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When cities die

Across the UK, city councils are drawing up plans for economic development ahead of the start of the 2024/25 financial year.  Much of this planning will be based upon interpretations of messages emanating from central government about the likely financial settlement for the coming year.  But the full details will only be revealed in the Budget Statement on 6 March – and councils in Scotland and Wales will have a longer wait as their respective governments adjust their provisional spending plans to the actual UK budget settlement.  This though, is probably the easiest uncertainty that councils have to face… even if they don’t yet realise it.

Far less certain – and this affects all of us to some extent – is the degree to which tomorrow is going to be the same as yesterday.  Because without some sense of continuity, forward planning of any kind would be impossible.  For official bodies though, this is made worse by a dependence upon backward-looking information.  That is, while none of us can know for sure what the economy will look like a year from now, the bigger headache is that we don’t know what it is like today.  This is because today’s data – such as last week’s negative GDP figures – only tells us how things were three months ago… and we have no idea whether the data will continue on-trend or whether it will reverse.

This sounds academic, but it matters to government departments – local and national – when they set tax and spending rates.  If, for example, we treat the 2023 “technical” recession as a statistical blip, and assume that growth will return in 2024, then we can come to believe that higher household and business taxes will be absorbed.  If, on the other hand, the small recession of 2023 is merely a harbinger of something much deeper in 2024, then we might need to factor in lower tax returns as households and businesses cannot afford the higher rates.  On the other side of this, public spending may need to be cut far deeper if we face tax-starvation which can no longer be covered by further borrowing because of the high interest rate.

To make matters worse, we are at a kind of statistical slack water in which there are signs of both a rising and a receding economic tide.  Job vacancies, for example, have crashed since their high point in Q2 2022, and are on course to return to pandemic levels in 2024.  Against this though, unemployment remains at a historical low.  And while the rate of pay growth slowed at the end of last year, it is still rising – and in a few sectors at least, employees still have the upper hand in pay negotiations.  Might it be that the 2024 economy will simply repeat the fluctuations between low growth and periodic negative GDP that we witnessed in 2023?

This question is perhaps best answered with an additional question… which economy?  For more than a century, talking about “the UK economy” has always needed further qualification – most often between the old nineteenth century industrial regions of the north and west, and the newer oil-age regions of the midlands and the south.  And even this, since Thatcher’s depression in the early-1980s, has morphed into an 80/20 economy in which the remaining prosperous fifth of the economy has concentrated into a few districts adjacent to the seats of government and the top-tier universities, even as the four-fifths of ex-industrial, rundown seaside, and small-town rural Britain has gone backward since the crash of 2008.

On the assumption that tomorrow is going to be much like yesterday, those setting annual budgets for, say, London, Manchester, or Leeds, might predict further economic growth through 2024 and 2025, and set taxes accordingly.  After all, employers in those apparently prosperous regions continue to post most of the UK’s vacancies even as the labour market as a whole is reversing… except that high taxes – along with high housing costs – are a key reason why those businesses cannot attract workers, even by offering profit-eating wages.

Central London used to be the most prosperous place in Europe – with Oxford Street, its main retail district, by far the most profitable.  And yet the pernicious combination of high taxes – including indirect costs on car use (which impact delivery drivers) – and high housing costs have begun to hollow out London’s retail and hospitality sectors.  This is likely to be self-sustaining.  During lockdown, a large part of London’s EU migrant population went home… and saw little point in returning – one reason why so many low-paid retail and hospitality sector jobs could not be filled when the economy opened up.  Furthermore, the same pandemic population collapse included large numbers from the professional-managerial class moving to the countryside and working from home.  One result of this is that previously thriving leisure districts are like ghost towns today.

