How to fix London’s growth problem
Sadiq Khan has pledged to be the most pro-business Mayor ever. Muniya Barua explains how he can turn rhetoric into reality
The Prime Minister has made clear that growth is his government’s most important mission. The Chancellor has been busy selling that message around the world and urging regulators at home to get with the programme. Here in the capital, it’s now Sir Sadiq Khan’s turn.
The launch of the London Growth Plan this week will see the actions that flow from his pledge to be the most pro-business Mayor ever. It’s a vital opportunity to ensure the capital fires on all cylinders as an economic engine for the whole UK and provides opportunities for Londoners from all walks of life.
The start of 2025 has seen growth flatline, inflation remain above target and business confidence erode. So welcome promises of future investment need to be backed up by action to kickstart the economy now.
There are reasons to be optimistic. For international investors, the UK is once more able to play a political stability card at a time when international rivals are entering a period of turbulence. We have a government with a long-term commitment to growth, with added urgency borne out of necessity. And here in London, political alignment between City Hall and Westminster should help to get things done at a quicker pace than recent times.
But this alone is not enough. BusinessLDN has spoken to senior leaders at numerous firms over the past year about the business climate here in the capital and many common themes keep coming up on why investment committees say yes or no to London.
The low growth chicken and egg
First, we hear that London has a ‘chicken and egg’ problem with a low growth environment as increasingly multi-national firms are having their heads turned by higher growth markets such as the US and India. So we need some quick wins to build momentum. Bringing back VAT-free shopping for international visitors and scrapping stamp duty on share transactions would be shots in the arm for the high street and the capital markets respectively.
Second, the cost of living is a factor in attracting and retaining talent, even for middle-management and senior roles. Housing is clearly a big component of this, with a quarter of Londoners living in poverty once these costs are taken into account. Based on what we’ve heard, the government’s planning reforms are already making a difference to sentiment but ramping up delivery will require greater funding for affordable housing as well as steps to get shovels in the ground quickly.
Third, every firm and sector have their own regulatory frustrations. This isn’t a simplistic call to scrap red tape. It’s more about conflicting rules across government stalling progress.
The aviation sector, for example, tells us that on the one hand the department for transport is championing Sustainable Aviation Fuel yet the supply of available feedstocks is not currently prioritised by the department for environment, food & rural affairs in setting the UK’s waste hierarchy. Elsewhere, HM Treasury is currently consulting on reform of business rates without reference to the industrial strategy and a proposed approach that would transfer more of the burden to many of the identified growth sectors.
So there is much riding on the industrial strategy to ‘join up’ and align all policy decisions right across government in service of the growth mission.
All eyes will now be on the government’s spending review. The Treasury’s job is to essentially disprove the Office for Budgetary Responsibility’s assessment of the Budget and demonstrate that an increase in public spending can have a catalytic effect and crowd-in rather than crowd-out private investment. To do that, the Chancellor must prioritise spending that will boost growth, such as a multi-year funding deal for Transport for London and investment in London’s world-class university sector, which will also leverage greater private investment.
Despite the doom and gloom, there’s plenty of global capital up for grabs and the UK can take a big chunk if it acts now. The government’s task for 2025 is to work closely with the Mayor to turn ambition into action so investors have a compelling reason to choose London rather than our overseas rivals.
Muniya Barua is deputy chief executive of BusinessLDN