December 11th: London’s services sectors are of national importance

If nothing else, the “levelling up” debate has been hugely valuable in improving people’s understanding of the UK’s economic geography. By and large, I feel that more data has been discovered, analysed, discussed and has seeped into shared consciousness than ever before. This despite the fact that “regional regeneration” or “rebalancing” has probably been on every government’s agenda for decades. Some myths have also hopefully been disbanded.

I have certainly learned an enormous amount. I admit that none of it has been “real” in the sense that I haven’t actually visited any places in the UK (partly thanks to COVID-19, partly because I’m just a little lazy that way). But I have come to know the UK much better via data and maps (see e.g., here), and — most importantly — people telling me how naive my conclusions have been from such an absract exercise.

Nevertheless, there are insights that have struck me as worth sharing, in situations where the data really surprised me and went against the “recieved wisdom” I had heard previously. Today’s chart is one of them. When looking at regional differences through the lens of sector mix, I happened to create some data art that is also revealing.

Each bubble in the chart shows the economic output (gross value added, or GVA) of different sectors in the UK’s different regions. [Note: GVA is not a great measure for incomes, but is still important in understanding the dynamism and future potential of a particular area.] The green bubbles are sectors in London.

What stands out is the national importance of London’s high-value added services sectors, namely financial, professional, information and technology industries. Together, they account for 10% of the UK’s entire national economic output. That’s as big as the manufacturing sector put together across all regions. Employment-wise, being as they are high-value-added, the London sectors are only about 5% of the UK total.

However, it would be a mistake to think that London’s success in these areas is somehow a bad thing. Yes, mathematically, it would appear to make the gap between London and the rest of the country bigger, and that can feed into feelings of inequality and unfairness. Yet, on an economic basis, I would be amazed if, when also taking into account things like tax income, exports and nation-wide positive spill-overs, the contribution wasn’t even higher (relative to other regions and sectors).

So the conclusion here is somewhat obvious: ensure that these nationally important sectors continue to enjoy as much global success as possible while simultaneously finding ways to increase the productive potential and prosperity of other places, too. There are a large number of previous blogs that get into how that could be achieved, but a few particularly relevant ones are listed below:

Digital skills are key to levelling up the UK’s left behind areas

Businesses drive local prosperity — and they don’t always have to be large

Wellbeing differences between localities: the role of amenities