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HBEM 2.0 - Upward Revisions Significant growth set to continue This report sets out the key changes in the Host Boroughs since 2010, how this has impacted.

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Presentation on theme: "HBEM 2.0 - Upward Revisions Significant growth set to continue This report sets out the key changes in the Host Boroughs since 2010, how this has impacted."— Presentation transcript:

1 HBEM 2.0 - Upward Revisions Significant growth set to continue This report sets out the key changes in the Host Boroughs since 2010, how this has impacted on the outlook and the implications for future planning. This report accompanies a full update of the Host Boroughs Economic Model (HBEM 2.0). Prepared for the Growth Boroughs Unit

2 Overview 2 Executive summary – significant growth set to continueIntroduction and purpose of studyHow have the outlooks changed at a global, national and local level?Host Boroughs: revisions and outlooksThe impact of major economic developments Scenario 1: Economic developments The impact of major residential developments Scenario 2: Residential developments with complete additionality Scenario 3: Residential developments with no additionality but with higher propensity to work Scenario 4:The impact of all planned developments (economic and residential)The Host Boroughs and public financesConclusions

3 Executive summary – significant growth set to continue 3

4 HBs have been performing strongly, but still have issues The Host Boroughs have captured a growing share of London’s employment and GVA. They have been amongst the fastest growing boroughs over the recession in London (with respect to employment) and they have experienced amongst the largest growth in population. Population increased by 176,000 from 2005 to 2011. Though perhaps more importantly, the evidence suggests a significant proportion of these new residents boast high levels of skills, with an increase of almost 168,200 people with degree level skills at a time when mid-tier skills remained consistent. As a result, the additional population will have a high propensity to be employed (and conversely a lower likelihood of being unemployed or inactive). This is an important trend. Despite there being relatively fast employment growth, unemployment rates in the Host Boroughs are amongst the highest in the region and resident employment rates are currently 5.5pp below the regional average and are forecast to fall (under our policy neutral outlook). This highlights that despite the prosperity of employment growth and significantly increasing skill levels, there still remains a body of lower skilled, potentially disadvantaged and disenfranchised people across the Boroughs. Engaging with this cohort, encouraging new skills and increased employability is key to future prosperity across the sub-region. The modelling shows that under current trends, only 46% of all new jobs will be sourced locally; 46% will go to commuters and 8% to new migrants. However, this analysis is based on 2001 Census commuting patterns. How is has changed over the last decade remains to be seen. Synergising the links between engaging with the disenfranchised and increasing the proportion of local people attaining local employment should be a key strategic aim across the Host Boroughs. 4

5 Our baseline outlook is more positive than we forecast previously 5 A combination of data revisions and a changing macro environment mean our outlook for the 6 local economies has changed since our 2010 study. The charts on the right show our current baseline outlook for the HBs and our old 2010 forecasts. We now estimate resident employment levels to be notably higher than those forecast three years ago. However the revisions to population levels have had a more significant impact. Looking forward, population is expected to continue growing strongly. We estimate there will be an additional 312,000 people by 2030. Consequently, the employment rate falls over the forecast period. As such without planned investments, the sub- region will continue to suffer from: ■high levels of unemployment; and ■falling resident employment rates

6 Planned developments could have significant impact In its entirety, the planned developments in the Host Boroughs could lead to an additional 521,000 people living in the Boroughs (from current levels), bringing the total population up to over 2 million, or one fifth of the Greater London population (compared to 18% currently). This represents the most significant upside potential for the HBs. Ensuring suitable housing is in place to accommodate the forecast surge in population – and the inherit benefits – should be a key aim for the HBs. An additional 190,400 jobs above base could be created in the sub-region, generating an additional £36bn in GVA. Higher employment levels would generate an additional £20bn in workplace earnings or £15bn in resident terms, leading to significantly higher levels of consumer spending in the sub-region. 6

