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Future capital

London cannot afford to rest on its laurels if it wants to maintain its global status.

While London was the first global city, and remains one of the most important, London can't afford to take its position at the top of the league for granted. This summer's riots clearly make this truer than ever. Today, London is one of the most successful city economies. The foundations of this success are openness, access to markets and capital, and millions of energetic, highly educated people. Safeguarding these advantages in an increasingly globalised world, and tackling the growing social polarisation and accompanying alienation and disaffection that can be byproducts of success, will need strong leadership, improvements in governance, and investment.

London's success

Do claims that London is one of a handful of genuine "world cities", rather than simply the capital of a moderately successful European economy, really stack up, or are they dangerously hubristic? The answer appears to be clear. London's economy is worth £250bn, larger than that of Sweden. According to official statistics, central London is the most productive area in Europe, with GDP per head at 343 per cent of the EU average. Moreover, London tops many global surveys of cities. London is a global leader in banking and other financial services, and other service industries, such as architecture and design, law, accountancy, and medicine. In the arts, London dominates the UK and is one of very few highly influential global cultural centres, with more theatres than either Paris or New York. It is the most travelled-to destination in the world by international visitors. In short, in economic terms at least, London is the most important European city.

Openness to trade, foreign investment and foreigners were as much a signature feature of London's early success as they are now part of its modern economic dynamism. As Dr Iain Black of Cambridge University says of the medieval capital, "London's relative openness to foreigners underscored its success as a trading metropolis." This and its river and sea links led to its economic dominance of Britain and its prominence in Europe. In the nineteenth century, Britain's industrial might, its vast empire and strong Atlantic links combined to forge, in its capital, the greatest city of the age, and the first genuine "world city".

Major attractions

The annual Cushman and Wakefield business survey shows that the major attractions of locating in present-day London are its connectivity and large highly qualified population. River and sea matter less than they did, superseded by the efficiencies of road and air travel; in London, in spite of the congestion and age of some of the infrastructure, these are seen to be world class. London has attractive, leafy suburbs and vibrant central areas. It has 42 universities, with more world-class ones than any other city. Put these together with a benign regulatory regime and the English language, and it is easy to see why London is a popular location for business. For many global corporations, London is the unofficial capital of the Europe, Middle East and Africa super-region. But can it retain that position?

London's five key challenges

Although London's strengths are easy to identify, so too are its weaknesses. Some are byproducts of success, such as sky-high house prices and a growing population, whereas others reveal areas of neglect that, if unattended, will be detrimental to London's competitiveness. There are five key challenges.


First, within and across London's 32 boroughs, there is extraordinary inequality, breeding tension and crime. According to the Sutton Trust, a sixth-form student in Hammersmith and Fulham is 50 times more likely to go to Oxbridge than one in Hackney. Life expectancy too declines dramatically in poorer parts of the city. In many areas, houses worth millions sit cheek by jowl with "sink" estates. Too many Londoners either don't get a chance to benefit from the generally buoyant underlying economic conditions, or choose not to. More than 1.7m Londoners are jobless and over 500,000 have no basic skills. As a result, child poverty is among the worst in the country. This social mix is one of the causes of London's "edge" and spark. However, as the riots of August show, a cocktail of conspicuous consumption, alienation and disaffection and a weak moral fabric can have disastrous consequences.

Nurturing business

Second, London must nurture its business environment. Many factors influence decisions to invest or locate in a city, so London and national governments need to keep a watchful eye. Regulation and tax are critical, a position perceived to have worsened over the last three years, as are hard infrastructure issues. Further, the factors that make the city an attractive place to live matter too, as this helps retain and attract talented staff.

In essence, an increasingly internationally footloose workforce gives indirect, more domestic factors, such as culture, schools and green space, a direct bearing on competitiveness.


Third, although London has the largest and most sophisticated public transport system in Europe, it can still seem woefully underfunded. London's commuters have to tolerate terrible overcrowding as a result. Add to this 1.3m more people - the growth projected over the next 20 years - and it becomes clear that vast additional investments are needed. Fortunately, the coalition government has backed the £16bn Crossrail scheme, which will add 10 per cent to capacity by 2017.

However, Crossrail alone will not suffice and attention to other major rail projects, such as Crossrail 2 is needed. The bus network has been transformed in the last decade but uses a road system still stifled by cars, in spite of the congestion charging in the city centre.
Aviation policy is deadlocked between the unstoppable force of the business case for more flying and immovable public opposition to the global and local environmental damage it causes.


Fourth, a rising population and decreasing average household size is putting pressure on already stretched housing stock. Insufficient housing to match demand has characterised recent decades, even though myriad new policies have tried to foster additional developments. The result is that, in spite of the recession, house prices in London remain excessively high. Unlocking investment in new homebuilding is a huge challenge.


Finally, a city of London's size, importance and distinctiveness needs both good leaders and power at the appropriate scale. The current governance arrangements have many weaknesses, not least that the high profile of the mayor, against his relative lack of power, fuels a focus on personality. London has been fortunate with the two mayors so far but this luck may not hold, and the knee-jerk centralising tendency of the UK could easily undo some of the progress of recent times.

Deep-seated challenges

London is one of the major centres of the world economy, its position as the premier European city for business and culture seems unassailable. Further riots notwithstanding, this is likely to be strengthened by hosting the Olympics. But there are deep-seated challenges that need attention if this advantage is to be preserved. Businesses and people must continue to want to locate in London and so an enhanced transport system is a must, if only to keep up with a growing population.

Quality of life matters too, not just for the young and affluent, but also for the less well-off and those with families. ­Inequality and the need for calmer, more cohesive communities across London ­requires better access to jobs for young people, more effective policing and large numbers of new homes. To tackle these challenges the city needs more investment, more power to solve its own problems, and leaders effective at wielding it.

