UK Economy (London)

Part of the debate – in Westminster Hall at 2:52 pm on 10th March 2004.

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Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer, Liberal Democrat Spokesperson (Treasury) 2:52 pm, 10th March 2004

I congratulate Mr. Cohen on securing the debate. His speech captured the paradox in the debate, as there are positive things to say about London but many problems, too. Equally, London Members across the board have the feeling that they are underfinanced. I particularly identified with the comments of Sir Sydney Chapman about police funding, which is a classic example of how the formula works against London boroughs.

An equally understandable feeling was expressed by Jon Trickett, who was present for a short time, and by Pete Wishart, that the British economy is seriously unbalanced and London is over-dominant. I entirely understand that point of view; I grew up in Yorkshire, spent my early professional life in Glasgow and I represent a London constituency. I see every aspect of the problem and I sympathise with those who believe that Britain's decision making and much of its wealth is over-centralised.

It is worth briefly reviewing the positive aspects of London. It accounts for a fifth of GDP and it is more dynamic than the rest of the economy. In the past decade, 360,000 net new people have come to the capital. London is growing more rapidly than the national average and its average income is well above that of the country as a whole, although there are vast disparities within the city.

Mr. Coleman captured that point well, as his constituency and that of Ms Buck embody the problem. There is an enormous dual economy within the capital city. My constituency, which is a relatively prosperous suburban area, more closely resembles Chipping Barnet and Upminster, but there are pockets of extreme deprivation in council estates in my constituency that are as bad as any in London, or in Britain. The problem is balancing the different factors.

Various London problems have surfaced, the first of which is unemployment. I do not know whether the hon. Member for Leyton and Wanstead stressed it enough, but London now has a significantly higher average rate of unemployment than any region of the UK. It is 7.5 per cent. higher than Scotland, which used to be at the top of the league, or the north-east. The hon. Member for Regent's Park and Kensington, North asked why otherwise relatively successful programmes such as the new deal do not appear to work in London. The answer is that they do not shift the labour market.

At a local level, one can see what is going wrong. In my constituency there is a chronic labour shortage. Students work in term time because they need the money, and they, along with people from eastern Europe, keep the service economy going. Five miles down the road, there is double-digit unemployment, but people cannot work in Twickenham because they do not have the skills or cannot afford the bus or train fares.

At my surgery on Friday night, I encountered a young man who embodied the problem. He was a young man from tragic family circumstances, but who had managed to end up living in a social housing scheme. He was enterprising and had got himself a place on an industrial apprenticeship, but that was in north-west London and his home is in south-west London. He had done his sums and, on fairly low pay, after paying his rent and rates, he was bringing home £40 a week to live on. However, of that £40, £30 has to go on transport. Obviously, he cannot live on that, so he is running up rent arrears, and he will either have to give up his flat or his apprenticeship. Many young working-class people are in that dilemma. We need some explanation of why the existing schemes, which are designed at a national level, do not work more effectively in the capital.

I would like to ask another question specifically on the employment market and Government intervention, although I do not know whether the Minister has the answers or whether the question should be put to the Mayor of London. What is happening with the London Development Agency? Its chief executive and most of its senior staff have left, almost all of its operational targets seem to have been missed, and the organisation is in extreme crisis. Do central Government have any role in the matter, and can they explain what is going on?

My first set of questions related to employment and the odd and distorted nature of the London employment market. My second set of questions relates to the housing market. My suburban constituency may not be typical, but when a modest semi-detached house costs £200,000 or more, one can see the horrible distortions that that creates. I do not think that any of my house-owning constituents would be eligible for legal aid because of the asset value of their property.

Such a level of house prices creates an impossible barrier to entry for working people. On the traditional income multiplier of three, one needs a joint family income of £65,000 to contemplate buying a house, and of course most people do not have that. Consequently, people in modest professional jobs—working-class people have no hope whatever in that market—such as teachers or doctors with an income of £40,000 are buying houses at five times their income. They are therefore horribly over-exposed, and if the housing market turns down, as it probably will, they are potentially in jeopardy. That problem is partly related to the lack of new home building—particularly social housing—but is also a by-product of the overall crisis in the housing market.

The hon. Member for Leyton and Wanstead was right to suggest that overcrowding and long journey times are a major economic impediment. I support what he said about the East London line and about Crossrail, which would be a major advantage to the capital. However, I agree with hon. Members from outside London that those big transport projects have to be funded predominantly through the private sector. There is no reason why Crossrail should not be funded in that way, with additional funding provided through a supplement on rates in those areas that will derive enhanced value from the project, as they almost certainly will. There may be some pump priming from the Government, but the funding should come predominantly from the private sector.

On the funding issue, I agree with hon. Members who complain about the vast disproportion in public funding. There is an issue here that is related to what Galbraith called

"private affluence and public squalor."

It is not all private affluence in London, although there are some very affluent private individuals, but there is public squalor. That squalor is partly attributable to the distribution of national funding, however that is calculated; the share of public spending in the regional GDP of London is far lower than it is nationally. That accounts for the fact that all public services in London are seriously overstretched.

My party believes that we have to open that terrible can of worms called the Barnett formula. I know that that is a difficult issue because there will always be the sense that there will be losers if other people are gainers, but that issue must be faced. We must examine the potential for a need-based allocation formula.