7 Leading to a healthier outlook for the labour market This level of growth would be enough to push the resident employment rate to 60.3% in 2030, 2.7% points above the baseline projection for 2030. Nevertheless, the employment rate is still forecast to fall over the period and be 5% points below the Greater London average. The unemployment rate is forecast to decline steadily, reaching it’s lowest point of 4.1% in 2020, before it plateaus out over the remainder of the forecast period. Despite the more positive labour market outlook, the scale of change and growth in the HBs means there are some real challenges for the Councils to overcome, including: ■Adequate infrastructure; ■An efficient planning process to adapt quickly; ■Significant housing demand; ■Demand for more public services; ■Pockets of unemployment and deprivation; and ■Adequate skills supply. 7

8 Forecast summary 8 Forecast summary under alternative scenarios, HBs, 2012 & 2030

9 Introduction and purpose of study 9

10 Introduction Oxford Economics were commissioned to update the 2010 Host Boroughs Economic Model (HBEM). This update (HBEM 2.0) has built upon the robust methodology used for the original HBEM, with the new SIC07 sectors built in and an incorporation of the Flegg & Webber input-output modelling framework (an established academic approach to sub-national level input-output modelling). Over the interim period, our baseline outlooks have been updated, driven by changing macro conditions, latest data releases, and in some cases, significant data revisions – notably to migration and population levels (with Newham a particular example). This report is designed to be a concise overview of our latest outlooks vis-a-vis our 2010 base and includes a brief discussion of the potential impacts of the economic and residential developments planned within the Host Boroughs (estimated using the HBEM 2.0). We have included 4 scenarios within the report; Scenario 1 considers the impact of all of the economic developments; Scenario 2 considers the impact of all of the residential developments, as if they were entirely additional to the baseline forecast. Scenario 3 incorporates the residential developments as facilitating baseline growth, but alters the characteristics of the incoming population, assuming a greater propensity to work. Scenario 4 considers the impact of all developments – both economic and residential. The next two sections discuss and compare our latest outlook against out 2010 base, at a global, national and Host Boroughs level. The following sections provide a high-level overview of the impact of the planned developments (the scenarios). In due course, a section discussing the fiscal position of the Host Boroughs will be added. Annexes provide Borough-by-Borough level scenario impacts. All impacts from the HBEM 2.0 outlined in this report include the direct, indirect and induced impact. 10

11 How have the outlooks changed at a global, national and regional level? 11

12 Why have the outlooks changed? 2011 and 2012 have been very volatile, and instead of the anticipated economic recovery, the Eurozone together with the UK experienced a double dip recession. Our short term outlook is for a fragile recovery in 2013, followed by stronger growth in 2014 and beyond. This outlook underpins our regional and borough forecasts. There have been significant revisions to the UK labour market and population data, which has affected our UK and regional forecasts via changing historical trends. In addition, the move from the SIC03 sectoral classifications to the SIC07 classifications has provided a greater insight into sectoral trends, allowing more flexibility in our sectoral forecasting. The main downside risk remains the worsening of the Eurozone debt crisis and the potential break up of the single currency area. However the situation currently looks more stable than a year ago thanks to a number of innovative policy measures by the ECB and progress being made towards a banking union. The most notable upside risk is the resolution of outstanding fiscal issues in the US, which would encourage investment and hiring. As world trade picks up, this would help build the momentum in the emerging markets. 12

13 Global outlook In our last report the baseline forecast for the Eurozone economy was a relatively strong recovery during 2010-12. However due to the development of the debt crisis in its southern members (Portugal, Italy, Greece and Spain) the Eurozone economy contracted in 2012. Our short-term forecast is somewhat different this time round, with GDP expected to fall by 0.1% in 2013 before rebounding at a rate of 1.1% in 2014. After that the growth path is forecast to converge on our long-term view and settle at an average rate of 1.6% over 2015-20 and 1.4% over 2020-30. Although we expect the recession to continue this year, at the start of 2013 the Eurozone seems much more secure than a year ago. The risk of an imminent break-up or a major credit crunch has diminished significantly and the external environment looks more stable than in early 2012. This means we are more confident in our baseline forecast, which sees the Eurozone holding together. To the extent that businesses also perceive a reduction in downside risks, this should help to boost investment, at least by cash-rich companies, compared with 2012. Elsewhere in the world there are also positive signs, with the US avoiding the fiscal cliff (albeit some decisions are still to be made), and by doing so avoiding falling back into recession which would have had a big negative effect on world and Eurozone growth prospects. In China, monetary policy measures have already begun to help domestic activity and we expect its growth to accelerate in 2013. 13

