What caught my eye this week.
For as long as I’ve been conscious of what’s happening beyond my own digestive tract, London was on the up-and-up.
From the 1980s yuppies I caught the tail-end of in the early 1990s and the regeneration of Docklands, to the middle-classing of the East End, the Dotcom bubble, the 2012 London Olympics, and the pre-Brexit immigration boom at both ends of the jobs market – London was where it’s at.
Of course, it wasn’t all rosy. House prices are up as much as 10-fold since I’ve been here. That long ago priced out most of those without parental help or huge salaries. Many London-born left the city altogether.
Also, despite all the wealth generation, some of the most deprived areas of the UK are still in London. Admittedly this has eased in recent years. But that’s perhaps as much because of gentrification as the locals getting richer.
Indeed, while the tidying up of London has suited my hipster tastes for flat whites, farmer’s markets, and retro beats, I’m not sure it was all good news.
Something was lost. London is less village-y now than when I came here from a real village in the provinces. Different boroughs have mostly the same shops, style, and people.
Though I suppose that’s happening everywhere.
The big smoke
Talking of everywhere, some readers complain when I focus on London every year or three in an article.
This reflects a wider sentiment – that London gets too much attention, and that we long had it too good in this city. (Though ironically, most of those who moan about London’s riches also say they’d hate to live here).
They feel aggrieved despite London being a net contributor (via its trade surplus and redistribution) to the UK economy.
And despite London being realistically the only place in the UK with the status to pull in enough foreign capital and talent to really move the dial.
Such regional resentment was one of the many motivations behind the unfortunate vote to leave the EU in 2016.
Yet despite the odd protest, I will continue to single out London occasionally, so long as I’m blogging.
London calling
London is my home, for a start. (Nobody minds when Ermine wanders about in the Somerset countryside or Dave has a run in the Highlands!)
Nearly a third of visitors to Monevator are in London, too. The three nearest web traffic rivals – Glasgow, Manchester, and Birmingham – account for only roughly 2% each. Besides the sheer population size, there’s a fit between our content and Londoners that definitely isn’t exclusive, but is pretty natural.
Also London makes a unique contribution to the UK economy. I have sympathy with the view that it’d be nice if it wasn’t so. But anyone seeking to change this is fighting a global trend. Or at least the pre-Pandemic trend.
Personally, I believe we should all be grateful the UK has (had?) one of the handful of world class cities, even as the economic centre of gravity shifts to Asia.
Home alone
Others will disagree. They’ll be heartened by this heatmap showing that while the housing market in England is on fire, London isn’t:
Squint at the blue bits
London house prices are still very expensive, despite years of flat-lining. So maybe they shouldn’t be rising. But property is soaring globally on low interest rates and the fallout from Covid, so something is going on.
It’s probably too soon to unpick the impact of the UK’s self-harming Brexit on London from the consequences of the pandemic.
Foreign-born workers have returned home for both reasons. And plenty of UK residents have moved home to outside the capital – or said they’d like to – now they don’t have to enjoy the supposedly gilded life of a Londoner squished into a tube at 7am to pay for a one-bed flat above a train station.
I haven’t yet decided whether widespread working from home – or at least not in the office – is a fad, or the new normal.
The City of London is still ‘fairly empty‘. London-based workers in general want more pay to return to the office. Only a minority are in a hurry:
With Covid-19 restrictions leaving many offices empty, white-collar staff have spent 16 months mostly working from home.
Just 17% now say they actively want a full-time return to the office [research shows].
The City of London Corporation has already started planning to redevelop excess office space into residential homes.
But when the big idea of the summer for making London a better place to visit and live was a £6million mound of earth, more might need to be done.
We’re shafted, or we’re Shaftebury-d
On balance I’m a bit more pessimistic about a full-blown return to office life than I was. (I mean pessimistic from an investing standpoint. I don’t think a five-day workweek in an office is particularly healthy!)
As a result I sold some early post-pandemic investments I made into quoted commercial property companies that owned mostly generic office space.
But I’ve hedged my bets with a position in Shaftesbury PLC.
Shaftesbury owns swathes of London’s West End – Soho, Covent Garden, Chinatown, and Fitzrovia. I believe you’d need much more money than the firm’s depressed valuation if you wanted to recreate this asset base.
I also judge that with a focus on leisure and destination shopping and the coming of the much-delayed Crossrail connections, if these areas don’t bounce back in the next few years then everything really has changed.
Normally everything doesn’t change. Time will tell.
Are you placing bets on the future of London, or the UK in general? Let us know in the comments below.
And have a great weekend!
