Andrew Murray-Watson: London and the rest - a tale of two economies

Can the Bank set rates that account for the huge imbalances in wealth?
Click to follow
The Independent Online

William Dunbar described it as the "soveraign of cities, semeliest in sight, Of high renoun, riches, and royaltie".

Five hundred years after the Scottish poet penned those words, London remains one of the most vibrant and exciting cities in the world. Give me the chewing gum- coated pavements of Brixton over the steamy sidewalks of Manhattan any day.

In the past, the stock market, as well as wider economic conditions in the UK, have determined the capital's financial health. Currently, London is booming. The stock market is touching record levels, property prices have become ridiculous and office rents in the West End are the most expensive in the world. Hedge funds and private equity companies from all over the planet are settling in SW1, and in some restaurants a bottle of wine can be more expensive than a BMW.

And it seems to me that London's fortunes are no longer even remotely connected to the economic conditions in the rest of the UK.

Britain, in its eminently sensible and pragmatic way, has always allowed wealthy foreigners to settle within its borders. But the maturing power of globalisation means that London, with its light regulatory touch and its willingness to pocket foreign capital, is becoming the preferred haven for boatloads of billionaires from across the globe. Even if the planet's wealthy make their home somewhere else, they are at liberty to spend their cash on London property, in London's art galleries and in London's luxury goods boutiques.

So it is then that a developer can slap an £84m price tag on a flat overlooking Hyde Park and, even more remarkably, find no shortage of willing buyers. We may scratch our heads in befuddlement at it all, but Knightsbridge's estate agents are now selling their wares to the whole world.

London is like a sponge soaking up excess cash. And the diversified origins of this sea of money mean that the capital appears to be almost completely insulated from any downturn in humdrum UK plc.

Speaking of which, a survey last week from Experian, the credit reference agency, showed that a large proportion of people in the UK were "financially stressed".

In less than three weeks, the Bank of England will decide whether to raise rates again. I hope the esteemed members of the Monetary Policy Committee peer beyond the M25 when they make their decision. But I worry that regional economic disparities within the UK are becoming so pronounced that the MPC can't win whatever it does.

Post haste for pensions

Last week I argued in this column that the CWU, the union representing postal workers, was being unrealistic in its vehement opposition to the decision by the Royal Mail to close its final year pension scheme to new members.

I got a mailbag full of responses on the subject. Many who took the time to get in touch were not too impressed with my thoughts on the matter. One or two were actually quite cross.

So I thought it was worth clarifying a few points. I believe that every worker in this country - postman, teacher, nurse, lawyer, banker or tree surgeon - deserves a good pension.

But it would be the height of economic recklessness to ignore that public sector pension schemes are estimated to be anything up to £1 trillion in deficit.

Arguing that public sector employers, such as the Royal Mail, are right to take steps to address their portion of this deficit is not about being right wing or left wing. Rather, it is an acknowledgment that we can't continue to walk blindly towards this looming economic crisis.

If nothing is done about these pension deficits now, it will be the public sector that feels the heat first in the future, as governments are forced to plough a higher proportion of the national purse into paying pension liabilities.

Comments