Recession, Recovery and
Cuts - What does London
need?
Bridget Rosewell
Chief Economic Adviser GLA
Recession, Recovery and Cuts
 Both banks and public spending are under
attack
 Banks are accused of creating crisis
 Public spending has also generated
structural deficits
 Which matters more?
 How is London’s economy most likely to
evolve?
London’s output has declined
significantly
Source: London: Experian Economics (to Q1
2010)
FBS employment as a per cent of total
employment in London in 2009
All sectors
4%
5%
Financial and Business Services
9%
25%
22%
32%
8%
7%
20%
Distribution, Hotels & Catering Employment
Other (mainly public) Services Employment
Transport & Communications Employment
Manufacturing Employment
Construction Employment
Business Services Employment
Financial Services Employment
Other Employment
Source: Experian Economics
FBS output as a per cent of total
output in London in 2009
All Sectors
Financial and Business Services
14%
4%
4%
27%
44%
15%
16%
8%
12%
Distribution, Hotels & Catering Output
Other (mainly public) Services Output
Transport & Communications Output
Manufacturing Output
Construction Output
Business Services Output
Financial Services Output
Other Output
Source: Experian Economics
0
Source: ONS
Other services
Health and social work
Education
Public admin and defence
Other business services
Advertising
Consulting & market research
Accountancy services
Legal services
R&D
Computer services
Renting of machinery
Real estate
Financial services
Communication services
Transport services
Hotels and catering
Wholesale & retail
Construction
Utilities
Manufacturing
Extraction industries
Agriculture, forestry and fishing
I/O figures on purchases of other
sectors from financial services in the
UK
£ million
30,000
25,000
20,000
15,000
10,000
5,000
The financial sector bailout
 As of September 2010 the total effect of the
financial intervention on net debt was £109.1
billion
 However, £99.5 billion of bank balance sheets
had been transferred onto the national debt.
 If we examine public sector net debt excluding
the temporary interventions then net debt
increased by:
 £12.4 billion due to the equity injection in Lloyds
and RBS
 £1.4 billion due to the capital injection into
Northern Rock
 £2.7 billion due to depositor compensation relate
The structural component of the
budget deficit (as a proportion of
GDP)
Source: HM Treasury, Public Sector Finances Databank
The financial sector bailout
continued
£ bn
160
Q3 2009
Q4 2009
Q1 2010
Q2 2010
Q3 2010
140
120
Capital injection into Northern Rock
Depositor compensation: Bradford & Bingley
100
Equity injections into RBS and Lloyds
80
Public sector banks: transactions with
Government
60
Special Liquidity Scheme / Asset Purchase
facility
40
Depositor compensation: Icelandic banks and
Dumfermline BS
20
0
-20
-40
Source: ONS
Public sector banks balance sheet
Effect of financial interventions on PSND
The split in exports of Services in the UK between
financial and non-financial services and between
London and the rest of the UK
London Financial Services
14%
Rest of UK Non-Financial
Services Exports
55%
Rest of UK Financial Services
15%
London Non-Financial Services
Exports
16%
Source: Pink Book 2010 & GLA Economics Evidence Base
The financial sector bailout
 At the end of August 2010 the effect of the
financial intervention on net borrowing was
£111.6billion
 The value of the Government’s nearly 70%
stake in RBS stands at over £18billion
 The value of the Government’s over 40%
stake in Lloyds Group stands at nearly
£20billion
 The value of the Government’s 100% stake in
Northern Rock has yet to be estimated
 The Asset Protection Agency’s central
expectation is that there will be a net benefit to
the taxpayer of at least £5 billion from the
Public Service employment as a per
cent of total employment in London in
2009
All Sectors
Other (mainly) Public Services
22%
4%
8%
27%
6%
17%
28%
6%
5%
4%
Distribution, Hotels & Catering Employment
Manufacturing Employment
Financial & Business Services Employment
Education Employment
Other Employment
Source: Experian Economics
Transport & Communications Employment
Construction Employment
Public Administration & Defence Employment
Health Employment
Public Service output as a per cent of
total output in London in 2009
All Sectors
Other (mainly) Public Services
19%
6%
4%
5%
19%
39%
11%
8%
4%
4%
Distribution, Hotels & Catering output
Manufacturing output
Financial & Business Services Output
Education Output
Other output
Source: Experian Economics
Transport & Communications output
Construction output
Public Administration & Defence Output
Health Output
Public sector employment as a per
cent of total employed workforce
(2008)
Government Office Region
North East
North West
Yorkshire and The Humber
East Midlands
West Midlands
East
London
South East
South West
Wales
Scotland
Total
Source: ONS, Annual Business Inquiry
Per cent
32.2
28.2
28.5
26.6
26.9
25.2
22.2
25.4
28.5
32.9
30.0
26.9
Public sector expenditure per
region as a share of GDP
(2008/09)
Source: CEBR
Change in share of public sector
and growth
Expenditure share and growth
25
20
15
10
5
change exp share
-10
-15
-20
-25
2006
2000
1994
1988
1982
1976
1970
1964
1958
1952
1946
1940
1934
1928
1922
1916
-5
1910
0
Real GDP growth
Rolling average growth and public
sector
3.5
3
2.5
2
gdp
1.5
1
0.5
0
public sector
Public expenditure on main services, (2008/ 09)
£1,376m
(7.4%)
£1,168m
(8.4%)
£1,153m
(12.0%)
£3,144m
(20.6%)
£12,451m
(15.0%)
Housing
(£15,290m)
Environmental
Protection
(£9,644m)
Recreation, Culture
and Religion
(£13,827m)
£12,659m
£8,490m
Economic Affairs
(excluding Transport)
(£18,608m)
£15,475m
(13.9%)
£17,232m
£12,146m
£72,113m
(12.0%)
Education
(£82,855m)
Health
(£111,028m)
£95,553m
£70,404m
Total
£6,391m
(19.0%)
Total
(£602,355m)
Public Order
and Safety
(£33,599m)
£27,208m
Key
£24,906m
(12.4%)
479,655m
London share
(£million)
(& London spend
as a % of total
spend)
£530,241m
PESA category
(total spend
£million)
Non-London share
£6,298m
(28.5%)
(£million)
Circle size indicative of total spend
The Public Expenditure Statistical Analyses (PESA) categories are based on the UN Classification
of the Functions of Government as detailed at http:/ / unstats.un.org/ unsd/ cr/ registry/ regcst.asp?Cl=4&Lg=1
Environmental Protection and Total data taken from from the PESA Country & Regional Analysis
http:/ / www.hm-treasury.gov.uk/ pespub_country_regional_analysis.htm
All other data from Public Spending Priorities in London
see http:/ / www.london.gov.uk/ who-runs-london/ mayor/ publications/ business-and-economy/ public-spending-priorities"
Transport
(£22,062m)
£15,764m
Social Protection
(£201,152m)
£176,246m
Employment Growth Projections
Employment forecasts for London by various forecasters and the GLA’s
long-run employment projection to 2031
5750
Forecasts/Projections
2009 - 2031
Historical data
1982 - 2008
5500
Total Employment (thousands)
5250
5000
4750
CE
EBS
OEF
4500
GLA
4250
4000
3750
10
Source: GLA Economics based on information from EBS, CE and OE
30
20
28
20
26
20
24
20
22
20
20
20
18
20
16
20
14
20
12
20
10
20
08
20
06
20
04
20
02
20
00
20
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
19
82
3500
Risks
 Bank finances and regulation
 Delivery of new models of public services
 Innovation and confidence