From Monevator
Are meal boxes on the menu for FIRE seekers? – Monevator
Vanguard LifeStrategy funds: 10-year review – Monevator
From the archive-ator: How to enjoy life like a billionaire – Monevator
News
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Winchester the least affordable place in the UK to buy a home… – Guardian
…while Derry in Northern Ireland is the most affordable – Which
Vodafone to reintroduce roaming fees in Europe thanks to Brexit – Guardian
Energy bills to rise by average £139 a year when cap is raised – ThisIsMoney
PayPal says a Persian mousemat violates international sanctions – Guardian
Top players seek a financial game plan for life after sports [Search result] – FT
A world awash in capital – The Big Picture
Products and services
Natwest and RBS offer £1,000 prizes for regular savings accounts – Which
Science-based productivity playlists to help you work from home – Trello
Sign-up to Freetrade via my link and we can both get a free share worth between £3 and £200 – Freetrade
Coventry Building Society rewards loyal customers with 0.65% 21-day notice account – ThisIsMoney
Address mismatches in databases can affect your credit score – Guardian
Five-year fixed-rate mortgages offered below 1% – Which
Island homes for sale, in pictures – Guardian
Comment and opinion
Diversifying your portfolio isn’t zesty, but it works – Bloomberg
17 questions to ask yourself before you quit your job – Guardian
Magic beans – The Reformed Broker
Setting an example – Humble Dollar
How to be poor and happy – Wellcome Collection
“My wife didn’t know I had $450,000 of debt until yesterday” [Podcast] – Ramit Sethi
A weekly review of 100 years ago leading to the Great Crash – Roaring 20s
We are gonna make it – The Escape Artist
Do short-term flows permanently affect share prices? [Nerdy] – Albert Bridge Capital
US market valuation mini-special
The US stock market looks over-valued by many measures – A Wealth of Common Sense
How much have US investors benefited from multiple expansion? – Morningstar
Naughty corner: Active antics
Forestry investors see the wood for the trees [Search result] – FT
The war among the algorithms – Donald MacKenzie
It’s not worth building a portfolio of inflation-correlated stocks – Factor Research
Credit and asset booms may foreshadow financial busts – Verdad
Greedy investors make markets more efficient [Research] – Joachim Klement
Covid corner
How the pandemic now ends – The Atlantic
Warning of Covid ‘disaster’ in Japan as cases explode – Guardian
Kindle book bargains
The Moneyless Man: A Year of Freeconomic Living by Mark Boyle – £0.99 on Kindle
Hired: Six Months in Low-Wage Britain by James Bloodworth – £0.99 on Kindle
Happy Money by Ken Honda – £0.99 on Kindle
You Are a Badass at Making Money by Jen Sincero – £0.99 on Kindle
Environmental factors
The devastating new UN report on climate change, explained – Vox
Blazes burn across Med with more extreme weather forecast – Guardian
The other epidemic: what’s killing wild salmon? – The Walrus
Animals count and use zero. How far does their number sense go? – Quanta
The world must cooperate to avoid a space collision… – Nature
…meanwhile this asteroid is one of the likeliest to hit Earth – National Geographic
Off our beat
Hanging by a thread – Morgan Housel
Operating at optimal speed – Mr Stingy
Metabolism peaks at age one and tanks after 60, study finds – BBC
The creator economy is in crisis – Li’s Newsletter [hat tip Abnormal Returns]
And finally…
“You and everyone you know are going to be dead soon. And in the short amount of time between here and there, you have a limited amount of fucks to give. Very few, in fact. And if you go around giving a fuck about everything and everyone without conscious thought or choice – well, then you’re going to get fucked.”
– Mark Manson, The Subtle Art of Not Giving a Fuck
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“ London is my home, for a start. (Nobody minds when Ermine wanders about in the Somerset countryside or Dave has a run in the Highlands!)”
Speaking of Dave, how is he? I’ve not received Zude’s Top 4 newsletter for while.
His running blog hasn’t been updated since just before the start of lockdown – presumably the West Highland Way Race he was training for was cancelled.
I lived in London for 10 years and (mostly ) enjoyed it – but I do wonder about some of the stats regarding how much London contributes to the economy.
Could it be that because many companies have their HQs there still, earnings are reported in London but ‘stuff’ gets made and things get done elsewhere ?
What does London ‘do’ ?
There’s the financial sector of course, which probably boosts the numbers (when it’s not wrecking the economy and being bailed out by the taxpayer)
Software/media ? The Arts ?
When I lived there there didn’t seem to be much manufacturing going on – maybe some light stuff in the suburbs.
Is it just full of managers ‘managing’ workers in Sheffield elsewhere?
@BerkshirePat — Manufacturing and ‘making things’ isn’t some glorious form of output. Often it’s cyclical and low margin.
For my wider view, there’s this old article:
https://monevator.com/public-love-sweatshops/
@TheInvestor -I wasn’t really thinking about toasters and TVs – more high end semiconductors, military and professional electronics (Racal, Plessey, Marconi), pharmaceuticals, aircraft etc etc
If everyone is employed sitting at a desk moving bits around in various computers systems- or supporting these workers- it leaves us pretty exposed at the end of some very long supply chains. Note the global chip shortage recently, and the lack of capability to produce our own vaccines (despite being well positioned to design and develop them)
As an immigrant and Londoner of 20-plus years… the anti London brigade (showing up BTL around the blogsphere) really come across as a bad case of sour grapes. They can’t stand the success of London (and other global cities like NYC) because it somehow diminishes their choice to live elsewhere. Let’s face it, most people choose to move here for a reason, be it economic (salaries are higher), cultural, or social.
Having said all of that, the Mound in Marble Arch is ridiculous and whoever convinced Westminster it was a good idea is either an evil genius trolling us, or a blithering idiot.
I’ve got nothing against London, having lived there for ten years (shuffling bits around in a computer ) London Exceptionalism does get on my nerves though – the residents seem to think they are head and shoulders above the backward provincials. London is successful because companies base their high-paying jobs there, which sucks in people from across the UK (and world)
The imbalance between our first and second (and third etc) cities is very damaging to the UK as a whole, and I think the idea of a London Elite out of touch with the rest of the UK pushed us into the (daft) Brexit situation.
Frankly if I wanted to go back to city life I’d rather live in Leeds or Manchester these days, but I still love a wander around central London
I lived in London for two periods in my life – and worked there longer though commuted in from Hertfordshire when my (now) wife got a job that was only feasible that way. It was a great place to be at a young age, with theatres and concerts to go to (cheap picking up stand-by tickets) and places to eat out once you learned to avoid the main streets. And those villages existed as long as you used them, I got known by the local greengrocer (and Saturday market stall) and other shops.
Nevertheless I eventually got frustrated by the sense of being hemmed in, and having such a long trek if I wanted to get a sense of open space at weekends. And the fact that I was living at the limit of my means, saving was never going to be a thing at that point.
While I still miss the easy access to culture (though Covid is a factor in having not been near London in 2 years) my overall quality of life improved greatly by moving first to Hertfordshire and then (with a new job) to Yorkshire. That is partly the environment, partly the housing (for the cost). After 7 years in the same place with increased potential mortgage I explored the possiblities to upgrade in London – it would have been the same flat half a mile nearer the centre or an extra bedroom a mile further out; no hope for a house with a garden. I don’t sympathise with your moans about London prices “flat-lining”, the first (London) flat I owned apparently is worth (courtesy Zoopla) only slightly less than my current house despite me having gone through several cycles of increasing my mortgage with successive moves.
However I am happy, it is more important to have what you yourself value than what other people put a monetary price on.
