Election 2015 England

London's economic resilience and the shadows over the capital

London skyline Image copyright Getty Images
Image caption Despite some resilience London's economy remains under shadows

London's economy has shown resilience in the face of the tremors unleashed by the banking crash and the recession.

Many indicators have started flashing positive, but there are underlying issues - not least around earnings and skills - which cast a shadow of doubt.

With major job losses avoided and wages suppressed, it's been an unusual path back from economic upheaval.

But it remains questionable whether the signs of recovery have come soon enough - or are sufficiently substantial - to convince the capital's electorate.

Unemployment - at 6.2% - is the lowest for eight years in London and the gap has narrowed between the capital and the rest of the UK - where it stands at 5.7%.

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Media captionWhat is happening to jobs in the capital?

The increase in what London produced - its output growth - exceeded the rate of progress across the UK.

As Prof Tony Travers from the London School of Economics indicates, London scores more than 70% above the UK average on measure of Gross Domestic Product (what we produce and what wealth that creates but under 30% on the measure of Gross Domestic Household Income - our spending power.

More evidence, he says, that London is not just leading the recovery but continuing to provide the tax receipts to help alleviate the recessionary impact in other regions.

Joblessness among under-25s fell by a fifth last year alone having flat lined in previous years. But was this in part down to a cohort of graduates finally lowering expectations and taking whatever they could get?

Image caption Apprentice Thomas Monkman explains his work to the Skills Minister at London's Holition

Working age inactivity generally came down, as did the number of people claiming benefits and those not in education employment and training. Mayor Boris Johnson claimed the pool was drying up and demand for apprenticeships thereby fading. Others disputed the claim.

But the headline indicators masked other significant trends, like the surge in people going it alone, many involuntarily. Self-employment over the four years to 2014 rose by 24%, compared to a rise of 6% in the overall number of employees.

Part-time work also increased but, according to official figures, zero hours employment was not so prevalent in London - accounting for a lower proportion of the workforce than elsewhere in the country.

While national statistics have recently suggested a brightening of household incomes and an increasing propensity to spend, no London-focused figures are available. Some, though, highlight the pressures on people's pockets from the excessive costs of housing, transport and childcare in the capital.

Real-term wage loss

And no doubting the impact of depressed earnings these past few years. The median full-time weekly wage in London rose from £642 in 2010 to £660 in 2014. If it had kept pace with inflation, it should have been £720 a week.

In effect, by 2014 Londoners had seen their wages fall in real terms by £60 a week, or more than £3,000 a year.

And yet the jobs and the work remained - albeit with hours reduced, bonuses extinguished, overtime crushed and many pushed into contract or freelance relationships.

The most recent indications are that earnings are rallying - in real terms - buoyed by the continuing fall in inflation

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Image caption In real terms, shoppers, on average, have £3,000 less to spend that in 2010

Jonathan Cribb from the Institute for Fiscal Studies says the nature of the high employment / low wages bounce back from recession is unusual and not easily explained.

"It is not totally clear why earnings have been hit particularly hard in London. These earnings falls come alongside particularly strong employment growth.

"It seems that the main reason for lower earnings is the very poor productivity performance; workers are less productive and are therefore paid less. Some of this may be due to lower investment from firms which means that workers are working with less capital than we would have expected pre-crisis.

"There have been suggestions that there has been increased 'labour supply', meaning more people want to work now, and that this depresses wages. Some, but not all, of this is due to reforms such as those encouraging lone parents into work and increasing the state pension age which leads to delayed retirement."

Financial crisis 'impact'

Robert Harbron from the Centre for Economic and Business Research said companies had endeavoured to hold on to employees.

"What we saw since the financial crisis was that businesses didn't necessarily want to lose their staff as they had done in previous recessions because it's so much harder to gain them back once you have lost those skills.

"Instead they downgraded the number of hours workers had on their contracts, or maybe out-sourced them into self-employment contracts.

"Their pay came down, so the financial crisis has still definitely had a real impact on the standard of living of the median household worker."

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