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We got it bad; we don’t know how bad we got it

The Office for National Statistics (ONS) is something of a national treasure – independent, rigorous and accessible, and always ready to speak up when statistics are bent out of shape by politicians.

It is also ready to hold up its hand when it gets things wrong. It did so last week, when it revealed that it seemed to have been undercounting GDP growth since the pandemic. The changes meant that UK economic output had bounced back above its pre-pandemic level by the end of 2021, rather than remaining below it. More significantly, this put the UK in the middle of the pack of G7 countries (above Germany, level with France, and below the US, Japan and Italy), rather than languishing below them – though ONS does warn that these countries too may revise their calculations.

I came across a similar correction recently, when comparing UK expenditure on research and development (R&D) to other countries’. When the UK Government’s Innovation Strategy was published in 2021, it made much of the fact that we were only spending around 1.7 per cent of GDP on R&D, well below the OECD average. A target was set to raise expenditure to 2.4 per cent of GDP by 2027.

Last autumn, the ONS reviewed how small business expenditure on R&D was being assessed, and revised its figures. UK expenditure on R&D in 2019 rose from 1.7 per cent to 2.7 per cent, bringing it above the OECD average, and putting the UK ahead of China as well as many of our European neighbours. By 2021, we had moved further up the table, spending 2.9 per cent of GDP on R&D, against an OECD average of 2.7 per cent.

Source: UK Innovation Report 2023

These numbers too may change again, and the changes are an illustration of the difficulties of measuring something as complex as an economy, particularly in the wholly exceptional global circumstances of the past few years. I’m really not qualified to say whether such dramatic revisions call for a review of how statistics are compiled. However, as Tim Leunig has stated in arguing for such a review, these changes matter because low GDP and low R&D investment matter. They are the basis for changes in policy (including, I suspect, the repeated expansion and extension of the UK’s R&D tax credits regime), so if the data are wrong, then policy may be wrong too.

But I am struck by how ready I was – and I suspect I am not alone in this – to accept as a simple fact something that actually seems to have been very wide of the mark. Of course the UK is underperforming most other advanced economies, I thought, Of course it is. It’s ‘sickmanism’, our reclamation of the dubious accolade that seeemed ours by right in the 1970s, a return to the “orderly management of decline” that permeates John Le Carré’s novels of that time.

It’s not surprising that many of us are ready to believe the worst. After seeing public services and social infrastructure stripped to the bone over a ten year period, the ever-deeper impoverishment of society’s most vulnerable, a needless and needlessly harsh split from our closest allies and trading partners, and a succession of political leaders who seem to treat politics like a fairground card trick, I can forgive my own cynicism.

The annoying thing, of course, is that our frankly middling performance (playing catch-up with Italy?) will now be hailed as a triumphant vindication of Brexit and the sound economic governance that recent administrations have been known for. Chancellor Jeremy Hunt has already said that it disproves the “declinist narrative about Britain and its long-term prospects”.

But beyond the political ping-pong, perhaps there’s a lesson too: it is not to flip from doomster to booster, but to treat assertions of the UK’s global decline as cautiously as those of its triumph. Maybe Britain can make it after all.

Heaven is a place on earth

Is it “black metal” or “death metal”? I am never quite sure of the difference, but the air thrums with blast-beat drumming as we descend into Heaven. Tonight we’re here for the metal, but as we pass the security staff, I am briefly transported back to my 1990s, when optimism and alcoholic lemonade fuelled countless nights of terrible dancing and occasionally-effective eye-catching under the arches of Charing Cross.

Heaven is now a venerable London institution. The club, buried in the vaults under the station concourse, was a gay clubbing trailblazer when it opened in 1979. It was established by Jeremy Norman – entrepreneur, wine merchant and chairman of Burke’s Peerage – drawing on his experiences at New York’s The Saint and Studio 54. Through the Eighties and Nineties, Heaven hosted iconic gay nights such as Fruit Machine, alongside pioneering techno clubs like Paul Oakenfold’s Rage and gigs by everyone from New Order to Throbbing Gristle to Stereolab.

Owned today by Jeremy Joseph, promoter of G-A-Y, Heaven continues to mix it up. The cavernous vaults, which hold 1,000 people, have rainbow flags fluttering in the strobe lights as Flemish trio Wiegedood blast the crowd. The thing about death metal (or black metal) is you need to lean into it, like a stage diver trusting in the mosh pit.

Immerse yourself in the propulsive sound and let the melodies emerge – chiming chord progressions like Keith Levene’s on early Public Image Limited, or angular shreds of Sonic Youth noise. The lyrics are screamed in classic black metal (or death metal) style. Are they even in English or are they Flemish? It’s hard to tell, but given the band’s pledge, on their website, that their new album “focuses on the filthiest and most disgusting parts of human nature”, this may be a blessing.

As I buy a couple of cans of Red Stripe in between acts (a very fair £5.45 each, but decanted into disposable plastic glasses – boo!), Wiegedood bassist Levy Synaeve chats amiably with fans. For all the decibels and corpse-paint, metal audiences are some of the friendliest you could meet. The fashion may be divergent, the headbanging heavier and the flirting dialled down, but metal gigs can create the same euphoric sense of community and celebration as gay clubs.