I do agree with @Berkshire Pat though, there is a sense in which the apparent London contribution to the economy is artificial. I paid a significant sum in insurance the other day, which from my point of view came originally from a company I do business with locally but was renewed via a call-centre in Bradford or somewhere. But I bet it was reported as London business if that is where head office is registered.
I’ve long considered London to be essentially a parasite, sucking the life out of the rest of the country. With that £6 Million mound of earth, sad and pathetic comes to mind.
Hmm, it’s an interesting question. I’ve honestly got no idea, but I’d be surprised if this factor hasn’t been taken into account over 30 years of economists and politicians studying the London/provinces issue?
@theInvestor
-perhaps they have taken it into account ? – I really don’t know, hence the original question.
Take BAE Systems as an example, headquartered in London.
I doubt they make many submarines or aircraft there. Does the profit from , say, BAE Warton count toward the GDP of Lancashire, or does it end up registered in London ? Or is it split?
I’m a Londoner by choice, having moved here from Perth, Australia. There’s an old German phrase about how city air makes you free, originally linked to serfdom and the post middle ages urbanisation of Europe. City life works for some, not for others, but I couldn’t give a flying about those who try to defend their personal choices by pouring vitriol on one or the other. Economically, cities work by concentrating labour and capital. This link is not unique, it can firm in other locals, like the technology hubs around Cambridge. But cities do provide greater opportunity for spontaneous meeting of individuals work different talents and resources. The connected society of the internet may provide other modes of such connections, but they haven’t supplanted cities, merely linked mostly urbanised individuals.
And for those that mock or belittle middlemen, it is middlemen who take on financial risk, and are rewarded with outsized profit, facilitating the meeting of capital with talent, while providing liquidity to markets. This is undoubtedly and unreservedly a good thing. It is capitalism.
Unfortunately, many financial types have high opinions of themselves and think their success is down to being special rather than lucky (parents, education, economic era at which you come of age etc.), which leads to champagne socialism, not to mention molehills in Marble Arch.
Horses for courses
I was born in wide open spaces(Africa) but had secondary schooling and university in an city
Now lived the last 50 years in the wide open spaces again
3 children who work in cities-1 in London
Cities buzz compared with the country.
The opportunities are much greater in every way -concentration of people
Possibly most of us ideally would like to live in the country with the good jobs and superior opportunities that a city provides-impossible!
I must say for a country mouse a visit to the capital in July was a very pleasant experience -all eateries with plenty of room,no heaving masses to fight through and what facilities that were open uncrowded and enjoyable to visit
Even the tube was relatively pleasant to travel on
Is this a sustainable situation-probably not
Normality will return in time so enjoy the moment while it lasts!
xxd09
London is a great place to visit but for me, the year I spent living in the suburbs there was one of the worst times of my life. I vowed not to go back to live. I have perhaps only visited three or four times in the last 35 years.
In my line of work the salary I could command in London would be a 10-15% premium on what I earn in a place that produces nuclear submarines. The house that I live in which has always been just slightly above the national average price has three double bedrooms, views of mountains and the sea, fields to three sides and space to have cars, workshops and a good garden. Later this year we get FTTP internet.
Living is cheaper, the air is cleaner and, in my opinion, the people are more open and friendly (don’t shoot!)
Living here has allowed me to invest what I don’t spend in diversified assets rather than concentrating my wealth in bricks and mortar (which, although London has, historically, walloped the return of everything else in the country, is still concentrating risk.)
I am glad London exists and where would we be if it did not thrive? My best man would not leave the place as he enjoys the arts, but it is horses for courses. The premium paid to attract me there would have to be significantly greater than a 10-15% London weighting.
JimJim
As a Londoner of only 3 years I too hope some resentment toward Londoners of decades past.
I’m in my early 30s, as is my partner, and we’re renting in zone 2. Within the next year we will likely decide on what we’re going to do with respect to settling, as we both want kids.
It’s not easy. Even with a high combined income buying anything ‘new family ready’ is eye-wateringly expensive. My partner is Northern Irish and there are entire counties there with 0 properties on the market priced as highly as small London flats.
Still, rents are also high. At current interest rates, buying (with a 20% deposit) *still* looks like the best option.
Currently I’m looking for a new job, as even though we’re comfortable, I need to shoot higher to cover my partners income if she becomes a stay at home mum. If I don’t, we’ll be scraping by on a mortgage.
I moved to London after I left university, in May 1992. I’m still here.
I completely understand why people choose to live elsewhere, but there is a huge experiential difference between visiting a city and living in it, and the impressions that you gain from fleeting stays in the capital don’t tell the whole story.
Living in London combines all the familiarity of a small town – a trip (I say “trip”; it’s a one minute walk) to our local shopping street invariably involves conversations with neighbours and school gate acquaintances, as well as with familiar shopkeepers and other local fixtures – with the exhilaration of a huge metropolis. Even after 30 years, there are parts of London I barely know, and which remain a source of adventure.
And while, of course, no-one’s going to confuse London with the North York Moors, there is green space, and it’s surprisingly accessible. I can be cycling in Epping Forest within 30 minutes of leaving my house and there are plenty of closer outdoor destinations, too. In the same amount of time, I could be in the City, or on Brick Lane, or at the British Museum, or at any other number of unique and historical urban locations.
My children, at their local state primary school, get to meet and engage with the widest variety of contemporaries, from Sudanese refugees to the offspring of actors and lawyers. Their awareness and respectful appreciation of other cultures is way ahead of my own at their age. And the teaching is pretty good, too.
You can live in London sustainably. I cycle pretty much everywhere, I shop locally, and I almost never have to darken the door of a chain business if I don’t want to.
The only problem, of course, is that this lifestyle is now completely out of reach of any but the highest-paid. My modest 3 bed terrace would sell for five times the price that I paid for it in 2001, while my income has barely moved in real terms. We’ve often semi-joked about swapping our 10 metre long garden for a Scottish estate or Welsh farmhouse – which makes that property prices heat-map particularly interesting.
Like US equities, London houses are ridiculously overpriced, and maybe that map is showing us the beginning of a reversion to the mean. Several colleagues and friends have seized on the opportunity that working from home has given them to move out and buy elsewhere, and although these are straws in the wind, if living in the city really does become more optional, surely more are going to opt out.
