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London Productivity by Industry

The data used in this section are derived from published outputs, further details are provided in the definitions section of the annex. GVA per employee job data should be interpreted with some caution as industries with high capital intensity, for example Mining, quarrying and utilities have much higher productivity. Indexation where UK equals 100 for a particular industry across all regions allows industries which are relatively more productive in London compared to other regions to be identified.

Across all industries, London was the region with the highest productivity in terms of GVA generated per employee job, at almost £59,000 for the reference year used, for this analysis 2006.

Table 5.14 shows that In 2006, 47 per cent of London’s GVA was generated by Finance and Business Services, The UK average for this industry grouping was 32 per cent, so London had an above average contribution to GVA generated by this group of industries.

Fifteen per cent of London’s GVA was generated by Public administration and defence, Education and Health and social work. The UK average for this industry grouping was 19 per cent. 12 per cent of London’s GVA was generated by Wholesale and retail trade and Hotels and restaurants. The UK average for this industry grouping was 15 per cent. Therefore, London had a below average contribution to GVA generated by the last two industry groupings. Not surprisingly Agriculture, hunting, forestry and fishing represents just 0.01 per cent of London’s output.

Bearing in mind that the effects of the degree of capital or labour intensity varies significantly by industry, GVA generated per employee job in London was highest for Mining, quarrying and utilities, at £194,000; an industry grouping with high capital intensity. For Finance and Business Services it was £83,000. Productivity was lowest in Agriculture, hunting, forestry and fishing, but with little activity in London for these industries data are less significant for London.

Strongest productivity increase over the ten-year period to 2006 was shown in Other services, six per cent, followed by Finance and Business Services, six per cent. To note, GVA data used in the productivity measure has not been deflated and includes the effects of price inflation.


All industry groups, except Agriculture, hunting and forestry and Fishing had a productivity (GVA per employee job) performance well above the UK average for their respective industry groupings. This shows the high GVA per employee job for London is caused by a high productivity performance of nearly all industry groupings.

In 2006, Other services had the highest relative performance, with 52 per cent above its UK average (Figure 5.15).

Most industry groupings are around a quarter to a third more productive in London when compared with the UK average for that industry. In 2006 Finance and Business Services was 14 per cent above the UK average and has seen the largest index increase since 1996 (14 index points). Excluding primary industries Wholesale and retail trade and Hotels and restaurants saw the largest index decrease over this period, down 13 index points since 1996.

The Economic Deprivation Indicator

While key macro-economic indicators eg GVA show London as a workplace performing very well, they can mask inequality and small pockets of deprivation of residents.

The Economic Deprivation Index 2008 (EDI) has recently been developed for Communities and Local Government by the Social Disadvantage Research Centre at Oxford University who also produce the Index of Multiple Deprivation (IMD). The EDI was designed to track changes in deprived neighbourhoods between the more complete publications of the IMD. It measures economic deprivation at the Lower Super Output Area (LSOA) level ie small geographic areas with a population of around 1,500. EDI provides an absolute score for each LSOA in England and then ranks LSOAs from one (least deprived) to 32,482 (most deprived); using LSOA geography allows small pockets of deprivation to be identified.

The overall EDI has two domains covering Income Deprivation and Employment Deprivation, both constructed in a very similar way to comparable domains in IMD, but using a methodology which allows time-series comparison over the period 1999 to 2005 , bridging the gap between the 2004 and 2007 IMD. It is therefore a much reduced version of the IMD, in that it covers only two (albeit the two with the greatest weight) of the seven domains of the IMD, and even those two are less complete versions of the equivalent domains in the IMD.

The Income Deprivation Domain represents the proportion of people aged under 60 living in households receiving one of two out-of-work means-tested benefits: Income Support (IS) or income-based Job Seekers Allowance (JSA-IB). Note that it does not include information on any of the tax credits and therefore excludes pensioners and many people in households with low-income earners. It also excludes asylum seekers, so is not directly comparable to the Income Deprivation Domain of the IMD.

The Employment Deprivation Domain represents the proportion of people of working-age claiming one of three out-of-work benefits: Job Seekers Allowance (income-based or contribution-based) (JSA), Severe Disablement Allowance (SDA) or Incapacity Benefit (IB). It therefore excludes participants in the various New Deal schemes that are included in the Employment Deprivation Domain of the IMD as well as people who are unemployed but not claiming (or not entitled to claim) the three benefits listed above.