Chicago’s Russian Circles are the headline act. They are “post-metal”, which seems to mean no vocals – probably a good thing, for reasons already stated – and their music builds from languid harmonies, to motorik krautrock rhythms, to thundering slabs of guitar. It’s loud for sure, and Heaven’s sound system lets the bass re-arrange your internal organs without losing clarity and force higher in the register. But there is a lightness of touch to Russian Circles that eludes bellowing leviathans like Metallica. Their performance is captivating and enthralling.

Let’s be honest: I doubt anything I write will convert you to black (or death) metal, or post-metal, if you are not already a fan. But Heaven is place that bears (re)visiting, whether you prefer your repetitive beats from a DJ’s decks or a hairy Belgian’s drum-kit. It has the atmosphere and heritage absent from most purpose-built venues, but clean toilets, friendly staff and reasonably-priced drinks too.

After a fierce hour, Russian Circles leave the stage and the house lights come up. Heaven has to freshen up, apply lippy and re-open for its Monday stalwart, Popcorn. As we leave, I am almost tempted to turn round and join the queue to go back in. But I have a train to catch, and I’m not 25 any more.

Originally published by OnLondon

Spare us the cutter

To misquote Hunter S Thompson, “Levelling up is hard to know because of all the hired bullshit”. Is “levelling up” about the north-side divide, about regional infrastructure, about social inequality or about “London-centrism”? The concept is so slippery that there is plenty of space to pick your own perspective. So it’s a relief when the august Institute for Fiscal Studies (IFS) sheds some light on how money is being spent around the country.

Its report on public spending, published this week, looks at allocations for health services, police, local government, public health and schools across England – in total, around £245 billion in 2022/23. This is where the real money is. Spending on these services dwarves, for example, the £3 billion of Levelling Up Funds provided to England in the first two rounds.

The report breaks down spending by 150 local authority areas (with an interactive map), analysing expenditure per head but also as measured against need. At first glance, the capital’s boroughs fare relatively well, with six in inner London – Camden, Hackney, Islington, Kensington & Chelsea, Southwark and Westminster – among the ten highest-funded areas, each receiving more than £5,000 per head alongside Blackpool, Knowsley, Liverpool and Middlesbrough.

There are, of course, good reasons why spending in London is higher. For a start, wages, which make up around 45 per cent of NHS spending, 50 per cent of local government spending and around 75 per cent of police spending, reflect the city’s higher living costs. London weightings added to wages (seven per cent for police, 2-20 per cent for NHS workers, and 3-18 per cent for council staff) are set accordingly. So, you would expect higher costs in London for equivalent staffing and service levels elsewhere.

There’s a bigger issue too: the figures are based on 2021 population estimates. We know that London saw a sharp fall in population during the pandemic, and this was particularly acute in central London. The IFS shows how different spending per head would be if the calculation used 2020 estimates instead (which would also be more in line with the estimates used to allocate funding). It would fall by an average of £160 per head across London boroughs, and by more than £1,000 per head in Camden and Westminster. Mid-year estimates for 2022, due out next month, will give us some indication of how far London’s population has rebounded.

All that said, it’s no great surprise that urban areas in general spend more: they have higher levels of deprivation and higher levels of need (with a few countervailing areas such bin collections, where rural authorities spend more). This is why central government funding is allocated according to complex formulas intended to reflect need (and the cost of delivering services) as well as population levels. The IFS team has updated these formulas – the government has not done so for ten years – and compared them to spending per head.

Here the picture is a lot more mixed for London. The capital receives slightly higher funding relative to need for NHS services, though this is largely attributed to the differences between the GP registrations used to allocate NHS funding and the much lower 2021 ONS population estimates. Funding for the police is slightly lower than need, but not as low as it is in other large urban areas. But London’s local government looks very under-funded. Nine out of the ten councils with the biggest relative funding gaps are in London, forming an arc stretching from Barking & Dagenham to Hounslow.

Defunding deprived urban areas is at least partly the result of political choice. As Centre for London and the IFS have explored, cuts in central government funding for councils during the 2010s were applied as fixed percentages, which hit urban areas – with higher need and more dependency on grants rather than Council Tax – particularly hard. As the IFS report observes, needs assessments for local government have not been updated for a decade. But this too is a political choice.

You could conceivably argue that urban areas, which tend to vote Labour, have been over-funded in the past. The Prime Minister hinted at this at an event in Kent (funding eight per cent above relative need) last year when running for the Conservative Party leadership. In fact, the IFS report shows a swathe of well-funded local authorities in the Conservatives’ deep blue Home Counties and midlands heartlands.

Whether this is the result of reasonable policy or low politics is a matter of opinion. But you have to ask if it makes sense in the light of the government’s own proclaimed policy of building in city centres, including London’s. Cutting back public services in city centres, while seeking to grow their populations, does not seem like a sustainable approach to growth, let alone to “levelling up”.

First published by OnLondon

You Gove to see it?

In the sense that the only thing worse than being talked about is not being talked about, Michael Gove’s big housing speech had some grains of good news for London and Sadiq Khan.