And if that means we never do end up buying that Scottish castle, so be it. I like it here.
As a born and bred Londoner I have to agree that it is a terrible place. Just today I had to choose between attending the cricket at Lords or the first home game of the football season in the opposite end of town, and don’t get me started on whether its worth trekking over to Golders Green for Cafe Japan this evening or settling for our local gastro-pub. These are the kind of decisions that really grind you down 🙂
On a more serious note, too many people confuse surviving with thriving in London. Most of the time we live on the handful of streets that host our home, workplace and the shops that we need to visit in person, so cut your coat according to your cloth and choose somewhere that suits you best.
Very much in the ‘London is great to visit but would absolutely hate living there’ camp. Which is perhaps misinformed from a few experiences – 1) the Tube at anywhere near rush hour must be one of the most miserable places this side of a warzone and 2) any acquaintances made in my early 20s who lived in London (largely fellow Scots) were all money obsessed bores, which is now understandable given they moved there chasing bigger salaries and they needed decent dough to have any quality of life which means it’s an ever present concern and the common denominator for everyone who lives there in the same way football is if you’re in Glasgow. The theory of being a vibrant global city with people, food, culture from across the world on your doorstep sounds great but it’s only accessible to the relative few who can afford it. And it acts as a hoover sucking economic activity and skills away from places that are left behind and is – as implicitly recognised in the whole levelling up agenda – a major factor in the Brexit vote and the whole culture wars stuff that little England is increasingly engaging in.
Just a brief comment. Your site stats suggesting a third are from London. This is likely false, ir an overestimation. I am in Scotland and like many other reasonably educated, tech-savy people who likely frequent your blog believe in using VPNs for privacy. Guess where most legitimate VPN sites are in the UK? Correct. Anyone using a VPN for basic privacy that doesn’t choose a particular country will most likely be reaching your site via a London IP address.
I spent a few months in London, but quite frankly it was too big and too busy. Much happier out in the countryside now! I also get why London may have been so annoyed by Brexit, but out here it’s working largely as intended. Our irrelevant, provincial factory (yes, I still remember that comment, five years later! :)) is now making an effort to employ more locals rather than recent immigrants. For example, our cleaning staff now consists largely of local middle aged women and local kids rather than Eastern/Southern Europeans. The recent labour shortages are also forcing pay increases.
I have never lived in London, but for the first 28 years of my working life I have sometimes worked there and regularly commuted into London and contributed (in a small way ) to the wealth reported as being “London’s”. I have not been into London for 18 months, but am still regularly contributing to our capital city’s output.
I have nothing against London, it’s a great capital. What I do find odd is the attitude of some of the residents when they are outside of the capital. They suddenly behave as if the rest of the country is either some quaint theme park and / or anyone not living in London is an inbred yokel. Typical conversation in my local village pub (regularly featured as a country destination in Sunday papers, because owner used to work for London PR) “can we get a table for lunch for four please” – said by a chap, indicating his party (sometimes much to our amusement dressed in rural fancy dress), “have you booked?” – landlord, “no” – chap (looking at landlord as if he is deranged), “well I’m sorry you need to have booked table for food, would you like a drink” – landlord, “but we have come all the way from London” (pauses for dramatic effect) – chap. Just one example, but I have seen countless similar examples, it’s just odd.
If London can survive and thrive after the Black Death, the Great Fire and the Blitz, I rather doubt that Brexit and Covid are a threat.
There is an ebb and flow in the importance of prime cities like London or New York over time. Just look at Manhattan, which was grimy and crime ridden in the late 70s and 80s. London became very toppy post 2008. I moved to the commuter belt because the price spread between London and Surrey had never been so wide. That spread has been tightening for 6-7 years now. It’s just mean-reversion.
Where I disagree is that this value from this mean-reversion process will flow into the provinces. It won’t. People will move to the commuter belt or places like Cambridge or Oxford. They will move out of the UK to nicer places to live (summer in the Med, some European cities), somewhere with lower tax or somewhere more vibrant (San Fran).
We tried to set up a satellite office in the provinces about 9 years ago. We didn’t see any valid reason why many of our lower paid employees (those earning saying £100k+bonus) had to work in London. We thought that many employees would prefer the cheaper houses, better schools, better lifestyle etc. It just didn’t take off. Hiring new employees, especially foreigners, was just impossible. People wanted much higher compensation to go there. It was too much of a risk for people. They wanted to live in or near London. Younger employees especially. Even those with families, our target audience, didn’t want to move. Nobody with decent skills or ability wanted to work anywhere except London. After a few years we closed it and just allowed everyone to work from home.
Three things have kicked London in the teeth: Brexit, the covid pandemic, and the work-from-home revolution. Of these, I think the long-term impact of WFH is the most unpredictable.
Business leaders are trying to herd staff back into offices but there is resistance, especially from people over 40 and commuters. I’m not sure where the chips will land. If home-working or hybrid become the norm, central London property could fall out of fashion. Large houses in the commuter belt and home counties country could become more desirable, as they were in the 1970s and 80s. I don’t think the trend of moving much further out, i.e. beyond commuting distance, is sustainable though. A lot of people have made the mistake of selling in London and moving too far to commute, only to be told they now have to return to work 2 days a week.
Just thinking about some of the economic sectors, other than financial services, which will be important in London : legal services, tourism, theatre, further education, advertising, software development, film/ tv and other creative sectors. And also services for the large population population (healthcare, schools, shopping, utilities, etc)
I enjoyed living in London as a student in the early 1980s and in my early career. Moved out to commuter belt after marriage in mid 1990s, mainly because of husband not being so keen on city living, and then more recently to brighton/hove when I stopped working in London, but I still like being in easy reach of all the amenities. I’m now on the brink of retirement and thinking of relocating to the northern half of England, but in idle moments dream of being able to afford a pied a terre in central London as well. But when I said this to my father he said I’d be better off spending money on decent hotels, and I think he may be right….
