London’s National Economic Contribution

[Matt Western in the Chair]

I beg to move,

That this House has considered London’s contribution to the national economy.

It is an honour and a privilege to serve under your chairship, Mr Western, for this important debate on London’s contribution to the Government’s national growth mission. I am proud to be a London MP, and of the contribution that our great city makes to our country, and to the world. It is disappointing that, in some quarters, London-bashing has come back into fashion. People want to talk down our city for their own political agendas or—dare I say it—play vigilante for likes on social media. I hope that today we can instead focus on the mutual benefits that a strong London economy brings to the UK.

We all know that the problems inherited by this Government are far bigger than London alone. For too long, our country has missed opportunities to unlock growth and potential for all our people and places. Since the global crash in 2008, productivity has flatlined. Stagnation has taken hold, hurting not just London’s prospects but the prosperity of every community across the UK. Regional divides were allowed to deepen, potential was wasted, and growth was squandered. The promise of levelling up proved nothing more than a gimmick: more hanging baskets than a genuine effort to tackle regional inequality. It is welcome that we have a Government determined to change that with their relentless focus on tackling regional inequality by delivering good jobs, putting more money into people’s pockets and giving local communities real power over the decisions that affect them.

The Green Book review and the commitment to place-based growth are important steps forward because every community deserves a fair chance to thrive, but we should be clear that tackling regional inequality must never mean holding back our greatest national economic asset. That has never been a strategy for success. London is one of the most successful cities in the world, a gateway for global talent, investment and trade, and an economic engine that drives prosperity far beyond the M25. We finally have a Labour Government working hand in hand with a Labour mayor to deliver, for example, the London growth plan that I know the Minister recently helped to launch, which is a blueprint to boost productivity and build the infrastructure that matches that ambition. It aims to ensure that London contributes an extra £27.5 billion in tax revenue by 2035. That is money for our NHS, our schools and our public services everywhere in this country.

To unlock London’s full potential, we need to be clear about what more needs to be done. I know that colleagues will talk in this debate about ensuring that our streets are safe, with properly funded policing, and that our councils have the resources they need to deliver basic services to some of the most deprived communities in the country. I will cover three areas at the outset: first, ensuring that London remains a magnet for global talent, attracting the skills that we need to lead the industries of the future; secondly, delivering the homes that the capital needs, which means social and genuinely affordable homes that support strong, thriving communities and provide the foundation for growth; and thirdly, a transport system fit for a world-leading city.

Let me start with talent. The recent immigration White Paper offered some welcome signs, by recognising that the global race for talent is accelerating and Britain must compete in that race. We want a controlled immigration system with democratic consent, and the Government are right to prioritise that, but we must not let that system become a barrier to attracting the people who will drive our future growth. Many businesses in Kensington and Bayswater tell me that they are struggling to hire the people they need. I believe that we need urgent reform of how we attract talent. That means the global talent visa, of which only 4,000 were issued last year. I think we should aim for at least 10,000 a year, to send a clear message that Britain and London are open for business, and for talent. We should also introduce a credible investor visa—not a return to the failed pay-to-play schemes of the past and the golden visa fiasco, which was tainted with corruption, but a genuine pathway for entrepreneurs in high-growth sectors like biotech and clean energy.

The west London tech corridor, for example, is ready for exponential growth, but it needs capital, talent and leadership, and world-leading institutions like Imperial College London rely on international talent to stay globally competitive. The proposed UK-EU youth experience scheme is therefore an important step forward. I know that businesses welcome it, including those in hospitality, where cost pressures have been acute. We should build on it, because if we want Britain to lead in the industries of the future, we must be a country that welcomes talent.

I commend the hon. Member for rightly bringing this forward. For the record, I wish to see London doing extremely well, because if London does well, I think we all do well. In 2024, 264 foreign direct investments arrived in London, which indicates not only the importance of London but the potential that people see for investment. Does he agree that when it comes to encouraging foreign investment, there has to be a spin-off for Belfast, Cardiff and Edinburgh as the three regional capital cities? The Minister may have committed to this, but perhaps he can build on it: London does well, and the spin-offs are for the rest of us.