Both the Income Deprivation Domain and the Employment Deprivation Domain required population estimates to be constructed for each LSOA in England for 1999 through to 2005. These population estimates formed the denominators for the indicator rates, thereby enabling each indicator to be expressed as the proportion of relevant population who are defined as income deprived or employment deprived. The denominator for the Income Deprivation Domain was the entire population under the age of 60. The denominator for the Employment Deprivation Domain was mean ages 18 to 64 plus women aged 18 to 59 (both inclusive).

EDI in London

In terms of rates of deprivation, London stands out in both the Employment and particularly the Income deprivation domain as remaining at a level position since 2001, whereas most regions have shown improvements (Figure 5.16).

Map 5.17 shows a band with high concentrations of economic deprivation running through Newham, Tower Hamlets, Islington, Hackney and Haringey, but also small areas of deprivation across London and within boroughs which are not usually associated with deprivation. Westminster and Kensington and Chelsea both have areas within the five per cent most deprived for economic deprivation.

Hackney, Islington, Newham and Tower Hamlets have been within the ten most deprived local authorities on average rank of EDI for the entire 1999–2005 seven-year period; additionally Haringey and Barking and Dagenham have spent the last two years of this period within the ten most deprived local authorities.

Hackney, Haringey and Tower Hamlets have also seen the largest increase in the percentage of LSOAs in the most deprived decile of English LSOAs over the 1999–2005 period.

Using population-weighted averages, it is possible to compare economic deprivation of London’s LSOAs relative to the other English regions.

Figure 5.18 presents data by LSOA average rank for each region in 2001 and 2005. On this basis overall Economic Deprivation for London has shown some improvement up to 2001 and slight deterioration afterwards; this trend is mirrored by the performance of both the Income and Employment deprivation domains, with the Income deprivation domain for London showing a slightly greater deterioration than the Employment domain since 2001.

On the overall EDI score (by average rank), London was the third most deprived region behind the North West and North East over most of the 1999–2005 period until 2005 where it overtook the North West to become the second most deprived region. For the Income deprivation domain London was the most deprived region over the whole period 1999–2005, whilst for the Employment domain London was the fifth most deprived region throughout the period (Figure 5.19).

Business

» There were 388,600 active enterprises registered in London during 2007. This is equivalent to 641 enterprises per 10,000 adults resident in London, a significantly higher rate than in any other UK region.

» London is home to a high share of large firms compared to the rest of the UK. Thus, 22 per cent of UK firms that had a turnover of greater than £5 million were to be found located in London compared with just 15 per cent of UK enterprises with a turnover of less than £5 million.

» London specialises in a number of sectors, most particularly Financial Services and Business Services. London was home to 25 per cent of UK enterprises in Financial Services and 31 per cent of GB employee jobs in this sector. In the Business Services sector London was home to 22 per cent of UK enterprises and 23 per cent of GB employee jobs.

» Business Services is by some distance the largest sector in London with 1.07 million employee jobs. There are eight further sectors that employ between 200 thousand and 400 thousand employees.

» Employment in London is highly concentrated spatially. Central London is home to a high share of London’s employment being the base for many of London’s finance and business service jobs. Almost one-third of employees work in just 21 wards in Central London.

» Just over half (51 per cent) of private sector employment in London is within large firms, which are defined as firms that employ 250 people or more in the UK. This means that 49 per cent of private sector employment in London occurs within small and medium sized enterprises (SMEs).

» Relative to the rest of the United Kingdom, London has both a high start-up rate for new businesses, but also a high closure rate amongst existing businesses. The net effect has been positive with London’s business base growing more than that of any other UK region over the past decade.

» London has a greater share of young businesses and a smaller share of old businesses. One-fifth of UK enterprises that are less than two years old are two located within London, but only 13 per cent of UK enterprises that are ten or more years old are located in London.


Introduction

This chapter focuses upon the industrial structure of the London economy, showing how it differs significantly from that of the UK economy.

It begins by examining the total number of enterprises based in London and data on how these enterprises compare to those elsewhere in the UK in terms of industrial sector, employment size bands and turnover.

The chapter then looks at employment data, both by industrial sector and by size of firm.

Finally, the chapter examines data on business start-up and closure rates to show how London’s business base compares to the UK in its dynamism. Data on enterprises by age of business is shown in this context.

Enterprises in London

According to the Business Demography unit of the ONS, there were 388,600 active enterprises registered in London during 2007. This is equivalent to 641 enterprises per 10,000 adults resident in London. As such, London has more enterprises relative to its population than any other region. As a comparison, in the United Kingdom overall, there were just 469 active enterprises per 10,000 resident adults in 2007 (Table 6.1).

The fact that London has more active businesses relative to its population than other regions should not be a surprise. The existence of a large number of daily in-commuters into London from other regions provides confirming evidence that there must indeed be more business activity relative to resident population in London than in other regions.