Sure, there was a slightly formulaic spot of Khan-bashing – the allegation that “the Mayor’s failure on housing, like his failure on crime and his failure on transport, undermines the vitality and attractiveness of our capital.” We are coming up to an election and presenting Khan’s mayoralty as a cautionary example of Labour’s inability to deliver was clearly just too tempting, especially in the wake of the Uxbridge & South Ruislip by-election.

But alternately attacking and ignoring London and its Mayor have been a consistent government theme in recent years. Gove’s predecessor Robert Jenrick took more than a year to agree Khan’s 2020 London Plan, describing his housing delivery as “deeply disappointing”, demanding he water down protections for the Green Belt, open spaces and industrial sites, and allow lower densities and more car parking in suburban locations. And two years ago, in articulating his “levelling up” agenda, London’s previous Mayor, the then Prime Minister Boris Johnson, spoke of the capital only as the engine for an overheated housing market and as a drain on talent in the rest of the country.

So, while Gove may have been stating the obvious when he said making the most of the capital’s potential is “critical to the nation’s success”, the statement was nonetheless welcome. What’s more, the Secretary of State committed to working with the Mayor to “unlock all the potential of London’s urban centre, while preserving the precious low-rise and richly green character of its suburbs such as Barnet and Bromley”.

There’s quite a lot going on there, both lofty principles and low politics. At one level, Gove’s was a classic urban renaissance prescription: focusing new development in highly accessible central locations, where infrastructure such as school places is already present. But there was also electoral calculation. Ever since Johnson ran for Mayor in 2008, pledging to save the suburbs from the encroachment of high-rise apartment buildings, protecting the suburbs – and London’s safest Conservative seats – from new development has been at the heart of Conservative policy.

To unlock potential, Gove proclaimed the launch of “Docklands 2.0”, invoking Michael Heseltine, the patron saint of urban renaissance (who lost the Conservative whip in 2017 as a result of his opposition to Brexit). This “mission of national importance” would see 65,000 homes built in east London’s riverside, from Beckton and Silvertown to Charlton and Thamesmead.

Such plans have a rich heritage as part of the original Heseltine vision for the East Thames Corridor, as the heart of London Thames Gateway, and as the focus for the City East scheme developed by my former colleagues in Mayor Ken Livingstone’s architecture and urbanism unit.

Current London Plan targets already suggest that 65,000 homes are achievable in these “opportunity areas”, but realising that potential has been slow. Many sites lack the infrastructure needed to develop at scale, or need investment in remediation to make them suitable for housing. In that respect, Gove’s commitment to look at the transport investments needed, and to invest government money where it can make a difference, will be welcomed.

There is a catch, though. Gove offered the carrot of working with Khan, but also issued an explicit threat in bellicose terms: “I reserve the right to step in to reshape the London Plan if necessary and consider every tool in our armoury – including development corporations.” It doesn’t sound as if these would be mayoral development corporations, such as those set up by Johnson to oversee the Olympic Park and Old Oak projects, but 1980s-style impositions from Whitehall.

Gove’s political jabs at the Mayor have been reciprocated. Tom Copley, Deputy Mayor for Housing, has defended Khan’s record and described the government’s commitments as “thin gruel”, with funding decisions for vital infrastructure lost in the long grass of Treasury tactics. London Councils housing lead Darren Rodwell, also leader of east London borough Barking & Dagenham, has called for more funding for affordable housing and a permanent relaxation of rules on using Right-to-Buy receipts.

But behind the point-scoring and alongside genuine arguments about resource allocation, the Secretary of State’s speech does seem to mark a dawning awareness that ignoring the UK’s capital when seeking to grow the nation’s economy is a dead end. If Gove can back his vision for Docklands 2.0 with funds and facilitation, and can resist the temptation to take over and micro-manage, he may find himself in an awkward alliance with Khan, even as general and mayoral elections approach.

First published by OnLondon

(I can’t get no) NHS satisfaction

Ask British people what they are proud of, and the National Health Service (NHS) will come near the top of the list. But, as the NHS celebrates its 75^th birthday, it does not seem to be in the best of health.

The National Centre for Social Research (NatCen)’s British Social Attitudes survey, supported by the King’s Fund and Nuffield Trust, has been asking about public satisfaction with the NHS for almost 40 years. Our 2022 survey, conducted last autumn, found the lowest levels of satisfaction since 1983. Only 29 per cent of people were ‘very’ or ‘quite’ satisfied with the NHS, and 51 per cent were ‘very’ or ‘quite’ dissatisfied.

More than two thirds of those expressing dissatisfaction cited the time taken to get a GP or hospital appointment as one of their main concerns. This reflects the worsening waiting list situation: nearly 2.9 million people had been on hospital waiting lists for longer than the Government’s 18-week target when the survey was undertaken in September 2022, four times as many as in September 2019 and nearly a million more than in September 2021. Other widespread reasons for dissatisfaction were the NHS not having enough staff and government not spending enough money on the NHS (mentioned by 55 and 50 per cent of people respectively).

Satisfaction levels have fallen across all services – general practice, inpatient and outpatient services, NHS dentists, and accident and emergency – but in most cases satisfaction was higher for those who had recent use of or contact with the service in question. One exception was social care (generally provided by local authorities rather than the NHS), where those who had used the service were far more likely to express dissatisfaction.