Rob Whitehead is deputy director of the Centre for London at Demos

This article first appeared in the New Statesman supplement 'Competition in a New Society: Cities and Regions'

This article first appeared in the 28 November 2011 issue of the New Statesman, The rise of the muslim brotherhood

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Q&A: What are tax credits and how do they work?

All you need to know about the government's plan to cut tax credits.

What are tax credits?

Tax credits are payments made regularly by the state into bank accounts to support families with children, or those who are in low-paid jobs. There are two types of tax credit: the working tax credit and the child tax credit.

What are they for?

To redistribute income to those less able to get by, or to provide for their children, on what they earn.

Are they similar to tax relief?

No. They don’t have much to do with tax. They’re more of a welfare thing. You don’t need to be a taxpayer to receive tax credits. It’s just that, unlike other benefits, they are based on the tax year and paid via the tax office.

Who is eligible?

Anyone aged over 16 (for child tax credits) and over 25 (for working tax credits) who normally lives in the UK can apply for them, depending on their income, the hours they work, whether they have a disability, and whether they pay for childcare.

What are their circumstances?

The more you earn, the less you are likely to receive. Single claimants must work at least 16 hours a week. Let’s take a full-time worker: if you work at least 30 hours a week, you are generally eligible for working tax credits if you earn less than £13,253 a year (if you’re single and don’t have children), or less than £18,023 (jointly as part of a couple without children but working at least 30 hours a week).

And for families?

A family with children and an income below about £32,200 can claim child tax credit. It used to be that the more children you have, the more you are eligible to receive – but George Osborne in his most recent Budget has limited child tax credit to two children.

How much money do you receive?

Again, this depends on your circumstances. The basic payment for a single claimant, or a joint claim by a couple, of working tax credits is £1,940 for the tax year. You can then receive extra, depending on your circumstances. For example, single parents can receive up to an additional £2,010, on top of the basic £1,940 payment; people who work more than 30 hours a week can receive up to an extra £810; and disabled workers up to £2,970. The average award of tax credit is £6,340 per year. Child tax credit claimants get £545 per year as a flat payment, plus £2,780 per child.

How many people claim tax credits?

About 4.5m people – the vast majority of these people (around 4m) have children.

How much does it cost the taxpayer?

The estimation is that they will cost the government £30bn in April 2015/16. That’s around 14 per cent of the £220bn welfare budget, which the Tories have pledged to cut by £12bn.

Who introduced this system?

New Labour. Gordon Brown, when he was Chancellor, developed tax credits in his first term. The system as we know it was established in April 2003.

Why did they do this?

To lift working people out of poverty, and to remove the disincentives to work believed to have been inculcated by welfare. The tax credit system made it more attractive for people depending on benefits to work, and gave those in low-paid jobs a helping hand.

Did it work?

Yes. Tax credits’ biggest achievement was lifting a record number of children out of poverty since the war. The proportion of children living below the poverty line fell from 35 per cent in 1998/9 to 19 per cent in 2012/13.

So what’s the problem?

Well, it’s a bit of a weird system in that it lets companies pay wages that are too low to live on without the state supplementing them. Many also criticise tax credits for allowing the minimum wage – also brought in by New Labour – to stagnate (ie. not keep up with the rate of inflation). David Cameron has called the system of taxing low earners and then handing them some money back via tax credits a “ridiculous merry-go-round”.

Then it’s a good thing to scrap them?

It would be fine if all those low earners and families struggling to get by would be given support in place of tax credits – a living wage, for example.

And that’s why the Tories are introducing a living wage...

That’s what they call it. But it’s not. The Chancellor announced in his most recent Budget a new minimum wage of £7.20 an hour for over-25s, rising to £9 by 2020. He called this the “national living wage” – it’s not, because the current living wage (which is calculated by the Living Wage Foundation, and currently non-compulsory) is already £9.15 in London and £7.85 in the rest of the country.

Will people be better off?

No. Quite the reverse. The IFS has said this slightly higher national minimum wage will not compensate working families who will be subjected to tax credit cuts; it is arithmetically impossible. The IFS director, Paul Johnson, commented: “Unequivocally, tax credit recipients in work will be made worse off by the measures in the Budget on average.” It has been calculated that 3.2m low-paid workers will have their pay packets cut by an average of £1,350 a year.

Could the government change its policy to avoid this?

The Prime Minister and his frontbenchers have been pretty stubborn about pushing on with the plan. In spite of criticism from all angles – the IFS, campaigners, Labour, The Sun – Cameron has ruled out a review of the policy in the Autumn Statement, which is on 25 November. But there is an alternative. The chair of parliament’s Work & Pensions Select Committee and Labour MP Frank Field has proposed what he calls a “cost neutral” tweak to the tax credit cuts.

How would this alternative work?

Currently, if your income is less than £6,420, you will receive the maximum amount of tax credits. That threshold is called the gross income threshold. Field wants to introduce a second gross income threshold of £13,100 (what you earn if you work 35 hours a week on minimum wage). Those earning a salary between those two thresholds would have their tax credits reduced at a slower rate on whatever they earn above £6,420 up to £13,100. The percentage of what you earn above the basic threshold that is deducted from your tax credits is called the taper rate, and it is currently at 41 per cent. In contrast to this plan, the Tories want to halve the income threshold to £3,850 a year and increase the taper rate to 48 per cent once you hit that threshold, which basically means you lose more tax credits, faster, the more you earn.

When will the tax credit cuts come in?

They will be imposed from April next year, barring a u-turn.

Anoosh Chakelian is deputy web editor at the New Statesman.