Two key points become clear from examining the data on businesses by industrial sector in London compared to the UK. One is that London clearly specialises in a number of sectors. Second is that where such specialisation does occur, it is to be found located within Inner London, rather than Outer London.

The specialisations for London are the Financial Services sector, with London home to 25 per cent of all UK Financial Service enterprises in 2007; the Business Services sector, with London home to 22 per cent of all UK enterprises in this sector, and; the Public Administration and Other Services sector, in which London was home to 21 per cent of all UK enterprises. By comparison, London’s share of UK enterprises across all sectors combined was 16 per cent in 2008 (Figure 6.2).

In each of these specialisations, Inner London was the main location. Overall, Inner London was home to eight per cent of UK enterprises, but this rises to 18 per cent for Financial Services, and 13 per cent for Business Services and Public Administration and Other Services.

Outer London, meanwhile, was home to seven per cent of UK enterprises in total. The two sectors in which it specialises most relative to the UK are Business Services and Wholesale. In these sectors, Outer London was home to nine per cent of UK Enterprises.

In addition to having some sectors in which it specialises, London also has a number of sectors in which it has relatively less activity in comparison to the rest of the UK. Only one per cent of UK enterprises in Agriculture, eight per cent of UK Motor Trade enterprises, ten per cent of UK Construction enterprises and 11 per cent of UK Production (manufacturing) enterprises are based in London, compared with London’s 16 per cent average of UK enterprises across all sectors.

Another clear difference between London and the rest of the UK is that London has a greater share of large enterprises operating. This can be seen in two ways.

Firstly, whilst only 16 per cent of UK enterprises in total were located in London in 2008, amongst large firms (those that employ more than 250 employees) the share rose to 20 per cent (Figure 6.3).

Secondly, a relatively large share of 22 per cent of UK firms that have a turnover of greater than £5 million were located in London. This compares with a much smaller share of just 15 per cent of UK enterprises with a lower turnover (of less than £5 million) (Figure 6.4).

The larger the enterprise in London the more likely it is to be located in Inner London, rather than Outer London. Of the 10,155 Enterprises in London with Turnover more than £5 million, 67 per cent were located in Inner London and 33 per cent in Outer London. For Enterprises with Turnover less than £249,000, 50 per cent were located in Inner London and 50 per cent located in Outer London.

Employment

Employment rose very sharply in London through the latter 1990s, before falling back from Q4 2000 to Q3 2004. Subsequently, however, employment rose by a further 262 thousand jobs to a peak of 4.75 million jobs at the end of 2007. At the end of Q3 2008, workforce jobs in London totalled 4.73 million, 517 thousand higher than the level a decade earlier (Figure 6.5).

To examine London employment data by industrial sector, it is necessary to look at data for employee jobs as workforce jobs data are not available by industrial sector at the regional level. The employee jobs data excludes the self-employed and as such only covers around 86 per cent of total employment. However, it is the best available dataset for examining regional employment by sector and does give a good indication of which sectors Londoners are employed in.

The data for 2007 showed that there were 4.08 million employee jobs in London and that 1.07million of them were in the Business Services sector which is by far the largest employment sector. There were eight other sectors that each contribute between 200 thousand and 400 thousand employee jobs in London. These were Retail, Hotels and Restaurants, Transport and Communications, Financial Services, Public Administration, Health, Education and Other Services (Figure 6.6 and Table 6.15).

In total, London is home to 15 per cent of Great Britain’s employees. However, as shown in Table 6.7, some sectors are particularly specialisations of the London economy and in these this share is much greater. Financial Services is the most notable specialisation with 31 per cent of all GB jobs in this sector located in London in 2007. Business Services, which as noted above is the largest sector in London, is also an area of specialisation with 23 per cent of GB jobs located in London. Other services, which consists mostly of media, leisure and recreational services, is also a specialisation in London.

Business Services is by some distance the largest sector in London. Table 6.16 provides greater detail on exactly what this sector consists of. It can be seen that it encompasses a range of different industries. It includes a number of occupations that in general require high qualifications amongst staff. These include law, accountancy, management consultancy and advertising. It also includes a number of industries typically filled by staff with fewer qualifications, such as security and industrial cleaning. Finally, real estate activities are also included within the Business Services sector.

In addition to being the main source of employee jobs in London, the Business Services sector is also the major source for self-employment in London with 24 per cent (141,000) of London’s total self-employed residents working in the sector. However, due to the size of this sector, the proportion that are self-employed within it, is around average. The Construction sector is the next largest accounting for 19 per cent (112,100) of London’s self-employed residents and a further 16 per cent (92,100) work in the Other Services sector. On the other hand, Public Administration (7,000), Financial Intermediation (12,300), and Hotels and Restaurants (13,700), all have relatively low numbers in self-employment (Table 6.17). In total in 2007, there were an estimated 586,000 self-employed residents living in London.