@Ben 23 – I think WFH will accelerate the trend of decentralised working, but not enough to overcome the longer term tend of younger people moving into cities to socialise and “live life”. Even assuming that most workplaces remain WFH and the daily commute goes the way of the Victorian workhouses, people still prefer to live where the action is culturally, socially and economically.
Note that this may mean more people going to Manchester, Brum or Newcastle instead of London – and that would be a welcome change for people from those cities no longer forced to choose between family and career – but cities will continue to be the engines of progress that they’ve always been.
@Stonebridge Kestrel – what a great story and very similar to mine. People who haven’t lived here will always feel like London is a foreign country – like yourself I love the villagey feel of my neighbourhood and do all the things neighbours do (pick up each others’ packages, watch kids, even shockingly go for long park and River walks). It’s definitely not for everyone and I respect those who gave it a go and decided it wasn’t for them.
On the side question of whether London economic output is “pinched” from other regions, I doubt any two statisticians will agree, but again this is more a political issue than an economic one – it’s convenient for the Tories to whip up the shires against Red Ken, Sadiq and those awful Londoners. Typical politics of division and negativity. Almost puts me off my morning flat white…
@BerkshirePat.
Just as an aside but in the methodology used by the ONS to calculate national GVA (gross value added), headquarters are assumed not to produce ‘output’. For non-manufacturing industries a part of the firm’s productivity is reallocated to their headquarters pro rata with earnings. For manufacturing, however, productivity is allocated solely to local units, i.e. the factories and production centres. As London is a centre for headquarters of not only national but international businesses, the affect of this allocation is to reduce London’s GVA relative to the other UK regions.
Another issue is that consumption of indirect financial services can be divided into two components, first is intermediate consumption, which includes the use of financial services by firms. Second is final consumption, which includes use by consumers, government and the net exports of financial services. While final consumption of indirect financial services acts positively on GVA, intermediate consumption contributes to the output of other sectors and recorded elsewhere as part of the output of other business sectors (e.g. manufacturing, agriculture and retail).
The ONS currently has no official figures for the split between this intermediate and final consumption, so to avoid any double counting the total value of indirect financial services is removed from the National Accounts (so called FISIM adjustment). Therefore the National
Accounts are underestimated by an amount equal to the final consumption component of FISIM. Furthermore it is assumed that financial services are consumed where they are produced. Since London’s financial services are consumed nationwide, the current methodology implies that London in particular, gains very little output from its global financial services.
So the reality is the output of London is actually understimated, not overestimated. I know in the 2000s the underestimate was considered to be around 10% of London’s stated GVA.
Sorry to ruin your preconceptions.
Well I think the genie is well and truly out of the bottle on WFH.
I worked in London for many years, alternating between The City and Canary Wharf, although I always lived in the commuter belt either just inside or just outside the M25 so missed out on urban hipstery areas with Nathan Barley types.
Commuting was one of the worst parts of it, becoming an almost physical battle at times. Sometimes literally.
I relocated to the far south west a couple of years before Covid so have been set up for WFH for some time, and in many ways it has been a great leveller to have everyone else adopting it so you’re not exposed as an outlier.
I agree there will be an age split between over 40s who have enough knowledge, experience, and proven track record to be trusted to work in physical isolation, and 20 somethings who still need to learn and be mentored/supervised in the office, as well as socialise in bars and clubs outside of it. I’ll admit I do sometimes miss the buzz of Thursday or Friday night drinks after work in the City, but that’s about it. And you can actually find good coffee out in the sticks now.
I keep reading articles about how it will be harder to get pay rises WFH 100%, but if you are in your 40s or 50s you are already likely to have largely peaked in earnings, so that is less of a factor than it would be if younger.
I’m at the stage now where I would rather earn less money than commute to an office in any way – be that a city or provincial town.
If climate change is as big a factor as it should be, then all the unnecessary commute travel by car, train, bus and plane makes no sense even post-pandemic (and that is not over by a long shot).
Yes, the price will be dry cleaners, Pret, city coffee shops, pubs and restaurants going under, and some vacant office space unless some commercial property is repurposed for residential use.
Anyway, for these reasons I shifted my commercial property REIT allocation into infrastructure trusts last year, including a good chunk into green energy infrastructure.
No problem at all with you using your blog to wax lyrical about “that London”. I did eight years there, and was ready to move about five. As someone who grew up in the countryside, I found I could never relax there (especially with the police helicopters buzzing and ambulances screaming along our normally quiet street at 4am). But despite the noise, pollution, expense and numbers of people – it certainly has its charms. The sheer size means that whatever your interests are, you’ll find a group of often world class practitioners there. Food and culturally it’s amazing. It can be surprisingly friendly – I knew our immediate neighbours in every place I stayed in, and occasionally experienced some genuinely kind strangers (once after a horrible mugging and beating).
You’d couldn’t pay me enough to move back to London, but I’d always recommend a stay for work or play – particularly if you are young, ambitious and curious.
“There is a famous Zipf law, that says if city sizes in a country are ranked on the basis of population and the logarithm of population is plotted against the logarithm of rank, it should give a straight line. This sounds strange but remains true.
If you do this for USA, you get a straight line,
if you do this for India, you get a straight line,
for Germany, a straight line too,
for Nigeria again a straight line….
but if you do this for UK, you get a line awkwardly offset by London at the top.
What does such a non-fit imply? Well in this case it means, compared to other nations London’s size in UK is larger than what it should have been, or equivalently rest of the UK is smaller than it should have been. Either way the over dominance of London is peculiar. Even, it seems, Paris’s place in France, or Tokyo’s in Japan is not as central as London’s is in UK.”
https://medium.com/articles-management-101/zipf-law-maybe-london-is-way-too-big-and-too-central-in-uk-4a7caae62dcd
Why is the UK and London such an outlier? Part of it has to be Whitehall’s disproportionate dominance over all other forms of local and regional government (and I do mean Whitehall not Westminster).
