Thriving London obscures fading Britain

Editor's note: This is the first story in an ongoing series about the tensions and disparities that mark modern Britain.

LONDON, UK — When the funeral procession for former Prime Minister Margaret Thatcher wended its way through this city's financial center en route to St. Paul’s Cathedral this week, it passed investment banks, multinational law firms and expense-account restaurants whose wine lists boast vintages that predate her premiership.

It’s unclear how many TV sets were turned to the scene in Durham County, a north England region whose economy has never recovered from coal mine closures in the 1980s and where former miners are held  a party to coincide with the funeral, or in Brixton, an impoverished south London neighborhood where revelers danced in a public square that once burned during riots in the Thatcher era.

Thatcher’s death on April 8 forced into sharp relief the divide between those who have benefited from London’s emergence as a global financial center and those who've been left out.

The greater London area is now responsible for nearly half of all British economic activity — a larger share than at any other time in the country's history, according to government figures and economists.

Parts of the capital have become playgrounds not just for the British elite but for a global cadre of ultra-wealthy individuals drawn to the cachet of a London address, the ease of doing business here — the World Bank just named the UK the easiest place in the world to get credit, along with South Africa and Malaysia — and tax laws that make it easy to stash money brought in from abroad.

As wealth and jobs consolidate in the capital, the rest of the country — Wales, Scotland, Northern Ireland and the north of England — has struggled to find its economic footing since the recession.

The gap is only expected to expand. Government spending cuts will affect the economies of northern England’s towns and cities five times harder than their more prosperous counties of the southeast, according to an “austerity audit” released this week by the Financial Times.

“Clearly there’s a big regional divide in economic performance across the UK,” said Scott Corfe, senior economist at the Center for Economics and Business Research. “The one that shouts above all the others is London versus the rest.”

The City of London, a square-mile district in the heart of the capital, has been a commercial center since the medieval ages. Margaret Thatcher presided over Britain’s 1986 “Big Bang,” a raft of deregulatory and modernizing measures that invited in foreign capital and transformed the City into a global financial hub.

“Thatcher's deregulatory push created the new internationally focused City,” editor Julian Coman wrote in the Observer newspaper this Sunday. “For better and for worse, it hasn't looked back.”

Some 45 percent of GDP is now concentrated in London and the surrounding counties of the southeast, according to an analysis of government figures by the trade paper CityAM. Since 2007, compared to other regions, London has seen more growth in nominal output, business stock and residents’ average incomes. Its employment rate has risen while the rest of the country’s has declined.

Britain is far more dependent on its capital’s economy than its neighbors in France, where Paris makes up less than 30 percent of GDP, or Ireland, where Dublin contributes less than 40 percent.

In the United States, in contrast, roughly the same share of GDP is spread across 30 cities.

“Just on the eve of World War I was the only other time when London’s importance was as great as it is now,” Nicholas Crafts of Warwick University said. “It probably creates political debate — is this sort of somehow an imbalance that needs to be addressed, or is it simply a symptom of success?”

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Much of that advantage is due to the explosive growth of Britain’s London-centric financial services sector. Financial services make up some 10 percent of the economy, a share that has nearly doubled over the last decade, according to figures from the City of London.

Its economic dependence on the financial service sector explains why Britain has lobbied so furiously against proposed EU caps on banker bonuses. Boris Johnson, London’s outspoken Conservative mayor and a rumored aspirant to Downing Street, called the bonus cap “a vengeful and self-defeating attempt to pick on London."

The city's prosperity hasn't distributed itself evenly across the country, or even across the capital. While blocks of Belgravia mansions snapped up as investments by wealthy overseas buyers stand empty, a dearth of affordable housing is pushing many families out of the city or into overcrowded housing.

“Wherever you are, there are pockets of poverty living very close to huge affluence,” said Jeremy Aspinall of the Church Urban Fund, the Church of England’s anti-poverty arm.