Map 6.8 shows that employment in London is highly concentrated spatially. Central London is home to a high share of London’s employment being the base for many of London’s Finance and Business Services jobs. Almost one-third (31 per cent) of employees work in just 21 wards in Central London (or just over three per cent of the 633 wards in London). Other areas of London with a high number of employee jobs include Heathrow Airport to the west, and the Croydon and Bromley areas to the south. In general, there are more jobs in west London than east London.

In addition to examining employment by industrial sector and spatially, it is also possible to examine employment by size of firm. This data shows that 51 per cent of private sector employment in London in 2007 was within large firms, which are defined as firms that employ 250 people or more in the UK. This means that 49 per cent of private sector employment in London occurs within small and medium sized enterprises (SMEs) (Table 6.9).

Table 6.9 also includes a category termed Ultra Large firms, which are defined as those that employ more than 2,500 people within the UK. It shows that 30 per cent of London’s private sector employment occured within Ultra Large firms. In the retail sector this rose to 58 per cent, whilst the Transport and Communications sector and the Financial Services sector both also have over half the workforce working in Ultra Large firms.

By contrast, in the Construction sector and the Wholesale sector 67 per cent of employment was within SMEs. Private sector employment within the Health and Education sectors was also found predominantly in SMEs. However, in the Financial Services sector just 24 per cent were employed within SMEs, rising only slightly to 29 per cent of those employed in Transport and Communications and 31 per cent of those employed in Retail.

Business start-ups and closures

Relative to the rest of the United Kingdom, London has both a high start-up rate for new businesses, but also a high closure rate amongst existing businesses. Furthermore, this has been the case throughout the past decade and earlier.

Importantly, the net position has remained positive. In other words there have been more start-ups than closures each year throughout the 1995 to 2007 period and, in all but one year during that period the net start-up rate has exceeded the UK overall (Table 6.11).

The net result of this higher net start-up rate in London has been that the London business base has grown faster than that of any other UK regions. This can be seen in Figure 6.10 which shows the growth in the number of VAT registered businesses in each UK region relative to population from 1998 to 2008.

The overall success of London in growing its business base must be taken into consideration when looking at data on business closures. Nevertheless, the data shows that the three-year survival rate for businesses has been lower in London than for any other region in the UK. For example, only 60 per cent of London enterprises that started in 2004 survived to 2007 compared to 65 per cent of UK enterprises (Figure 6.12).

A low survival rate does not always entail bad news. Sometimes a firm may have been taken-over by a larger company or merged into a new enterprise. Nevertheless, the data does suggest it can be more difficult for a business start-up to survive in London than in other regions.

Given all this evidence of higher start-up rates and high closure rates amongst enterprises in London, it is not surprising to therefore find that compared to the rest of the UK, London has a greater share of young businesses and a smaller share of old businesses. Thus, 20 per cent of UK enterprises that are less than two years old are located within London, but only 13 per cent of UK enterprises that are ten or more years old are located in London (Figure 6.13).

Income and Lifestyles

» In 2006/07, a quarter of London’s households had a gross weekly income in excess of £1,000.

» London’s average gross weekly household income in 2006/07 was £834. This is £187 higher than the UK average and £88 more than the next highest region (South East).

» Of those paying income tax in London, 31 per cent earned in excess of £30,000 per year, whilst 12 per cent earned over £50,000. This compared with 23 and 7 per cent in the UK as a whole.

» In 2006/07, a quarter of all households in London were in receipt of an income-related benefit such as Income Support or Housing Benefit - slightly above the UK average (23 per cent).

» Total weekly household expenditure in London was £529.30, 17 per cent higher than UK figure (£454.10).

» In 2007, almost three-quarters of London’s households owned a personal computer, whilst 63 per cent had internet access. In both cases London had the second highest rate behind the South East.

» Londoners registered 26 new cars per 1,000 of the population in 2007. There has been a steady decline in the registration of new cars since 1996 in London, which is against the national trend.

» In 2007, around a quarter of the UK’s 162.4 million cinema admissions were in London, 10.4 percentage points higher than the next closest region - the Midlands.

» The total amount spent by both domestic and international tourists in London in 2007 was £10.3bn. As a region, London’s overseas tourist spend of £8.2bn is more than five times as great as the next region. Overseas tourist expenditure in London accounts for around 60 per cent of the total spend nationally.

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