“According to the OECD, compared to English figures the level of taxes controlled at the local or regional level is about 10 times greater in Canada, 7.5 in the US, 7 in Sweden, almost
6 in Germany, and over 5 times greater across the OECD on average. This means English cities have nothing like the level of local financial control enjoyed by cities abroad and are not competing on a level playing field.”
https://www.corecities.com/sites/default/files/field/attachment/Competitive%20Cities%2C%20Prosperous%20People_%20Final%20Draft.pdf
The compounding results of this lack of ability to compete have added up over decades and generations and are now virtually a self fulfilling prophecy.
The very word “provinces” seems to hint – to me – at an oddly imperial mindset. Is Boston or New York a province of Washington DC? Strictly speaking, perhaps. But Washington isn’t running Boston’s skills policy, its hospitals, its unemployment benefits, its zoning laws… but we pretend in this country that all of these policies for e.g. Leicester should be (mostly or entirely) run by London.
It is idiotic.
Maybe if power (not merely political, but cultural, intellectual and economic) was distributed more evenly in UK, with different cities playing different roles, or at least even remotely giving London some competition (like Manchester or Glasgow once did to London), then people wouldn’t have felt this Westminster or The City dominance. London is indeed a great success as a city, the heart of not just UK but of the whole world. But if New York or Tokyo can still be well sized members of US and Japan respectively, getting competition within from cities like Chicago or Kyoto, then so should London.
@Zero Gravitas, thanks, fascinating. I wonder how many Leave voters in 2016 were complaining of the powerlessness that was blamed on Brussels – but as that article shows really their powerlessness came from the way Westminster/Whitehall are remote from the rest of the country and remove any real local power.
@ZXspectrum48k
“So the reality is the output of London is actually understimated, not overestimated. I know in the 2000s the underestimate was considered to be around 10% of London’s stated GVA.”
I suspect if you tasked ten different teams of economists to calculate it you’d get ten different answers, but if London is punching above its weight – why?
It’s not the location, it’s not something in the water, and all the real Londoners moved to Essex after WW2
As alluded to above , for various reasons London has grown to a size where it sucks in talent from all over the UK and around the world like a massive black hole devouring orbiting planets. . Perhaps this is a ‘good thing’ in some ways, but the gross imbalance between London and other UK cities is divisive and dangerous in my opinion. It’s a vicious circle – the more London becomes dominant, the more incentive there is for people to up sticks and move there Berlin has its Hamburg/Frankfurt/Munich etc -all major centres. The second city in the UK is one seventh the size of London…
“Sorry to ruin your preconceptions”
Not at all – as I said in post #11 “perhaps they have taken it into account ? – I really don’t know”
Anyway, I enjoyed a nice walk around my large Berkshire village earlier tonight, without having to worry too much about someone stabbing me to death for my watch, or just for being in the wrong place at the wrong time.
I think I’ll settle for that.
I suppose I’m betting on the UK since I’m planning to move back after several years in London and and now several in the US. It’s more of a least-bad choice than a real investment though, and it won’t be London unless there’s a work opportunity too good to refuse.
As other commenters have suggested the best some can do in London – as a renter without a very high income or wealth – is survive, not thrive. I have countless fond memories of my time there but the reasons I left the city have not changed one bit.
I don’t really think any of us knows exactly why people voted the way they did in the referendum but I am sure that no one reading this blog knows what the outcome will be. I guess we all have our opinions and that’s fine. I just wish we could stop dwelling on it as it just divides us.
I’m also sure London is great for many people to live and work in, as is Manchester, Birmingham, Cardiff, Glasgow….etc. It’s all horses for courses so lets stop all this “my dad’s bigger than your dad” stuff.
I’d much rather read and debate the investment articles which are the real added value and purpose of this site (just my opinion).
The “10 years of Vanguard Lifestrategy” article was great – keep them coming!
@JimJim Your 10-15% premium may be close to the nationwide average, but some sectors in London are offering salaries of 2x the rest of the South East. Whether 2x is enough to justify the commute or expense of London living is another thing entirely, but for me the numbers worked out.
A colleague of mine moved from Germany last June, mid pandemic, and is now being paid 5x as much in London for work he finds more stimulating.
This is a blog about FIRE, so I think it would be remiss to not talk about the fact that working in London can be a game changer.
The Klement on investing piece “Greed is good?” had me pondering, if markets are getting driven more by passive investment, and this article has weight, should the top of the bubble be higher the more passive a market is?
Of course the answer is probably not actionable in the world of investing, just my curiosity.
@Zero Gravitas. Interesting stuff, the political will to change things seems thin at the moment though, it did not harm the present government, London was more left leaning in the last election than many of the “provinces”
JimJim
@zero G – interesting post.
“Why is the UK and London such an outlier?”
Possibly because pre-Brexit London was the de facto capital of Europe. Also, in terms of population, by far the biggest city in western Europe. Current population is 9 million, whereas Paris is only 2 million.
I moved to London when I was 18 to go to university and have been here ever since, apart from a few brief stints abroad. On the whole I have loved it and we have a very sociable “village”.
I cycled to work most of the time and so avoided packed tubes and trains. I think the I miss most about work was my daily commute!
London house prices have become absurd though with professionals such as hospital doctors, GPs and dentists unable to buy anything other than small flats locally without parental help. A correction is long overdue IMHO.
@BerkshirePat. I was actually talking about undermining pre-conceptions about statistical agencies such as the ONS. It slightly beggars’ belief that anyone would ever think the ONS would just assign all the GVA of say a large company with 50k employees to the HQ where it might just be one man and his pet budgie!
Capitalism tends to concentrate wealth and power. That tends to attract those with skills, intellect and ambition. What I find most odd about some of those who dislike London’s preeminence is that they seem to think that you can rebalance towards the provinces whilst still keeping their preferred free market libertarian agenda. Ain’t happening. You want rebalancing, then you need to accept explicit redistributive policies. You need more socialism.
@Jonathan B – yes that has to be part of the truth doesn’t it?