14 The UK outlook: GVA After experiencing a major recession during the 2008- 09 financial crisis, the stable recovery anticipated in 2011-12 did not happen, and instead the UK saw a double dip in its GVA in 2012 (with contractions in 2011Q3 to 2012Q2). The main reason for this has been the ongoing debt crisis in the Eurozone which has affected the UK through a number of channels. Most notably, recessions in a number of EU countries meant that there was lower demand for UK exports, resulting in a poor trade performance in 2012. Furthermore, the general economic uncertainty and speculation of the Eurozone break up has caused many businesses to defer their investments and exercise caution in decision making. We now estimate the UK 2012 growth to have been around zero, with weak trade wiping off almost 1% point off the potential GVA growth. Our forecast is for a recovery in 2013-14, driven by a slowly falling inflation, leading to an increase in real incomes and consumption, with expected GVA growth of 1.4% in 2013 and just below 3% thereafter. 14

15 The UK outlook: jobs and people Since the 2010 report, UK labour market data has been revised at all regional levels, and the UK employment in 2012 is now estimated to be 1.08 million higher than previously reported. Considering a generally difficult 2012, employment held up well growing by 1.6%. However, because employment grew strongly while GVA stagnated, many firms have now filled their positions and are not likely to recruit again until the economy picks up. Therefore we expect almost zero employment growth in 2013, and then an acceleration to 0.6-0.8% from 2014 onwards. Because of this spare capacity we are now forecasting UK employment to get back to its 2008 peak by 2016 (previously 2014), and to reach 34.6 million by 2030, up from 33.4 million predicted in our last report. Population data has also been revised due to the release of the latest national census results, with the 2012 level currently at 63.6 million, up from 62.6 million previously quoted. 15

16 London outlook Following the revision in the UK labour market data, London’s employment level for 2012 is now estimated at 5.03 million, 261,000 higher than previously thought. This new data reflects London’s stronger performance over 2010-11, and in fact our estimates show that London’s total employment is already almost back to its pre-recession levels. This rapid bounce-back was driven largely by the accommodation & catering (thanks to the Olympics led rebound in tourism), information & communication and a rebound in business services recruitment. In our forecast we see London’s employment initially slowing down in 2013 due to spare capacity and then settling at a growth rate of around 1.1% in the medium term reaching 5.7 million by 2030, up from our previous forecast of 5.3 million. Overall our employment forecasts show London leading the UK in terms of job creation, benefitting from its reputation of a global business and finance centre. 16

17 London outlook As well as the change in employment data, since the last report there has also been a significant revision in the London’s population data, which in 2012 is estimated to be 8.3 million, up from 7.7 million previously quoted. This is largely a result of a big increase in the levels of migration, which was previously significantly underestimated, with Newham receiving the largest upward revision of all UK LADs. On the basis of these new estimates we now forecast London population to reach 9.9 million by 2030, a number well above the 8.6 million projected in the last report, which was based on the previous data. As a result of the stronger labour market performance London’s unemployment rate has been lower over 2010-11 than previously expected. Having said that, as employment stalls in 2013, unemployment is expected to increase to 4.3% of the working age population, but then eventually come down to 3.6% by 2030. As historically has been the case, this is above the forecast UK unemployment rate of 3.1%, reflecting the continuous mixed performances of London’s local labour markets. 17

18 London outlook In terms of GVA it is now evident that the financial crisis did not hit London as hard as previously thought, with the 2009 contraction revised from just below 5% to 3%. This means London held up relatively well compared to the UK as a whole, due in large part to its international links. After a moderate recovery in 2010-11, like the UK, London experienced a slowdown in 2012 with GVA growth slowing to just 0.2%. Financial services in particular have been affected by the uncertainty surrounding the Eurozone and are estimated to have contracted, with construction GVA also falling. In our baseline forecast we expect London’s economy to bounce back in 2013 and then settle at a rate of around 3% over 2014-30, a stronger long term growth than forecast in 2010. Assuming the Eurozone debt crisis does not worsen further, London’s growth will be largely driven by its financial and business services, information & communications and construction. 18

