All UK regions lagging behind London productivity

New research shows that productivity in London is more than 50% higher than in any other region of the UK and that rectifying the inequality poses a major challenge to the government's 'levelling up' agenda.

David Sapsted

13 January 2022

The research by Durham University Business School studied the underlying factors that had led the capital becoming so much more productive than the English regions and Scotland, Wales and Northern Ireland."With the Conservative government’s plans to level-up the rest of the UK, and ensure that there is little disparity between the various regions of the UK when it comes to work, wages and opportunities, the study indicates there is a long way to go in terms of levelling the playing field with London in terms of productivity," said the university.

Why is London so much more productive?

Conducted by Prof Richard Harris and Prof John Moffatt - professors of economics at the business school - the research looked at factors such as the larger levels of multinational ownership, higher engagement in R&D, the size of firms, and engagement in exporting, in a bid to discover why London-based industries were so much more productive.

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Based on 20 years of data on total-factor productivity (TFP), the study showed that the capital was up to 54% more productive than even the second most productive region: SE England.

The difficulties of levelling up: location matters

The researchers concluded that considerations such as plant size or multinational ownership had little effect but that London companies mainly benefited because of their location - factors such as governance, infrastructure, physical geography and agglomeration (clustering) economies.Prof Harris said: “The task of levelling up the UK from the Conservative government is both an ambition but a difficult one. When it comes to the manufacturing sector, the difference in the levels of productivity is evident between London and elsewhere, whilst in terms of the services industry, this different is even higher."As plant characteristics cannot explain this difference, an obvious way for government to help boost productivity across the board – such as increasing the proportion of plants engaged in exporting, R&D or foreign-owned – will not have the desired effect of ensuring elsewhere is working as efficiently and effectively as London."The researchers believe the findings can help identify the size of the task faced in ‘levelling up’ and could avoid policy initiatives that might have only a limited impact on productivity in the regions."The researchers agree levelling up is an important policy, though difficult to implement when the reasons behind London’s superior productivity are largely unexplained," said the university.* The research paper can be seen at https://www.tandfonline.com/doi/full/10.1080/00343404.2021.2004308