@JimJim – every Government in my adult life time has recognised the problem, and made attempts to change it. Boris has “levelling up”; May “rebalancing” plus Local Industrial Strategies; Cameron/Osborne started Mayoral Combined Authorities and Local Enterprise Partnerships. Blair had Local Area Agreements, Comprehensive Area Agreements, then Total Place and before that Regional Development Agencies and Regional Assemblies. Major had “Government Offices for the Regions” and “City Challenge”…. no doubt it goes back further in time too. Of these, the only initiatives (IMO) that had any success were the RDAs which the coalition abolished, and Mayoral Combined Authorities. The reason that these two had and are having some success is that they came attached to real money which is controlled at the regional or sub-regional level without recourse to a beauty contest or bidding process owned by the dead hand of Whitehall.
So if they have all identified it as a problem, why has little changed? I think you are right when you say it is simple political will. Changing things in the UK requires tackling vested interests. It is telling that neither Blair with his 200 seat majority nor Boris with his 80 Seat majority ever looked like they were really up for the fight. Cummings? Yep. Corbyn? Yep. But look what the system does to people of either the left or right who think outside of the establishment overton window…
@Ben – yes, London’s net is wider that just the UK. But so if New York’s yet NY follows Zipfs law and London does not.
@ZXSpectrum48k – no, you don’t need more socialism per se. A change in regulations at the local level is often enough. Even just convening local players to come together and work across ‘silos’ in a sustained way can work wonders. The places Heseltine’s Development Corporations helped revive, such as Manchester’s Castlefields, east London’s Canary Wharf, Salford’s Media City and Liverpool’s Albert Dock, are now taken for granted as swishy, gentrified success stories. But in 1981 they were soot-blackened, bricked-up and broken-down ruins, from whence private capital had fled.
@zero-G
Zipf’s law might work for London if you use Europe rather than the UK as the country. London was the financial centre of the EU before Brexit and was the EU’s largest city. It’s more than twice the size of the next largest city.
> London stalling
Nah. It’s been there before. A look at the population of London over time shows it ebbs and flows. The GLC was worried about depopulation when I was growing up in SE London in the 1970s, well, look how that turned out 😉
London will be just fine. It’ll spit on its hands, and get to work on doing whatever works. The Zipf law article is interesting, I wonder if that anomaly is because London was also the capital of the British empire until the early years of the 20th century, so it always had global ambitions.
@Nebilon #24
Wise fellow, your father 😉 London hotels are pretty good, close to where the action is, and you can stumble back after a few drinks. Unless you are very wealthy, you aren’t going to be able to afford a pied a terre in those areas. Most people think of London hotels as the swanky four, five star places of which there are many, but the city has a decent range, down to some of the dives to the north of Hyde Park which seem currently prepared to sell me a basic room for £50 per night in September after the kids go back, which isn’t bad at all IMO and perfectly good for a place to crash after a night out on the town.
..@Zero Gravitas … Et al.
Changing the status quo is a big task in a patron backed democracy as ours historically is. While being vicariously involved with a LEP, I would agree with you that the capital has strings most of the time. If your face fits, the capital follows.
What would be a solution to the issue that would be equitable to the main political parties?
As we cannot even keep political boundaries stationary without trying to gain advantage when in power, what hope have we of devolving power to the regions on a permanent basis? Please forgive my forwardness, Sunday beer is in effect. In vino veritas…
JimJim
@ZeroG. I’m sorry but I think you’re completely underestimating the magnitude of rebalancing that you would need to significantly tighten the North-South divide or to reduce the dominance of London. When BoJo talks about “levelling up” he’s talking a about a few hundred million or a few billion in grants, training, subsidies etc. It’s just peanuts.
You need to think in terms of hundreds of billions, if not trillions, of redistribution to reverse this. The gap between Londond and SE and the rest of the UK is enormous. It would be a massive project, taking decades. The nearest analogy would be what the German government did in East Germany post reunification. That cost around Euro 2 trillion.
There is no political or social will to make that happen.
Old article but makes the point that London’s wealth is generated by the commuter belt around London:
https://www.simplybusiness.co.uk/knowledge/articles/2019/11/uk-income-tax-hotspots/
@Ben – not that it matters, 🙂 but, since we’re here, I have just checked and if you click through my original link above further to the academic source material, it says that they use the population of the urban agglomeration and not the “city proper” i.e. they are using the total conurbation, not the more arbitrary administrative boundaries. Under that measure both Paris and London have a population of 10 – 12 million-ish.
@JimJim – I think that is the right question. Not sure I have the answer! :-). Mayoral Combined Authorities will go some way to making a difference. There are Labour and Tory Mayors and therefore both parties have a vested interest in maintaining the roles. Also, they are now important political posts at the national level. People know who Andy Burnham is in a way that they don’t know who the shadow Secretary of State for Defence is…
@ZXSpectrum48k – the gap certainly is enormous. I have another stat that I find really illustrative of the difference that I can’t find at home. Prob on my work machine. I don’t think I am underestimating it. I didn’t argue with your comment on the need for redistribution – just the comment on socialism (defining socialism in the text-book sense as social [more usually state, of course] control / ownership of the means of production). I don’t believe more socialism is required.
German reunification is of course a good example of where the degree of socialism was reduced (in East Germany) while the amount of redistribution across Germany increased.
I have not checked, but I wonder how large the reunification transfers are and were compared to the current redistribution out of London and the SE for BAU UK policies such as the NHS and welfare?
@ZXSpectrum48k
“It slightly beggars’ belief that anyone would ever think the ONS would just assign all the GVA of say a large company with 50k employees to the HQ where it might just be one man and his pet budgie!”
But what proportion is allocated to the legals and senior management in London? They don’t produce any ‘product’ – but are obviously an essential part of the business. Is it just ‘think of a number’ time? What about businesses with large call centres? The call centres are obviously the front line, but how is the GVA of the business as a whole apportioned?
having done similar exercises on a MUCH smaller scale, the usual approach is to find out what the expected answer is and analyse the data accordingly
@BerkshirePat — You write:
Indeed they are. You can also throw in other sectors deemed trivial by fans of ‘making stuff’ into the mix.
Let’s imagine two factories are competing to make a new solar-powered scooter. (Sorry, they’re everywhere around here). Both are based in the provinces, with similar manufacturing staff, installed plant, and end product.
Firm one also has/hires local legal teams, marketing teams, PR teams, and financial teams.
Firm two has/hires the same additional staff, mostly based in London, of a significantly higher general quality.