19 Host Boroughs: revisions and outlooks 19

20 How many people do we have? It is now evident that due to revisions in migration data the population numbers were previously significantly understated, with the 2012 level of 1.54 million well above the previous estimate of 1.33 million. This is largely due to significant ONS revisions in migration estimation methodology. As a result, we expect 1.85 million to live in the Host Boroughs by 2030, a gain of 312,000, or 20%. Newham has had the third biggest revision to population across all UK local authority areas, Waltham Forest the 6th largest, Hackney the 7th largest and Greenwich the 8th largest. 20

21 Clearly a more popular place to live... % growth in population, selected Boroughs, 2005 - 2011 Source: Mid- year population estimates Note: Host Boroughs shaded in pink 21 Four of the fastest growing local authorities within London, in population terms, were Host Boroughs. While population grew by 9.6% in London and 5% over the period 2005 to 2011, Newham’s population grew by more than a quarter. In addition, population levels in Tower Hamlets, Waltham Forest and Hackney were nearly a fifth higher.

22 ...for the skilled population % of working age population with NVQ4+, Host Boroughs & UK, 2005 - 2011 NVQ4+ skills p.p growth, selected Boroughs, 2005 - 2011 22 Data from the Annual Population Survey suggests that a considerable proportion of the new residents have an NVQ level 4 qualification or above. In other words there were 162,800 additional degree skilled people in HBs between 2005 – 2011, at a time when mid-tier skill levels remained consistent. This has implications for the labour market. The higher the skills level of an individual the greater their propensity to work and less likely they are to be unemployed or inactive. These trends could also have wider social and economic influences by changing the demand for services, entertainment, housing, transport, etc.

23 Growth has also been seen in the labour market Employees in employment % growth, selected Boroughs, 2008 - 2011 Source: BRES Note: Host Boroughs shaded in pink 23 The HBs experienced amongst the fastest jobs growth in London over the recession (i.e. 2008 to 2010). Tower Hamlets recorded employee growth of over 12%. Employee growth in London grew at an average of 0.8% over the recession (i.e. 2008 to 2011). This was despite an average contraction of -1.6% in Great Britain. Job growth in HBs was driven by parts of administrative and support service (10,300 jobs), health (9,500) and information and communication (7,400 jobs) Manufacturing (5,600 jobs lost) and retail (5,000 jobs lost) shed jobs over the period pushing down growth.

24 The labour market outlook The gains from the Olympic developments and the event itself are evident as the 2012 employment is now estimated at 682,000, up from 611,000 in the last report. Whereas previously our forecast was for a gain of 81,000 jobs by 2030, this number is now expected to be 110,000 (or 16%) bringing the 2030 level to 791,400. This rate of growth is anticipated to at least match that of London, and be ahead over the short term. The biggest contributors to job creation are forecast to be business services (and professional services in particular) information & communication, construction and arts & entertainment. At the same time employment in primary, manufacturing and public services are expected to fall; creating a drag on the economy. This phenomenon is not unique to the Host Boroughs, and is expected across much of the UK. The strong population growth doesn’t fully transform into employment levels, with the resident employment rate of 61.9% being forecast to fall to 58.1% by 2030. Currently this rate is 5.5% points below the London’s rate, and this difference is only expected to increase, as the Host Boroughs increasingly become a popular residential location for all spectrums of the population, including students. 24

25 Host Boroughs to play their part % growth in employment, selected Boroughs, 2012 - 2022 25 Source: Oxford Economics Note: Host Boroughs shaded in pink and London total shaded in green The Host Boroughs are very diverse, with Tower Hamlets and Hackney expected to perform well in the London context, whilst Barking & Dagenham and Greenwich are expected to continue to lag in employment terms. Approximately 74,000 jobs are forecast over the next decade in the HBs (110,000 by 2030). This is equivalent to 15.5% of all the jobs created in London over the same period. Overall GVA growth is expected to outperform London in 2013-14 and then settle at a rate just above London’s over 2015-30, achieving average growth of 3.2% between 2013 and 2030, compared to 3.1% in London.