Faced with these deteriorations in performance and public perception, with the challenge of an ageing population, and with the opportunities presented by rapid medical advances, it is no surprise that the NHS is at the forefront of political debate. Cutting NHS waiting lists is one of the Prime Minister’s five priorities, and the Labour leader has pledged to “fix [the NHS’s] fundamentals, renew its purpose and make it fit for the future.”

But what public appetite is there for fundamental reform? Despite declining satisfaction, support for the founding principles of the NHS remains strong. 75 per cent of people said that the principle of the NHS being free at the point of use should still apply, while 69 per cent supported the NHS being available to everyone, and 51 per cent backed the NHS being funded primarily through taxes. There was majority support for each of these principles from supporters of the three main national parties, with some convergence: Labour supporters used to be much more supportive of funding through taxes, but their support for this principle fell from 68 to 55 per cent between 2021 and 2022, while Conservative support rose from 48 to 52 per cent.

There was widespread acknowledgement that the NHS has a funding problem, with 85 per cent of people describing this as ‘major’ or ‘severe’, but there was little agreement on how this should be tackled. When asked what policies would be acceptable if the NHS needed more money, the most popular response (chosen by 28 per cent) was to say that the NHS needed to live within its means, up from 15 per cent five years earlier.

Support for more taxes remains substantial but not overwhelming: 23 per cent and 20 per cent respectively support new ring-fenced taxes and an increase in general taxes; in both cases support has dropped since 2017. These responses may reflect the Government’s announcement of a health and social care levy (now shelved) in autumn 2021, and a feeling that funding had been ‘sorted’, but they do not show huge backing for higher taxes.

But nor is there much support for charging patients for GP visits, as suggested by former health secretary Sajid Javid and as implemented in countries such as France and Ireland. Just 13 per cent of respondents endorsed this idea, with even fewer backing accommodation charges for hospital stays, or rethinking current exemptions such as free prescriptions for some patients.

Public opinions on the NHS are contradictory. People love and are proud of it, but are deeply frustrated with how it is working at the moment. People want to see more staff and shorter waiting times, but they do not want to pay more taxes or to see new charges introduced. And they attach a higher priority to taking on more staff and getting waiting times down, than they do to helping people to stay healthy, which is at the heart of the Government’s long-term plan for the NHS.

But the challenges facing the NHS are too urgent to allow politicians the luxury of having their cake and eating it, of avoiding or postponing difficult debates and decisions. They need to talk to voters about how money can be spent most effectively, and about which funding systems, reforms, investments, and initiatives will promote national health and wellbeing, at a time of rapid technological and demographic change.

First published by NatCen

I love you, you fix my rent

The Renters (Reform) Bill, which had its second reading in the House of Commons last week, should be particularly good news for Londoners. Twenty-nine per cent of households – just over one million – in the capital are private renters, compared to 17 per cent in the rest of England, so the measures in the Bill, including its centrepiece abolition of “no fault” evictions, will be welcomed by many.

The legislation has been a long time coming. The reforms were first announced by Theresa May in April 2019, towards the end of her government’s lifespan. Toby Lloyd, former Head of Policy at Shelter, had been recruited as the Prime Minister’s special advisor on housing the previous year, and he helped make the case for the reform.

“There was definitely interest in the problems in the private rental sector, both moral and electoral,” Lloyd says. “Morally, there were people at Number 10 who really cared about the ‘burning injustice’ of how the housing market operated, and electorally there was growing awareness of the difficulty the Conservatives had in attracting young people. And occasionally, when the clouds cleared on Brexit, the government was keen to advance social reforms, especially if they could also wrong-foot the Labour Party, who hadn’t declared their policies at that time.”

Four years and three prime ministers later, we have the Bill. One of its central measures will be ending “Section 21 evictions”, which allow landlords to terminate a tenancy for any reason after six months. These are currently one of the driving forces behind homelessness in London: just under half of the 5,850 households at risk of homelessness at the end of last year were in that position because of the end of an assured shorthold tenancy was approaching, and in more than half of these cases the tenancy was ending simply because the landlord wished to sell up or rent the property to someone else (presumably for a higher rent).

Under the reforms, landlords will still be able to end tenancies if they wish to live in their property or sell it, and will have enhanced rights to evict tenants who fall behind with their rent or display “anti-social behaviour”. Otherwise, tenancies will be open-ended, with landlords allowed to raise rents annually. To avoid “eviction by rent increase”, tenants will be able to challenge any proposed rent rises above “market value” at a tribunal. This provision always existed in theory, but the risk of arbitrary eviction made it toothless: landlords could simply use the Section 21 process to boot out any truculent tenants.

Taken together, these reforms begin to sound like a version of rent control, though Lloyd’s experience of selling the measures to sometimes sceptical Conservative ministers leads him to prefers the term “rent stabilisation”. They certainly falls short of what Sadiq Khan is calling for – a two-year rent freeze and a rent control commission to set rents thereafter (not least because market rents have begun to rise sharply in recent months after a period of slower growth). However, the Bill’s measures should act as a curb on the most egregious rent rises.

Not everyone is happy, however. Landlord representatives warn that the complexity of evicting tenants under the new rules may combine with a loss of tax breaks to push landlords to sell their properties. However, Toby Lloyd is sanguine: “Landlords have been saying this since I started to work in housing, but the truth is that the sector is still growing.”