As a result firm one’s product lags in the market, fails to win many foreign territory deals, has a poorly optimized balance sheet, and is involved in a costly battle over patents because it didn’t quite file its paperwork correctly.
Firm two does much better at capturing public mindset, licenses its design across the world, wins all the rights to its product, creates an Internet search-based marketing funnel with best-in-class conversion metrics, and has significantly superior margins due to how the business is financial structured, meaning it can reinvest into making more of the scooters to match this exploding demand, ultimately meaning sales of its scooters leave its rivals in a two-inch dust cloud and it eventually buys firm one out for (apparently) a ‘steal’ (based on the book value of its assets) to boost its own manufacturing output.
I’m not saying London necessarily has the best of all those services in this example (though I think it intuitively and demonstrably does have on aggregate the superior offerings versus other UK firms, for reasons alluded to in this thread and elsewhere). I’m just pointing out that something seemingly just a (as you say essential) cost of business like ‘legal’ can be make or break in the ultimate success of the firm, and definitely has economic value.
I agree with your underlying point that this stuff must be very hard to measure and apportion — as I said before I have no idea how it’s done — but also with @ZX’s point that it clearly is so measured, at least as best we can.
Cheers for to you and others for all the great comments on this thread!
Yes, thanks to ZXSpectum48k for explaining – good to know they do make an attempt to split GVA rationally, even if it’s difficult!
I agree that London probably attracts the best in the legal /financial fields for example. If you are young and mobile it’s the obvious place to head to if you want to progress in your career.
But – is this a healthy situation? It’s effectively sucking talent from regional centres and potentially holding them back – not just legals/finance staff as London is basically the ‘centre of everything’ in the UK (or at least England…)
Compare this with Germany. Capital is Berlin of course, but I’d say Frankfurt is the financial centre, and also attracts all the legal types to support this Munich is also a major financial hub, and has (had?) the strongest economy (and the best football team 🙂 ….)
Hamburg is also the main centre for northern Germany
In general the situation in Germany seems to be more balanced, rather than having one major city at the centre of everything commercial and cultural, and I’d hope we can move to something similar in the UK without damaging London’s obvious success (which has come at a cost)
@all — While Brexit has perhaps inevitably come up here (and cited below) I was more thinking with this post of the investing angles (e.g. property investment, whether BTL or commercial) rather than political rehashing. But there is clearly lots of crossover given the subject.
@BerkshirePat — Yes, I agree London dominance is not ideal, as I said in my initial post I have a lot of sympathy with that view.
However I also align myself with those who say ‘fixing’ it is going to come at a very significant – and perhaps too high – cost.
I’ve experience of seeing even small regional agencies doling out many millions in funding to try to get a region off the ground in a particular tech field, only to see it fizzle out or be outpaced by some other unsupported area with a better/luckier/whatever standout company. I’m pretty sceptical of anything targeted. Maybe very competitive economic zones that are otherwise left to free markets might help a little bit.
Wealth transfers and regeneration on a dial-moving scale would as @ZX says take trillions. Especially as you are into the realms of social engineering, given that the brightest young people (who as a generalization tend to have certain political/social views at odds with more rural/regional tendencies, see YouGov post Brexit polls etc) want to live in London or a handful of other cities (Cambridge, Oxford, maybe Brighton, Edinburgh perhaps Glasgow and Bristol at a pinch) surrounded by other people who think like they do.
And given the UK’s general ongoing structural poor performance in education, vocational training etc.
I’d wager ‘leveling’ would have to involve some leveling down in London, too, to make a real difference. Arguably Brexit is already the start of that, in that it has hit certain centres of London excellence (e.g. finance, immigration-based stuff).
Set against that London may be better equipped to prosper in a deregulated post-Brexit UK, ironically. And then you have the fact that Brexit has only hardened the divide between the sort of people who want to be in the EU and work at Google, and the sort of people with a more local mindset who work at a car factory in Sunderland. So more bifurcation.
Maybe the UK government would do better to pick a second City (probably not Birmingham tbh) and throw everything at it to try to create a second centre of gravity, in the vein of Munich or Milan. But in some ways this could just double the perceived problem, by creating a second talent suck, at perhaps the price of weakening already-globally-winning London.
Given all this, my choice would have been to stay in the EU, keep enabling London to excel, and keep redistributing and let nature find its way — to play the hand we’re dealt, basically.
But sadly I suspect post-Brexit we’ve just got a bit of a muddle that as I’ve said before is by no means catastrophic (assuming no slide to more extreme populist politics etc) but has probably knocked 0.15-0.25% off trend GDP indefinitely, and will only have a very marginal at best (economic) impact on the goals stated by Leavers.
(A relative handful of the very low paid may get paid a bit more. You’d have to set that win against lower tax receipts, a slower economy, a worse health service, etc etc).
@Invester – although I am in no position to argue any of the points you make (they all seem feasible to me). I just think there’s a “in my opinion” missing. Great WebSite btw. Love all the investment stuff.
To add to Zero Gravity’s interesting links on the topic with a related one: think piece which suggests that 1) there’s no easy answers and 2) enabling London to grow will only further suck demand from elsewhere.
https://alastairparvin.medium.com/if-the-uk-built-1-million-homes-what-would-happen-to-house-prices-de1fbffa9235
@TI.
Whilst trying to avoid active investing ATM, I did look at Shaftsbury PLC out of interest. (But heeding your call for the direction of the post)
I think you are right in that the side of London to bounce back quickest will probably be leisure rather than office and SHB seem cheap compared to book. The recent RNS on shareholder vote puts one individual with more than 25% ownership. This would spook me a little but if I were minded to look at getting into this sort of share, from what I have read I would dig deeper into this one. It is, as everything is at the moment, uncertain what the next six to twelve months will bring for this type of business – it could still get worse after a bruising two years books and the divvy could evaporate. Still, as a long term bet, as I said I would dig deeper. (not advising anyone to buy, and I am not in the market for more risk so I will not be buying)
JimJim
I wonder if the problem isn’t so much London but rather our outsized financial sector.
https://en.wikipedia.org/wiki/Dutch_disease