26 But unemployment remains an issue Claimant count rate, London region, December 2008 – December 2012 26 Despite employment growth and significant growth in highly qualified labour (who have a greater propensity to work), unemployment remains above average levels. The Dec 2012 rate of unemployment was 5.5%, well above London’s rate of 3.9%. Stable employment growth means that Host Borough unemployment is forecast to fall to 4.6% by the end of the decade, before rising to over 5% by 2030.

27 Policy neutral forecasts GVA and employment % shares of London, HBs, 1998 - 2022 Source: Oxford Economics 27 As the chart on the left shows, the HBs have grown as a share of London in both GVA and employment terms. Our baseline forecasts do not include any further planned investments in the HBs. They are a policy natural outlook. As such we expect the HB’s share of London to increase at much slower rate. Overall GVA growth is expected to outperform London in 2013-14 and then settle at a rate just above London’s over 2015-30, achieving average growth of 3.2% between 2013 and 2030, compared to 3.1% in London.

28 Barking & Dagenham outlook Since the 2010 report our estimates of employment in Barking & Dagenham have been revised upwards in line with official data, with 2012 employment now estimated at 58,500, up from 51,000. The main drivers of this strong recent growth have been the transportation & storage and construction industries. The majority of employment gains are likely from preparations for the Olympics and the event itself, hence further big increases over the short term are unlikely. Our longer term forecast suggest employment in the Borough will plateau, with only 1,200 net additional jobs in 2030, on a policy neutral basis (for example, not including Barking Riverside and other developments). Part of the reason for the borough’s expected weak performance is its low employment rate (61.9%) which is forecast to fall further to 56.5% by 2030, compared to London’s forecast rate of 65.3%. As a result of this, the 2012 unemployment in the borough is high at 6.1% (previously 5.3%), and is not expected to fall much in the long term. Forecast long term GVA growth has not changed much since the 2010 report, and Barking & Dagenham is expected to consistently grow at a rate around 1% point below that of London. 28

29 Greenwich outlook Out of the six host boroughs, Greenwich saw the smallest employment data revision. Our latest forecast for Greenwich is the most similar in magnitude to that presented in our 2010 report, with employment rising from 84,000 in 2012 to 93,000 in 2030. This growth will be mostly led by business services and transportation & storage, albeit total employment growth is forecast to consistently lag that of London. Unlike employment, the population of Greenwich did see significant revisions, the 2012 estimate being 261,000, compared to 227,000 previously reported. Our forecast is for the population to increase to 316,000 by 2030. In 2012, the borough’s unemployment rate (4.5%) was marginally above London’s and in line with the more modest employment growth forecast and significant upward population revisions, unemployment is forecast to remain higher over the longer term; previously our forecast was for unemployment to fall to 3.5% by 2030. Although our current GVA forecast is stronger than the 2010 release, overall Greenwich is still expected to underperform London. 29

30 Hackney outlook Revised employment data suggests a large pick up in the borough’s activity in 2011-12. Driven by accommodation & catering, construction and real estate, total employment is estimated to have grown by 3.8% in the last year. Slowing down somewhat in 2013 due to spare capacity, employment growth is then forecast to outstrip London over 2014-30, with total employment rising by 18,100 (previously 11,300) from 107,000 in 2012 to 125,000 in 2030. Despite the impact of the Olympic developments, unemployment in Hackney remains relatively high at 5.8%. Strong employment growth is forecast to push the unemployment rate down to 5.1% by 2030. While GVA of London grew by 0.2% in 2012, Hackney’s economy, helped by the Olympics and the parallel growth in the residential economy, grew by 1.5%. Over the next two years we expect Hackney’s GVA growth to outstrip London and perform relatively consistent with London over the longer-term. 30