And, if landlords did quit, would it matter? They would presumably sell their property, either to another landlord or to an owner-occupier. When I asked about this on Twitter recently, several respondents made the sensible point (Twitter isn’t what it used to be) that moving property from rental to owner-occupation might support a different market. One recalled, “when we sold our rental flat in Hackney, it went from being occupied by a young Bangladeshi family to a single white guy with a taste for modernist architecture.” And, she added, landlords might be more demanding in terms of references if they felt tenants would be harder to evict, which could “effectively bar a cohort of people on the financial margins.”

One solution, of course, would be to build more social housing, so that people at the margins had other options. But there are already different private rental models. Some professionalised “build-to-rent” landlords have endorsed the abolition of Section 21 evictions: Grainger, the UK’s largest listed landlord, welcomed the reforms, saying that “many of the proposals in the Bill align with Grainger’s business model.”

And maybe there is also room for what Lloyd, Rose Grayston and Neal Hudson called in a report published earlier this year an “ethical private rented sector” in which not-for-profit providers could buy property from smaller landlords who wanted to sell up, as community-based housing associations did in the 1960s.

The transition to the new system will inevitably be bumpy, leading to particular problems in specific cases (for example, for student rentals), and Londoners still need more homes and a better choice of affordable rental flats and houses. The Renters (Reform) Bill does not solve all of London’s housing problems, but remodelling the rental market to support responsible private landlords and squeeze out those whose behaviour is little short of criminal is a good start.

First published by OnLondon

Talking to the taxman about demographics

Recent figures suggest that London may already be bouncing back from the twin shocks of Brexit and the pandemic. The figures, based on pay-as-you-earn (PAYE) tax data, suggest that the number of working people living in London increased by just over three per cent between December 2019 and December 2022, an increase of around 138,000.

Tagged as “experimental statistics” by the Office for National Statistics (ONS), they count the “payroll population” – that is, the number of people on payroll, including those on furlough or sick leave, based on their home address. Therefore, they do not show the number of jobs in London (some of these people will commute out, while others commute in) nor do they show the whole population (they exclude self-employed people and people who are not working for whatever reason).

All that said, they provide another strong indication that whatever population exodus London saw during the first year of the pandemic has since gone into reverse. The chart below shows the trajectory of this change. March 2021, the month of the 2021 Census, is at the lowest point of the dip.

The composition of London’s payroll population has changed over this period, reflecting the implementation of Brexit in 2020 and new immigration rules in 2021. London’s EU worker population has shrunk by about ten per cent (80,000 people), while its non-EU worker population grew by around 20 per cent (150,000 people). The UK national workforce fell by about five per cent during the pandemic, and is now two per cent higher than it was in late 2019. The chart below shows how the three populations have changed.

The rest of England also saw growth in its non-EU workforce. Though this growth was largest in numerical terms in London, the proportionate increase in North East and North West England was much sharper: the number of non-EU workers living in these regions increased by 65 and 47 per cent respectively (and the number of EU workers fell less). This largely accounts for faster payroll population growth rates in these regions, as shown in the chart below. London’s growth is just above the English average, but higher than its southern neighbours’.

At the moment, the rise in the number of workers from outside the EU has been spread across the country, reflecting the fact that growth has been sharpest in “nationwide” sectors such as health, construction and transport. As the economy recovers, that trend may continue or else immigration will become more concentrated in London (as suggested in a previous article).

What does this tell us? Despite their limitations, these ONS figures suggest that London has begun to adapt to and recover from the double whammy of the pandemic and Brexit. And they confirm the need for caution urged by the Greater London Authority and others over using the Census figures to argue against investing the capital’s services – 2021 was a very odd year.

First published by OnLondon

AI: reshaping the knowledge economy

Since their earliest days technology has shaped cities. The industrial revolution founded the great manufacturing centres of the 19th Century; trains fuelled London’s growth, replacing market gardens with metro-land; and global information and communication technology networks founded a network of global cities in the late 20th Century.

Right now, social media are clamorous with hype about artificial intelligence (AI), and the pace of change seems dizzying. Anyone who has played with “generative” AI tools such as OpenAI’s ChatGPT, Google’s Bard, or Midjourney’s image generators will have experienced the uneasy feeling that they are dealing with something sentient, however much they know that these systems merely aggregate and recombine information.

Prompt engineering is not straightforward, as this Midjourney representation of ‘futuristic London’ illustrates.

What impact is this wave of innovation likely to have in London, and on London’s economy in particular? In recent weeks, a few academic and commercial studies considering the labour market impact of generative AI have been published. This article tries to weave together some of their threads.

One piece of positive news is that London is the leading European city for AI. A 2021 survey by the government’s Digital Catapult identified the UK as the third most important centre for it after the USA and China, with more than 70 per cent of UK AI firms and – judging by 2020 job postings – around a third of all new advertised AI jobs based in London.

London’s tech sector has grown fast and is estimated to employ around 900,000 people. But the impact of generative AI is likely to extend beyond the capital’s silicon centres and suburbs. One team of researchers, Tyna Eloundou and colleagues, have looked at detailed task descriptions for US occupations to estimate the impact that generative AI technologies could have. Overall, they estimate that 80 per cent of the USA workforce could be affected by them, with around 20 per cent being heavily affected. The impact would be greatest for higher paid jobs and those held by graduates.

