A new report produced by PwC and commissioned by business group London First has found that construction work in central London generates twice the economic benefits and supports almost twice as many jobs outside London as it does in the capital.
London itself benefits to the tune of some £0.6bn annually. But the further contribution to regional economies is almost double that, at £1.1bn a year. Similarly the 12,200 jobs supported in London annually are dwarfed by the 22,400 supported outside the capital.
A key factor in this “multiplier effect” is that some 84% of the direct investment in central London office development is spent in the UK - a higher figure than other industries.
London First asked PwC to analyse the direct and indirect impact of a sample of developments in central London that have been completed since 2008 or are expected to be completed by 2016. Nine of the city’s principal developers agreed to take part in this work and allow access to their confidential proprietary data so that a full understanding of their construction expenditure, supply chain impacts and even employee spending could be developed. The aim was to assess the gross contribution of a small part of London’s construction activity to the UK economy.
Baroness Jo Valentine, Chief Executive of London First said: “The value of investment in London is huge in terms of generating jobs and economic benefits in London itself, but the knock-on contribution to regional economies is more impressive and shows the boost that London businesses provide to the rest of the UK.
“The fact that it can attract this private sector investment, against competition from other international hubs such as New York or Dubai, is a sign of continuing global confidence in London and its future growth. But it’s vital that the government makes a similar commitment to public sector investment in the city’s infrastructure – particularly its transport system.”
Key findings of the report are:
- Central London office developments annually contribute £1.7bn of Gross Value Add (GVA, a measure of output like GDP) and 34,600 jobs to the UK economy.
- More than half of this annual output is outside London – £1.1bn of GVA and 22,400 jobs per year.
- Around 84% of direct expenditure on central London office development remains in the UK economy.
- There is potential for development to generate further economic benefits for the UK, by increasing capability in goods and services that the UK currently lacks, such as cladding, lifts and machinery.
- The Central London office development covered by this study is equivalent to less than 10% of total London development. A sample of residential developments found that central London house building has similar multiplier impacts on the economy.
More than half of the products and services bought in the UK are sourced from suppliers outside London, with an estimated £7.7bn being spent in the regional supply chain between 2008 and 2016. This is generating a total of around £9.7bn of GVA and 201,700 jobs in regions outside London between 2008-16.
The annual GVA and employment supported by central London office development is shown in the map below (Figure 3 in the report, page 7). All regions benefit but the research identified regional variations in the products or services being sourced.
For example, there is a strong supply of mechanical and electrical engineering in the West Midlands, and of structural steel in the North West and Yorkshire and Humberside regions.
Suppliers of mechanical and electrical engineering in the West Midlands are receiving £255m of orders from office developments in central London between 2008-16. This spending is directly supporting £96m of GVA and 2,490 jobs for the suppliers, with £54m being distributed to employees in the form of wages. Through indirect and induced impacts, a further £102m of GVA and 2,950 jobs are being supported in other West Midlands businesses over the period 2008-16.