Although it does not suffer it exclusively, London is the biggest victim of the UK’s distorted property market.   Across the majority of the UK’s regions, people buy houses to live in them.  But a minority of purchases – especially in London and around the top-tier universities – are for investment… mostly to rent.  In London though, property prices are so high that they attract foreign investors – institutions and individuals – who use them as a convenient place to park wealth, often leaving the properties empty.  As a consequence, even graduate-level workers are pushed into housing in the least desirable districts where shared housing arrangements are common.  Lower-paid workers have little choice than to commute… something that becomes ever less attractive as “the war on motorists” gathers pace and public transport fares rise in inverse proportion to the reliability of the service.  Add to this the high and rising crime rate and a dysfunctional police force to the mix, and London has become an unattractive place to live and work.

In the depression of the 1980s, one of the ways in which the sons and daughters of suddenly redundant industrial workers sought escape from a future of grinding poverty, was to pack up and head to the capital.  Although even in those days parts of central London were too expensive, housing costs were still affordable in the inner and outer suburbs.  And while the old industries of the north and west were collapsing, newer sectors were thriving in London… and truly exploded following the deregulation of banking and finance in 1986.  It was, to a great extent, that influx of workers – doing all of the mundane tasks, like putting out fires, keeping the lights on, and (failing to) prevent the water from leaking – which allowed the city’s economy to grow.  Gradually though, and especially after the 2008 crash, this foundation on which the city grew has been cut away.  The main reason why London had – and has – the biggest vacancy rate is that the rate of pay that would be required to allow someone to live comfortably in London is too high for most employers to contemplate.

Like empires, cities collapse with a whimper rather than a bang.  Physically, a city is like a superorganism whose human “cells” are organised into systems – critical infrastructure – analogous to those like circulation, nerves, bones, and muscles within a body.  So that, while those at the top may believe themselves to be free of the physical world, they are, in fact, highly vulnerable to failures of critical infrastructure… whose most dangerous cause is the loss of the human cells which keep them working.  As the economy becomes as overtaxed as it is under-paid, so people simply walk away.  London’s problem today is that only unskilled and unofficially indentured migrants are prepared to seek their fortunes there… and are likely going to be disappointed.  The grandchildren of the ex-industrial workers are staying put because even if the pay is lousy, the cost of living is at least bearable.  And things are about to get a lot worse.

Behind the recession headlines, one of the most damning forward-looking statistics can be found in the latest Chartered Institute of Personnel and Development’s Labour Market Outlook:

“For over a year, we’ve tracked the various ways that organisations have planned to deal with additional wage costs.  This quarter marked a change in how they responded.  As inflation falls, many organisations seem to be seeking profit again.  Of those employers who’ve had to raise wages in the past six months or plan to in response to hard-to-fill vacancies, fewer this quarter (37%) are taking lower profits, absorbing costs or accepting higher overheads, compared with over the past year (44–50%). In addition, the level of employers who are reducing the number of employees through redundancies or recruiting fewer workers has increased to 21%, from 12–15% in previous quarters over the last year.”

This is another of those slack water indicators, suggesting a reversing trend in favour of the unemployment which is always the final stage before a big economic downturn.  And the biggest hit is likely to be felt in those regions – London and the top-tier university districts – which have escaped the consequences of the 2008 crash thus far.  Rather than the “levelling up” promised (and reneged on) by the Tories, the UK may be about to see a levelling down.  Not least because of something we caught a glimpse of during the first lockdown in 2020.

Those taking home six- and seven-figure salaries had always claimed to be so highly paid because they were “essential.”  But when it came to maintaining a basic economy in the face of what was feared to be a deadly airborne disease, none of them, it turned out, found their way onto the official list of essential workers.  Rather, it turned out the far less well-paid electricians, plumbers, food processors, farmers, delivery drivers, paramedics, and frontline health workers, etc., were the ones who really keep our cities functioning.  And yet, just three years later we have forgotten how essential they are, even as our cities struggle to replace them.

Those expecting our cities to collapse in a single, catastrophic crash will likely be disappointed.  Far more likely, our cities are already a long way into a process of neglect and decay as the remaining part of the professional-managerial class which still enjoys prosperity retreats into gated communities even as the wider city is falling apart.  And with each new thing that breaks, more of those essential workers leave and more of their potential replacements are deterred… until the physical structures of the city themselves begin to crumble to dust.

As you made it to the end…

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