The research team has not published details of its analysis, but does summarise the impact on different industries. At the top of the list, with more than 40 per cent of tasks affected, are various financial services and IT subsectors, as well as a publishing and broadcasting (non-internet), and professional, technical and scientific services.

A Goldman Sachs report reaches similar conclusions. It argues that the impact of generative AI will be greatest in advanced western and far eastern economies. In Europe, it suggests the greatest impact will be on professionals, associate professionals, clerical support workers and managers, with legal service and office administration likely to be affected most heavily.

These findings map pretty squarely onto the three categories of professional services which dominate the London economy: information and communications; finance and insurance; and professional, scientific and technical services. These sectors have grown in importance in the capital. They made up 31 per cent of jobs in London in 2022 compared to 27 per cent in 2012. They are also concentrated in the capital, accounting for almost twice the proportion of jobs as across the UK as a whole.

Saying that these “knowledge economy” sectors are those most exposed to the impact of generative AI is more or less the precise opposite to what Centre for London colleagues and I found five years ago in our report on disruption to the capital’s labour market. Based on an analysis of how “automatable” different occupations were, we argued that London’s information and communications and its professional, scientific and technical services had the lowest automation potential (finance and insurance was slightly higher).

Why the difference? Were we wrong? Are these new analyses wrong? What has changed? Without re-running our analysis, I suspect part of the difference lies in occupational mix. Many London workers undertake more specialised and knowledge intensive tasks within particular industries. Underwriting risk at Lloyds of London is very different from working in a claims call centre.

But I think our expectations have shifted too. Generative AI is a qualitative change. When we wrote the Centre for London report, we were generally talking about the scope for specialised algorithms to automate specific routine tasks. These new technologies go further: they can draw on huge databases to generate new content. They can respond to simple user requests, writing and refining algorithms on demand. They can draft summaries, presentations, poems and speeches. They are creating visualisations. They are even being deployed in therapy. This is extending their reach much further into professional services than we envisaged.

Will this change destroy jobs? The traditional response is to say, “No! Every other technology has created jobs. This will too.” I think that is certainly right in the short term. The measure of impact used by the Eloundou study is whether generative AI could theoretically speed up tasks by more than half. A recent empirical study found that AI-enabled workers took an average of a third less time to complete certain standardised tasks and produced a better graded submission at the end. Workers also expressed more job satisfaction, spending more time coming up with ideas and editing, and less time drafting.

This sounds like a potential boost to productivity for London’s service sectors – one the capital and country urgently need. Productivity gains can, of course, be realised by cuts in wage bills, but that is only part of the story. AI may also unleash supply of and demand for new products and services. Economics blogger Noah Smith has compared its impact to that of machine tools, which displaced craft manufacture but led to ever increasing demand for goods and employment in manufacturing – at least for a century or so.

London is perfectly positioned to catch this wave of opportunity, creating new software to meet new demands and launching a new wave of hybrid services, following in the path of fintech and medtech. But the impact may go deeper still. Eloundou and colleagues argue that generative AI is already showing signs of being a “general purpose technology” like printing or steam engines, characterised by “widespread proliferation, continuous improvement, and the generation of complementary innovations”. If that is the case, AI will change our world in ways that we cannot yet comprehend.

All this is wildly speculative. At the extremes, London could be left unaffected by AI, though I fear that would be the stagnation option. Or AI may destroy humanity, making predictions moot. Between these poles, job destruction is by no means certain and if AI allows more leisure time alongside more equitably shared prosperity, that might not be a bad thing. But disruption probably is. London could be in for an exciting but choppy few years.

First published by OnLondon

AI: reskilling for the rough beast

I’d like to say that I asked ChatGPT to write me a first draft of this blog, but a) it’s a tiresome cliché, and b) the platform was overloaded when I started writing, so I couldn’t. I’m not surprised. Even over the past couple of months, talk about and use of large language models (LLMs) such as ChatGPT and Bing seems to have been growing exponentially. LLMs will render essay-writing at universities obsolete, hugely accelerate the production of first drafts, and automate the drudge work of academic research.

I am undertaking research on the skills that we will need in the future, and it feels difficult to get a handle on how LLMs and their artificial intelligence (AI) successors will affect these, given the speed at which innovation is advancing and use cases are multiplying. But it also feels careless going on negligent not to do so. So, what might it mean to work with this rough beast, as it slouches towards our workplaces?