I agree with the hon. Member. Before this debate, I was looking at the Transport for London budget. It contributes £11 billion to the UK-wide economy through the construction of what we hope will be new trains on the Jubilee line, the DLR and hopefully the Bakerloo line, and supports 100,000 high-quality jobs across the country. Transport and manufacturing are sectors that have huge spin-off potential across the country.

Another such sector is housing. It is a huge relief that we now have a Government who recognise the true scale of the challenge and are prepared to put serious investment and policy change behind it. In my constituency, there are 3,000 families on the social housing waiting list and more than 2,000 people living in temporary accommodation. The housing crisis is not a victimless problem. Many colleagues see it every week in their surgeries and inboxes.

Does my hon. Friend recognise that London has the highest housing costs in the whole country and a quarter of Londoners live in poverty? Coming down the track towards London is the Government’s fair funding review, under which local authorities in London could lose up to £700 million in funding. This comes after hundreds of millions of pounds were cut from local councils under the Conservatives’ austerity programme. It could hit my boroughs of Hammersmith and Fulham, and Kensington and Chelsea, which we share, particularly hard. Does he agree that the Government’s funding review should measure deprivation after housing costs so that the level of deprivation in London is accurately captured?

I thank my neighbour for his intervention. We all welcome a fair funding settlement that recognises the huge levels of regional inequality in this country, but it is correct and fair for it to be based on accurate and up-to-date data and for that data to include the very high proportion of Londoners’ incomes spent on housing, which pushes up the poverty numbers. We have some of the most deprived communities in the country, often hidden within quite wealthy boroughs, so we also need to capture the geographical areas of deprivation. I also suggest that the Government include the daytime population, because lots of commuters come in and use council services but are not necessarily captured in the census.

Temporary accommodation, as we know, costs London councils £4 million a day. Obviously, the long-term solution is to build the houses that we need, but in the short term we should not hit everyday services that people need on the back of that budget.

I thank my hon. Friend for securing today’s debate. It is timely, both in terms of London’s potential and current contribution to growth and the fair funding review. He mentioned the £4 million per day that London local authorities spend on temporary accommodation. My own local authority, Westminster city council, spends £66 million over and above what it would be expected to spend on temporary accommodation. These costs are a function of the long-standing failure to build the genuinely affordable homes that we all know are so desperately needed. Does he agree that the additional temporary accommodation costs that London local authorities face should be recognised in funding settlements, and in the capital funding assessments of the affordable homes that are built? Does he also agree that the systemic problems that we have with homelessness in London need to be recognised in order for us to really fulfil our potential?

Order. I remind hon. Members to keep interventions short.

My hon. Friend is right. There is obviously no quick fix to this problem. It takes time to build new housing and ramp up the pipeline for it, but the current situation is not tenable. London boroughs compete against each other for increasingly expensive temporary accommodation with very low levels of quality. First and foremost, that hurts families and residents, affecting their life chances and preventing them from playing a full role in the economy. It is an urgent issue. I know the Government are working on a temporary accommodation plan—we have discussed that in the Housing, Communities and Local Government Committee. We hope to see more detailed proposals of how to fix this problem in the short run while we build the housing that we need.

The target of 1.5 million homes in this Parliament hugely depends on building in London. Of that 1.5 million, London’s target is to deliver 88,000 homes a year in this Parliament, so the spending review announcement is critical. The £39 billion in the affordable homes programme, including £11.7 billion for London, the 10-year rent deal and the new low-interest loans will make a real difference.

I was also pleased to see something that I have been calling for, which is equal access to the building safety fund for housing associations. Many housing associations have been putting more capital into remediation and not into building new homes. My strong belief is that the legacy of Grenfell must be that everyone, no matter where they live, can access a safe and healthy home. We should not have a false choice between building the homes that we need and building safety.

I congratulate my hon. Friend on securing this important debate. He mentions the need to ensure that the legacy of Grenfell is kept in mind and that building safety is at the forefront of building homes in London, but has he noted that, in the last quarter, there were zero starts on housing in 23 out of 33 London boroughs? Much of that was not because of a lack of funding—there is huge investment from the Government—or because of planning issues, but because of the Building Safety Regulator being very slow in agreeing to applications. Does he agree that the Government might need to look at the resourcing of the Building Safety Regulator? Keep the regulation, but put more resourcing in.

