Capital gains?London’s living

standards challengeConor D’Arcy

@conortdarcyJanuary 2016

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The living standards recovery in London

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Employee pay has been squeezed hard in London since the downturn and continued to fall in 2015

While the pay squeeze

ended in UK as a whole

and in most regions/natio

ns in 2015, London was one of three parts of the

country in which

median pay fell again

Typical pay in London

remains much higher than the rest

of the UK though

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Though 2015 did see above-inflation pay growth for low earners in London

The National Minimum

Wage rose by more than in recent years

which explains

much of the strong

growth at the very bottom

of the distribution

Lowest paid

Highest paid

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Opposite is true when it comes to jobs with London’s below-average employment rate rising rapidly of late

Despite this improvement,

London’s employment rate remains

well below that of the

best-performing

UK areas

London performs

particularly poorly on

employment rates of

mothers, and those with

low qualifications

in Inner London

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Together, these trends have meant typical London households experienced a ‘less slow’ income recovery

There has however been

much variation in

the size of the income

squeeze

Median working-age households

remained 3% below their

pre-crisis income level

in 2013-14 while median

pensioner households

were 12% above

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After housing costs however, the income of typical London households have been squeezed the most

The gap between

working-age and pensioner households is wider on this

measure, with working-age households

8% below 2007-08 and

pensioner households 14% above,

thanks to their lower

housing costs

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One-in-eight London households spend more than half their income on housing costs

That proportion

rises to one-in-four among private renters

Improving the

affordability and security

of PRS crucial as

now takes a low-to-middle

income first time buyer

in London 44 yrs to save

for a deposit vs. 24yrs in

UK

And housing is a key driver of London’s large wealth inequality

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Households at the 75th wealth percentile hold

23 times the wealth of

those at the 25th percentile in London vs.

10 times in Great Britain

as a whole

London’s wealth has recovered

strongly but property

owners have been main

beneficiaries

Despite London’s higher pay and house prices, typical wealth is only slightly higher than GB average

Again, housing plays an

important role with 52% of

Londoners renting

compared to 34% in

England excl. London

18,000 homes were

completed in London in

2014-15; need estimated at

50,000-80,000 additional

homes per year

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What’s on the horizon for living standards?

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The ‘National Living Wage’ is set to be less transformative in London than the rest of the UK

Though the NLW is

projected to benefit

570,000 employees in

London by 2020, impact is likely to be smaller than

in most cities

High housing costs also

mean it does less for low-

income households in

London

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The NLW is projected to have little effect on the share of workers that are low paid in London

The ‘depth’ of low pay however is

set to fall in London

Debate around the

Living Wage in London

remains crucial with

RF commissione

d to review aligning the

methodologies

underpinning the two

Living Wage rates

As interest rates begin to creep back up, Londoners likely to be more exposed

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London households are

more likely to say they are

very concerned by their current

debt level (10% vs. 6% GB average)

But house prices have

held up better in London meaning

low/negative equity is less of

a problem in the capital

than elsewhere

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Summary

• On some measures, particularly employment, London’s performance of late has been strong but much weaker on others e.g. pay

• Affordability of housing continues to be a worry for millions of Londoners

• The National Living Wage will boost the pay of over half a million workers in the capital but not solve low pay problem

• Interest rate rises may prove more challenging for Londoners than borrowers elsewhere in the UK