Robert Reich’s The Work of Nations

AI will, I think, transform what we currently call the ‘knowledge economy’. Thinking about this sent me back to Robert Reich’s The Work of Nations, and its analysis of the ‘three jobs of the future’. ‘Routine production’ jobs, he wrote, were poorly valued jobs in everything from manufacturing to book-keeping, often moved overseas when he was writing, but also increasingly vulnerable to automation. Many of Reich’s second category, ‘in-person service’ jobs, are less vulnerable to moving overseas (although many are still low-valued by society): even if some shopping has gone on-line, there are still jobs – from brain surgeon to hairdresser, and from bartender to care assistant – that are defined by the need for proximity. The third category, Reich slightly awkwardly describes as ‘symbolic analysts’, comprising everyone from consultants, software engineers and investment bankers, to journalists, TV and film producers, and university professors. These are the elite tier of the global knowledge economy:

“Symbolic analysts solve, identify and broker problems by manipulating symbols. They simplify reality into abstract images that can be re-arranged, juggled, experimented with, communicated to other specialists, and then, eventually, transformed back into reality… Some of these manipulations reveal how to deploy resources or shift financial assets more efficiently, or otherwise save time and energy. Other manipulations yield new inventions – technological marvels, innovative legal arguments, new advertising ploys for convincing people that certain amusements have become life necessities.”

Reich was writing 30 years ago. Since then, the offshoring and automation of routine production has gathered pace, while the rewards accruing to symbolic analyst jobs have increased. But Reich’s description of symbolic analyst jobs underlines how the very features that protected them from routine automation (the combination of analytical skill, a reservoir of knowledge and fluency in communication) may now expose them to a generation of technology that will become increasingly adept at manipulating symbols itself, even if it cannot (yet) ‘think’ or ‘create’. From an architectural drawing to a due diligence report, to an advertising campaign, to a TV show script, to a legal argument, to a news report – there are very few symbolic analyst outputs that LLMs will not be able to prepare, at least in draft.

Revisiting Osborne and Frey

Another way of thinking about the potential impact of more advanced AI on the knowledge economy workplace is to revisit Michael Osborne and Carl Benedikt Frey’s hugely influential analysis. Writing in 2013 Osborne and Frey identified the ‘engineering bottlenecks’ that have held ‘computerisation’ back from specific tasks, and were expected to do so for the next two decades. These included complex perception and manipulation activities, creative intelligence tasks (from scriptwriting to joke-making), and social intelligence tasks (such as negotiation, persuasion, and care).

The growth of LLMs chips away at the second of these, as machines draw on extensive databases to generate coherent content, though their joke-making skills are still a bit iffy. LLMs are also starting to make inroads into the third, as they are deployed as companions or therapists, even if their empathy is performed rather than felt. Engineering bottlenecks still constrain automation, but some are widening much faster than Osborne and Frey predicted. Indeed, one recent assessment suggests that the use of LLM technology will have an impact on around 80 per cent of US workers, with the impact greatest for higher-qualified and higher-paid workers.

That is not to say that AI will ‘destroy jobs’. Like other technologies, AI will probably create new jobs and remodel others. For the moment, there is craft in minding these machines; you need to know how to give instructions, ask questions and evaluate answers. In this, LLMs are like the oracles of classical antiquity, whose riddling utterances contained truth but needed careful interpretation. LLMs can produce good drafts and their accuracy is improving, but they can also ‘hallucinate’ facts, and assert them with a delusional and sometimes aggressive confidence.

This task of interpretation and intermediation is not that far removed from how many professions operate today. Architects, doctors, lawyers, accountants, scriptwriters – even academics – are not pure symbolic analysts, working in an entirely abstract world. Part of their skill, maybe most of it at the top of their professions, is interpersonal – motivating and managing staff, pitching ideas and winning business, convincing clients and colleagues. For these professionals, the current crop of LLMs are best deployed as responsive and multi-talented assistants, which do not get bored, demand pay, or insist on meaningful career development.

Automating menial tasks will disrupt professional development

What does this mean for actual flesh-and-blood assistants and their career development? In many modern professions, life for new recruits is a slog of preparing legal notes, PowerPoint decks, due diligence, and audit reports. I get the sense that some of this is already ‘make-work’, designed to acclimatise a new graduate to the codes and the culture of their profession, but also to give them a chance to see and learn from interactions – in the courtroom, at the client meeting, at the pitch.

If it becomes ever easier and cheaper to commission material directly from machines, that will create a problem not only for future generations of graduates, but also for those at the top of the professions, who will not be able to rely on a stream of graduate trainees to step into their shoes. Even as automation boosts productivity, it will disrupt professional development and may, in the words of one economist, “have stark effects on the value of cognitive labour”.

Furthermore, in the longer term (and I am thinking years not decades), inaccuracy may be less of a problem than the erosion of doubt. A lot of work has already gone into stopping newer LLMs spouting racist opinions like their predecessors did; future models will likely be much clearer about the ‘right answer’ to any question and about the truth of different propositions. Much of this will be helpful, though the lack of transparency and contestability is frustrating.

Minority opinions marginalised and moral judgement at a premium

But as regulation strengthens the guardrails around AI, there is a risk that some minority opinions will be marginalised and eventually expunged. Many of these will be conspiracy theories, junk science and fake news. But they may also be the small voices of gritty corrective to the dominant narrative – the proponents of ‘lab leak theories’ of COVID-19, the dogged campaigners against over-prescription of painkillers, the investigative journalists who stick to the story in the face of denials and threats.

This has inevitably already become a new front in the ‘culture war’, with some media getting angry that ChatGPT refuses to promote fossil fuel use, sing paeans of praise to Donald Trump or say that nuclear war is worse than racist language. So far so funny. But the more the unified version of the truth promoted by AI squeezes out alternative understandings of facts, let alone alternative interpretations of how they should guide our behaviour, the more we will need the ability to challenge and debate that truth, the imaginative capacity to transcend guardrails.