My hon. Friend is right. It is welcome that the Building Safety Regulator will be getting 100 new staff, and that Andy Roe has come in to chair it. I am sure the Minister can give more detail. We also need to see faster progress on remediating buildings in London. The new London remediation board, co-chaired by the Greater London Authority and central Government, is really important for that too. The reason this is important for growth is because it is sucking time and capital out of the system to build the new homes that she talks about.

I agree that the statistics on new starts have to be turned around. Everyone in this city, including the key workers who will not always access social housing allocations—the teachers, nurses and police officers—need different housing options, including different affordable housing products. Those are the people we are increasingly pushing out of central London, and out of London altogether, which is a huge challenge for our city.

Housing and transport go hand in hand, and both are fundamental to delivering growth. Without modern, reliable public transport, we cannot unlock the new homes that London needs, or drive the business growth that will power our city’s future. For too long, the Conservatives held back Transport for London with short-term and inadequate funding that prevented it from planning for the future. That is why I really welcome this Government’s commitment to a long-term funding deal. Sustainable investment of £2.2 billion over, I think, four years will deliver things like new trains on the Piccadilly line and the docklands light railway—the Bakerloo line, too, I hope—as well as new signalling on 40% of the tube network and a new tram fleet. As I mentioned to the hon. Member for Strangford (Jim Shannon), the TfL supply chain is critical across the country, supporting high-quality jobs everywhere, but we must go further.

It was pleasing that in the spending review the Chancellor recognised, for example, the potential growth and housing benefits of the DLR Thamesmead extension, and committed to working with TfL to explore all options for its delivery. I ask the Minister to keep up the momentum on that project and look into alternative financing that might be able to come in and get it moving as soon as possible. I am sure hon. Members will talk about other vital projects such as the west London orbital.

I thank my hon. Friend for giving me an opening to mention the west London orbital, which is another important project in connecting up west London and opening up opportunities for both employment and housing. Does he agree that both TfL and the Government should look at innovative and creative funding options such as tax increment funding as a possibility for such initiatives?

My hon. Friend is absolutely right. A combination of financing instruments was used to fund the Elizabeth line. That approach has huge potential for big infrastructure projects in London, including the proposal for a new St Mary’s hospital. It cannot be right that we are reliant on the Treasury capital budget for projects that we know will pay back over and above in the long term. There is a strong appetite to explore how different financing mechanisms could get these projects moving.

We should harness London as one of our greatest assets, not at the expense of other regions or of tackling regional inequality but for the benefit of the whole country. We should tackle regional inequality head-on, and I believe that London is part of the solution to that problem.

I remind Members that they should bob if they wish to be called in the debate. Just a gentle reminder please to speak through the Chair —so “you” is me, as Members will appreciate. At this juncture, I do not think that we need to put a time limit on speeches.

It is a pleasure to serve under your chairmanship, Mr Western. I thank the hon. Member for Kensington and Bayswater (Joe Powell) for securing this important debate. London is an economic powerhouse, which generates revenue for the entire country. The capital city’s contribution to the economy is nearly 25% of the UK’s entire GDP.

While redistribution of revenue across the UK is important, it should be noted that London has some of the highest rates of poverty. In particular, it has the highest rate of child poverty, at 35%, compared with a national average of 29%. Disparate income bands and living standards are more evident in London than anywhere else in the UK, but the cost of living is also greater in London than in any other area. The average London house price is more than double that in the rest of the country.

I raise those points because the Government’s changes to local authority funding will mean that London councils face a funding shortfall of an estimated £500 million. Consequently, most London boroughs will have to raise council tax by the maximum amount each year to raise revenue for the funding of key statutory services. It also means that some councils will be threatened with bankruptcy.

Redistribution of wealth across the UK is important, but the absence or poor use of measurements in the Government’s fair funding formula will produce unfair results for Londoners. The index of multiple deprivation is being used as a need driver in the fair funding formula, but, as the hon. Member for Chelsea and Fulham (Ben Coleman) pointed out, that index does not include a measurement of deprivation after housing costs. London residents pay the highest average rents in the country, so excluding that statistic will result in an unfair measurement of deprivation, and London residents will lose out unfairly.

The hon. Member is making excellent points. On deprivation and the cost of housing, does she agree with me that when we factor in London’s housing costs, London becomes the poverty capital of the country? Without vital funding for housing in London, London does not grow. If London does not get the funding it needs for housing, it holds the rest of the country back.