The coronavirus pandemic has left the Greater London area with an estimated £5.7billion black hole in its public finances – after the lockdown and work from home economy sapped £575million a day from the capital’s economy in a £66.9billion hammer blow.
Now taxpayers face having to pick up the bill for the lost revenue in fares, business rates and council taxes to keep the city running as millions of office employees shun their commute and continue to work from home.
Public transport use in the capital remains 36% below normal levels, while road traffic is only just approaching normal levels and experts say it could take up to a year for the capital – which contributes 23% of Britain’s GDP – to recover.
Lost fare revenue will leave TfL needing an estimated £3.5billion for the year despite a £1.6billion government bailout in May and Sadiq Khan‘s decision to increase the congestion charge by £4.50 to £15 a day. Tube and bus fare revenues were down 90% at the height of the lockdown.
London Councils have lost out on £1.4billion thanks to lost income from council tax, business rates and charges for council services while each borough’s spending on services during lockdown has gone up.
The Greater London Authority, which is mainly funded by government grants, has also suffered a £493million from the loss of its share of tax revenue .
Economists at law firm Irwin Mitchell and the Centre for Economics & Business Research estimated London businesses were losing £575million a day at the height of the lockdown.
Their findings suggest that each day at the height of the lockdown, the London hotels, restaurants and pub sector lost £54.7m a day in revenue, office work including professional services in the City lost £50m a day, financial services £50m and arts, entertainment and recreation £31.9million.
Their estimations project a £66.9bn impact to London’s GDP in lost revenue over the course of the pandemic to date, calculated according to each sector’s usual Gross Value Added.
With such a plunge in business revenue in the capital – and a resulting gaping hole in public finances – commentators including The Institute of Fiscal Studies think tank believe higher taxes are inevitable and ‘a reckoning, in the form of higher taxes, will come eventually.’
Sadiq Khan has also recognised that companies’ empty city offices are killing the capital’s economy
Mr Khan said last week: ”The key thing I think we need to understand is that if we all stay at home working it’s a big problem for central London.
‘Many small businesses rely on your workers going to work, the café bars, the dry cleaners, the shoe repair shops and others.
Addressing the big firms who have allowed their staff to work from home for the forseeable future, he added: ‘Of course there’s a choice for you to make a big employer. I love London because of its eco-system. I don’t want a hollowed-out London.’
TfL is facing the biggest hole in its finances in the capital because employees working from home have devastated its fare revenues
Retail and recreational activity plunged by billions of pounds during London lockdown. This graph shows business activity in the plunging in the capital when lockdown was introduced and only slowly recovering.
Unemployment has also hit London harder than the UK in the past year. This report from the London Assembly shows a proportionally bigger increase in the number under-30s hit claiming unemployment benefits
Experts say that while the London economy is rebounding. It is being hampered by the drastic reduction in commuters, almost non-existant business travel and tourism
In May a survey of 75 MPs across all major parties showed 72 per cent agreed taxes would increase post pandemic.
And even with no further lockdown or restrictions it will take at least a year for the capital to return to bringing in anything like the money it was pre-lockdown.
London School of Economics expert Professor Ricardo Reiss told MailOnline: ‘For London, the drop in business and travel tourism has been a huge drag on the economy, whether it’s people coming over to sign a deal or to visit the Tate Gallery.
‘I would expect some rebound from the big fall we have seen but I would be shocked if it was anything like a 100 per cent return. In other countries it has been maybe half of the losses.
‘It will take at least a year for a recovery to happen, if conditions stay the way they currently are.
‘For London the economy relies a lot on finance and on business travel. I think the quarantine rules for various countries have really affected that. I think that needs to change to make it better.’
Travel in the capital is also extremely low compared to pre-coronavirus levels. This mobility graph shows how public transport usage in the capital is still 36% below normal while driving has rebounded to within 7 per cent
Consumer confidence in London is higher than in the UK as a whole but it still down over 10%
London borough councils have also warned services in the capital face a £1.4 billion funding black hole because of coronavirus.
They said spending had increased on key services during the pandemic but money coming in from fines and charges had plummeted.
The boroughs estimate the financial impact of Covid-19 will exceed £2 billion this year, although they have received £587 million in emergency funding from the government.
Councillor Peter John OBE, Chair of London Councils, said: ‘Boroughs have played a crucial role in London’s response to Covid-19.
‘We’re proud that we helped more than 5,000 rough sleepers into emergency accommodation, delivered more than 80,000 food parcels to vulnerable residents, and secured millions of items of PPE for use in our local communities.
‘All this work has been essential for keeping Londoners safe and slowing the spread of the virus.
‘However, the pandemic has played havoc with our finances. In March the government assured councils that it would do ‘whatever is necessary’ to support our efforts to help residents and businesses through the pandemic.
‘But the extra money provided so far is not nearly enough to cover our costs. Boroughs are instead left facing a massive £1.4 billion shortfall.
‘We’re extremely concerned about the implications for London’s local services, which so many Londoners rely on, and the capital’s post-pandemic recovery.
Coronavirus lockdown restrictions have left public services without money and shops in peril
Transport for London says it needs another £3.5billion for the next year after demand dropped
‘The government must move quicker to stabilise council finances and to commit to long-term, sustainable funding for the sector as part of its upcoming Comprehensive Spending Review.’
Among the sectors hardest hit in the London economy are the tourism industry and the arts.
London’s visitors make up 53 per cent of all inbound visitors to the UK, but travel restrictions combined with high Coronavirus cases have made it an unattractive option for some travellers.
Visit Britain had predicted pre-pandemic that people from abroad using the UK tourism industry would bring in £30.3billion.
But when the pandemic hit it downgraded its total to £10.6billion.
Because London accounts for over half of inbound visitor spend, this creates a black hole of at least £5.3billion in tourism lost.
The New West End Company has also said that the number of people visiting the area increased when non-essential retail stores reopened on June 15, but was still half of what was expected.
Experts in the group, which acts for 600 retailers and landlords in Oxford Street, Bond Street, Regent Street and Mayfair, believe there will be a £5billion drop in retail sales.
George Bull of tax firm RSM UK said he believed there was one way to raise the kind of money needed to plug the gap.
He said: ‘The Government has been successful in getting people to adhere to unprecedented social distancing rules and living their lives in a completely different and uncomfortable way.
I think, due to the severity of the situation, they will be betting on winning similar support, even for something as unpopular as raising taxes, which this Conservative party promised it would not do.’
Kate Ogden, a research economist at IFS, said that more targeted support for councils should be considered.
She said: ‘Just how much the Covid-19 crisis will cost councils this year is highly uncertain, but councils’ current forecasts imply around £2 billion of unfunded spending and non-tax income pressures.
‘And while drawdowns from reserves may be sufficient to address these for many councils, particularly high pressures or low reserves mean this will unlikely be enough for all.
‘Uncertain and highly variable pressures across councils mean it may be difficult and costly for the Government to address this problem by further increases in general grant funding alone. More targeted support should therefore be considered too.’