And we do not known how far recovery from the crisis could see some rebalancing of activity within London and the wider South East. We know, in short, that there are still a lot of unknowns.
But public policy should shape the future rather than just responding to it (a core proposition of Centre for London’s London Futures programme), and governments should be wary of drawing conclusions about long-term trends from short-term disruptions. London’s potential for growth should be nurtured so that the city can work better for all its current citizens, as well as the two million more who could arrive in the next 30 years, and so that the capital can support recovery across the UK.
Richard Brown is Deputy Director of the Centre for London.
Mark Kleinman is a Professor of Public Policy at the Policy Institute, King's College London.