The Economy of London

Academic Paper 2016 9 Pages

Business economics - Economic Policy



II. Executive summary

III. Introduction

IV. Infrastructure
a) Road and railway
b) Airports and ports
c) Greening the infrastructure

V. Households

VI. Finance

VII. Employment and migration

VIII. Conclusion

IX. References:

II. Executive summary

This paper is based on the report of the OECD (2015) and will highlight the economic sectors, which have to be improved to increase an economic efficiency of the UK. I will introduce several policies and reforms, which according to the OECD, have to be incorporated to improve an economic growth. First of all, I’m going to stress the infrastructure of the UK. In this paragraph, I will concentrate on the main issues, which are associated with the roads, railways, airports, ports, the environment and possible solutions for the government. Furthermore, I will mention that the level of demand for the houses in the UK is higher than supply and the number of households has to be increased. In addition, I will emphasise the finance and policies, which have to be introduced to ensure the stability in this sector. Moreover, I’m going to stress the policies such as control of the incomers associated with migration. Furthermore I will stress that the improvement into educational system have to be incorporated in order to increase labour productivity in the future.

III. Introduction

The Organization for Economic Co-operation and Development (OECD) is an international economic organization, which was established in 1961 and consists of 34 countries. The main objective of this organization is the comparison of the economics of the member countries and finding a solution for the main economic issues of a country by incorporating domestic and international policies.

According to OECD’s statistic, the UK is the strong economic country with the second economy in Europe and eighth in the world. The home nations such as England, Scotland, Wales and Northern Ireland are part of the economy. The UK is a member of the European Union, which means that its part of the single market, where goods, services, immigrants and capital can move without greater restrictions. In spite of being a member, the UK has its own economy and decided to keep Pound Sterling in compare with other EU countries, which changed their currency for Euro. Back in the days in the 18th century, the Britain was the most powerful economic countries around the world. As a birth place of the Industrial Revolution, the UK used to have a competitive advantage, what made it the economic leader in the international market.

In 2008 the UK was hit by financial crisis in a result of which the economy is still struggling and tries to recover from it. Before the economic collapse, the UK recorded growth rates of GDP of 3%, after the 2008 it dropped by 0.968% and in 2010 the country note 1.799% growth rate of GDP, what according to OECD was the slowest recovery from the crisis. One of the reasons responsible for the weak result in the growth of the economy was the introduction of the austerity plan in 2010. The objective of this plan was to reduce the massive debt, which increased and recorded the highest level after global crisis. The austerity plan assumes the reductions in public spending and services and increase of tax. In one hand these actions could reduce the risk of the debt in the future, however on the other hand could hamper the economic growth. The UK’s government announced to eliminate the budget deficit by 2018, but according to OECD report (20115), ‘the austerity era’ will stretch to 2020. Thus, the UK has to implement the number of policies and regulations in terms of the infrastructure, finance, labour, education and migration to recover and improve the condition of the economy.

IV. Infrastructure

The condition of the infrastructure in the UK is similar to the average OECD. However, the Britain is falling behind the economic leading countries such as United States, Canada, France and Switzerland, what means that infrastructure needs various reforms in order to improve the prosperity of the country. The graphs below show that the gross government and transport infrastructure investment is significant lower in compare with other peer countries.

illustration not visible in this excerpt

However, there are matters such as long-term planning and long processes regarding to decision making, which discourage private investors to put funds into the development of the framework industry (OECD 2014e). Thus, the financing of the framework in the UK has got a negative trend. In addition, the UK recorded significant progress in investing more funds in ‘green’ frameworks (OECD 2012).

The demand for the households, which is caused first of all by the number of immigrants and high birth rate, is fundamentally higher than the level of supply. There are more citizens than the number of the houses; especially this trend is visible in metropolis such as London, what causes the longer expectations time for a house from the council and generally dissatisfaction among the population.

a) Road and railway

The condition of the roads in the UK ranks 30th out of 144 countries in terms of quality of its infrastructure and the railroads rank 16th out of 104 countries (OECD, 2015). The main matter of the roads is that they are too congested especially in the peak times like Christmas or Bank Holidays, thus the government works on the solution, which can help to solve this problem as soon as possible. One of the ideas is to make an expansion of the road network of the North England, which can reduce regional disparities. However, the best solution according to OECD could be incorporating of the user paid toll system, which relies on various charges put on the users of the roads. This system could enable to use more rational of the vehicles and manage issues associated with the traffic in the busiest roads in the UK.

The quality of the railway condition is going quite well and according to OECD (2015), the UK trains are one of the safest in Europe. However, according to Mcnulty (2011) in a space of the recent years the efficiency of the railways system has dropped by 30%. The next point, which is important to mention is that the operating costs of the trains are higher than in other European countries, because of the lack cooperation between the National Rail and train operating firms, thus the government should put more effort in order to integrate those two carriers in certain level in order to reduce the operating costs of the trains. The government also plans to extend work to introduce high speed train network.

b) Airports and ports

Great Britain is based on an island, thus the only way to connect with this country is by air or sea. Therefore the UK government has to develop the air transports condition, especially in the South, where there is only one runway, which was built two decades ago. According to report of Airports Commission (2013), the expansion of the investments in the airports sector, especially in the South England would boost in the summer 2015 after the election. The port infrastructure is in good condition and the investors support steady this sector, however its required to increase the capacity of the ports to prevent freight traffic in the future.

c) Greening the infrastructure

The infrastructure has an enormous impact on the green growth, which the target is the reduction of the gas emission. According to OECD (2015), the greenhouse gas emission was reduced and the UK comes in seventh in Europe. The graphs below show the comparison of the use of the renewable sources in 1990 and 2013 in the UK. In a space of those 13 years, there is a 4% growth of renewables and this level remains still low.

illustration not visible in this excerpt

However, according to EU Emissions Trading System, the UK has to reduce the emissions by 16% and according to Climate Change Act (OECD 2015) cut emissions by 34% by 2020.

The Great Investment Bank (GIB) is responsible for processes associated with renewable energy sources. It focuses on green projects and finances them. According to the OECD (2015), the government should put more pressure and funds into green technologies regarding to low carbon equipment or biofuels.

V. Households

The housing shortage and high prices of properties should be solved through building more households. The planning system should be also upgraded through investing more funds in new land, where the level of demand is high, what will contribute to development within local communities through introducing a land value tax. In the UK only existing properties are taxed. The land that is undeveloped but in the future is planned to be rebuild should be taxed as well. This could affect increase in building new properties and not holding land with the aim of growth in value. According to Andre (2011), the government should incorporate policies such as lowering barriers to entry to enhance new companies. Nowadays, the firms are mainly buying land in order to build property, thus the government should introduce the change in this point giving the opportunity to develop self-build construction projects.

To decrease deficit in households, the government should also incorporate new rental policies. Nowadays, the housing market is dominated by short term tenancies, which are often unsecured. Long term contracts could make more attractive lending market to ensure more security for tenants and decrease household debt.



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London School of Economics
economy london




Title: The Economy of London