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Recession, Recovery and Cuts - What does London need?
Bridget RosewellChief 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)
UK: ONS (to Q3 2010)
FBS employment as a per cent of total employment in London in 2009
Source: Experian Economics
All sectors Financial and Business Services
20%
8%
22%
4%5%
7%
25%
9%
32%
Distribution, Hotels & Catering Employment Transport & Communications Employment
Other (mainly public) Services Employment Manufacturing Employment
Construction Employment Financial Services Employment
Business Services Employment Other Employment
FBS output as a per cent of total output in London in 2009
Source: Experian Economics
All Sectors Financial and Business Services
12%
8%
15%
4%
4%
16%
27%
14%
44%
Distribution, Hotels & Catering Output Transport & Communications Output
Other (mainly public) Services Output Manufacturing Output
Construction Output Financial Services Output
Business Services Output Other Output
I/O figures on purchases of other sectors from financial services in the UK
0
5,000
10,000
15,000
20,000
25,000
30,000
Ag
ricu
lture
, fo
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Ext
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ind
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Co
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Re
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ry
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rke
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vert
isin
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er
bu
sin
ess
se
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es
Pu
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min
an
d d
efe
nce
Ed
uca
tion
He
alth
an
d s
oci
al w
ork
Oth
er
serv
ice
s
£ million
Source: ONS
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 to Bradford and Bingley
The structural component of the budget deficit (as a proportion of GDP)
Source: HM Treasury, Public Sector Finances Databank
The financial sector bailout continued
-40
-20
0
20
40
60
80
100
120
140
160
Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010
Capital injection into Northern Rock
Depositor compensation: Bradford & Bingley
Equity injections into RBS and Lloyds
Public sector banks: transactions withGovernment
Special Liquidity Scheme / Asset Purchasefacility
Depositor compensation: Icelandic banks andDumfermline BS
Public sector banks balance sheet
Effect of financial interventions on PSND
£ bn
Source: ONS
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 Services14%
Rest of UK Financial Services15%
London Non-Financial Services Exports
16%
Rest of UK Non-Financial Services Exports
55%
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 Asset Protection Scheme
Public Service employment as a per cent of total employment in London in 2009
All Sectors Other (mainly) Public Services
17%
6%4%5%
28%
4%
6%
8%
22%
27%
Distribution, Hotels & Catering Employment Transport & Communications EmploymentManufacturing Employment Construction EmploymentFinancial & Business Services Employment Public Administration & Defence EmploymentEducation Employment Health EmploymentOther Employment
Source: Experian Economics
Public Service output as a per cent of total output in London in 2009
Source: Experian Economics
All Sectors Other (mainly) Public Services
11%
8%
4%4%
39%
4%
5%
6% 19%
19%
Distribution, Hotels & Catering output Transport & Communications outputManufacturing output Construction outputFinancial & Business Services Output Public Administration & Defence Output Education Output Health Output Other output
Public sector employment as a per cent of total employed workforce (2008)
Government Office Region Per cent North East 32.2 North West 28.2 Yorkshire and The Humber 28.5 East Midlands 26.6 West Midlands 26.9 East 25.2 London 22.2 South East 25.4 South West 28.5 Wales 32.9 Scotland 30.0 Total 26.9 Source: ONS, Annual Business Inquiry
Public sector expenditure per region as a share of GDP (2008/09)
Source: CEBR
Change in share of public sector and growth
Rolling average growth and public sector
Total
479,655m
Publicexpenditureonmainservices, (2008/09)
EconomicAffairs(excludingTransport)
(£18,608m)
£1,376m(7.4%)
£17,232m
Education(£82,855m)
£12,451m(15.0%)
£70,404m
Health(£111,028m)
£15,475m(13.9%)
£95,553m
Housing(£15,290m)
£3,144m(20.6%)
£12,146m
PublicOrderandSafety(£33,599m)
£6,391m(19.0%)
£27,208m
Recreation,CultureandReligion(£13,827m)
£1,168m(8.4%)
£12,659m
Transport(£22,062m)
£6,298m(28.5%)
£15,764m
Social Protection(£201,152m)
£24,906m(12.4%)
£176,246m
ThePublicExpenditureStatistical Analyses(PESA) categoriesarebasedontheUNClassificationof theFunctionsof Government asdetailedat http:/ / unstats.un.org/ unsd/cr/ registry/ regcst.asp?Cl=4&Lg=1Environmental ProtectionandTotal datatakenfromfromthePESACountry&Regional Analysishttp:/ / www.hm-treasury.gov.uk/ pespub_country_regional_analysis.htmAll otherdatafromPublicSpendingPrioritiesinLondonseehttp:/ / www.london.gov.uk/ who-runs-london/ mayor/ publications/ business-and-economy/ public-spending-priorities"
Circlesizeindicativeof total spend
£72,113m(12.0%)
£530,241m
Total(£602,355m)
EnvironmentalProtection(£9,644m)
£1,153m(12.0%)
£8,490m
PESAcategory(total spend
£million)
Londonshare(£million)(&Londonspendasa%of totalspend)
Non-Londonshare(£million)
Employment Growth Projections
3500
3750
4000
4250
4500
4750
5000
5250
5500
5750
To
tal E
mp
loy
me
nt
(th
ou
sa
nd
s)
CE
EBS
OEF
GLA
Historical data 1982 - 2008
Forecasts/Projections 2009 - 2031
Employment forecasts for London by various forecasters and the GLA’s long-run employment projection to 2031
Source: GLA Economics based on information from EBS, CE and OE10
Risks
Bank finances and regulation Delivery of new models of public
services Innovation and confidence