So, what does this all mean for skills? A knowledge economy in which LLMs are increasingly widespread will require critical judgement, a basic understanding of how coding, algorithms and emerging AI technologies operate, the ability to work with clients and colleagues to refine and use results, and the diverse and creative intelligence to challenge them.

Perhaps above all, we will need sophisticated moral judgement. LLMs and their AI successors will be able to do many things, but there will be so many complex judgements to be made about whether and how they should. Who will be accountable for any errors? Is it for a machine to define truth? Should it do so by reference to a consensus, or its own judgements of correspondence to reality? At an existential level, how should we achieve the alignment of AI and human interests? How are the latter to be defined and articulated? What balance of individual and social goods should be struck? Where are the boundaries between humans and machines? Do the machines have rights and obligations?

Today we muddle along, reaching consensus on moral issues through a broad process of societal mediation, with horrible moral errors along the way. Tomorrow, we have the potential for a new age of turbocharged progress and moral clarity, a prospect that is at once scintillating and unsettling.

First published by LSE Business Review.

Working it out

Local and regional employment statistics from the 2021 Census were released this week, giving a snapshot of who is working in London and how this compares with the rest of the country. There are caveats, given that the Census was undertaken in March 2021 at the end of the last Covid 19 lockdown when some Londoners had moved out of the city. Also, these figures are about residents’ economic activity as distinct from the jobs in London’s workplaces. Nevertheless, here are four observations about how Londoners are working, from a brief review of the data.

Employment rates are high in London, but partly for demographic reasons

At first glance, London boroughs are hives of economic activity. There are 331 English and Welsh local authority districts and five of the ten with the highest employment rates were in London. Wandsworth, Lambeth and the City of London took the top three slots, with Southwark and Merton not far behind. All had 65 per cent employment rates or higher.

But these numbers are skewed. Firstly, the headline Census figures look at the entire population over 16 years old, including those above retirement age. London has a younger population than the England and Wales average, and young people tend to work more than older people.

By this measure, therefore, you would expect to find higher employment rates in London. But if you look at employment rates only for those aged 16-64, London boroughs are towards the middle or bottom of the table.

The second factor that seems to have affected London’s figures surprised me. In addition to the effect of having a younger population, older Londoners are much more likely to be working than counterparts elsewhere.

Overall, 14 per cent of people in the capital aged 65 and over are still working, and London boroughs account for eight of the ten districts with the highest employment levels nationally.

The City of London, Kensington & Chelsea, Camden and Westminster all have more than 20 per cent of their older residents in work. London is not so much the city that never sleeps as the city that never retires.

There’s a big employment gap for disabled Londoners, but fewer are economically inactive than in other regions

The employment rate for disabled people over 16 living in London is just under 30 per cent. This is higher than in other regions, though there is a stark gap between employment for disabled and non-disabled people: the employment rate for the former group is 38 per cent lower than for the latter.

There is also a relatively high proportion of disabled Londoners who do not have a job but are looking for one. However, fewer disabled Londoners are economically inactive (ie, not in work, but not seeking work either) than in other regions.

Whether this pattern is because London’s labour market can work well for disabled people, or because economic circumstances and sanctions force more of them to keep looking for work in the capital, is not clear from these figures. Trust for London and other organisations have done extensive work on the subject.

Women’s employment rates are relatively high, but the gender employment gap varies markedly across the city

The employment rate for women in London aged 16 and over was around 57 per cent. That’s higher than in any other English region. Eight inner London boroughs had rates of above 60 per cent.

At the same time, and in common with every other English and Welsh local authority district, employment rates in London boroughs were higher for men than for women. However, there is a very mixed picture across the city.

Newham, Redbridge, Tower Hamlets, Harrow and Barking & Dagenham are five of the eight English and Welsh districts with employment gender gaps of more than 12 per cent, while Hackney, Lambeth and Lewisham have gaps of five per cent or less, which are some of the lowest.

This may partly result from demographics: the boroughs with low employment gaps have many young, single (or newly-coupled) professional people, while the boroughs with wider gender gaps have some of the highest birthrates in London and include communities in which, for cultural reasons, women may be less likely to work.

Worker growth is outstripping general population growth in East London

Between 2011 and 2021 London’s working adult population aged 16 and over and its total population aged 15 and over both rose by around 8.5 per cent. But growth was very unevenly distributed (see chart below).

The east London boroughs have seen rapid increases and in most cases their working population growth has outstripped their general population growth. Other boroughs, particularly in other parts of north and west outer London, have seen their working population grow more slowly than their overall population, and a handful of west-central boroughs have seen a decline in both groups.

Taken together, these figures suggest that London continues to contain extremes of employment and worklessness. Zooming into the ONS’s detailed map, you can find blocks where 15 per cent or more of people aged over 16 are unemployed and looking for work within boroughs that have grown their workforce by 25 per cent over the past ten years.

Londoners are unquestionably working hard. More women, more older people and more disabled people are in the workforce. To what extent this is a result of making positive choices and the general industriousness of urban life, and how far it is driven by the exorbitant costs of living in the capital is another question.

Originally published by OnLondon.