31 Newham outlook Having previously enjoyed a large share of the Olympics, the realisation of the economy’s performance in 2012 was better than expected. For example, employment in accommodation & catering grew at an impressive 8.4%, while construction expanded by 4.8% and business services also received a boost. In the medium term we anticipate Newham’s employment to grow in line with that of London, perhaps lagging it slightly. From 2012 to 2030 we expect employment to increase by 9,000, significantly higher than the 3,600 previously forecast, based on the pre-Census population data. This growth, however, is not likely to reduce borough’s unemployment, currently above London’s at 5.1%. Overall our baseline forecast sees Newham remain one of the more deprived borough’s of London, with its residence employment rate forecast to fall to 47.5% by 2030, almost 18% points below London’s rate. Our latest forecast for GVA growth is also stronger than our 2010 outlook, achieving 1.4% in 2013 and averaging 2.5% over 2014-30. 31

32 Tower Hamlets outlook Revised labour market data shows that Tower Hamlets employment hardly fell at all during the recession, and then experienced rapid growth in 2011-12, driven by an acceleration in its financial and business services. Furthermore, unlike London on the whole, Tower Hamlets’ employment is forecast to continue growing strongly over 2013-30, gaining 68,000 (up from 48,000 in our last report) and reaching 337,000 by 2030, a gain of 25%. Despite strong employment growth, unemployment still remains high in the borough, reflecting the fact that almost all of the jobs created by financial and business services are taken up by commuters. With a higher population level, the 2012 unemployment rate is estimated at 5.7% and forecast to fall marginally to 5.5% by 2030, compared to our previous figures or 4.3% and 3.7% respectively. As it has been historically, GVA growth of Tower Hamlets is expected to outperform London in the forecast, partly thanks to its lower rents (compared to the City and West End) and international status in attracting and maintaining financial and business firms. 32

33 Waltham Forest outlook Following the revision in employment data, the current estimated 2012 employment level in Waltham Forest is 73,500, up from 71,000 forecast in the previous report. New data also reveals that Waltham Forest suffered significantly by the recession of 2008, but then experienced a rapid recovery in 2011-12. Our baseline forecast is for employment to reach 77,600 by 2030, a gain of 4,100. Robust growth of 7.6% in accommodation & catering employment in 2012 is likely to have been driven by the Olympic impact. Population has had an even bigger revision, with 2012 level now estimated at 262,000, up from 225,000. This big gain feeds thought to higher unemployment, which in 2012 is estimated at 5.5% (4.9% previously), but is forecast to fall to 4% by 2030. Although fairing better in 2012, overall compared to London our baseline forecast for Waltham Forest is a weaker one on most indicators, with forecast GVA growth of 0.7% in 2013 and then an acceleration to around 2.2% over 2014-30. 33

34 The impact of major economic developments Scenario 1: Economic developments 34

35 Economic development scenarios – approach and overview The economic developments in the Host Boroughs have been modelled by splitting out the major growth hubs (Stratford, Greenwich Peninsula and Wood Wharf), with the remainder of the developments modelled on a Borough-by-Borough basis. The direct employment assumptions, timeframe for delivery and sectoral structure of the jobs have been provided and approved by the respective economic development departments and the LLDC. As with the original HBEM, Oxford Economics do not explicitly consider construction job years within the employment impacts. This is due to the significant spare capacity currently in the UK construction industry and the temporary nature of the jobs. To consider these explicitly would overstate the impacts in the longer term. Displacement assumptions are consistent with those in the 2010 study. It is assumed that all developments will not be fully utilised and therefore an 80% occupancy rate is assumed. We also effectively assume 50% displacement on top of this with 20% of jobs displaced from within the development Borough, an additional 20% from the rest of the Host Boroughs, 5% from the rest of London and 5% from the wider UK. The table overleaf provides an overview of the economic developments included. The following discussion refers to the impact of all developments being realised; due to the nature of the developments, we do not believe them to be aspirational nor mutually exclusive, and hence modelling them simultaneously is the most appropriate method of appreciating the upside potential of the Host Boroughs in the period to 2030. 35

36 Summary of economic developments included – growth hubs Development nameBoroughGross direct jobs (total), 2030 Sectors StratfordNewham26,215wholesale & retail, info & comms, finance, professional, admin & support, arts / entertainment, Greenwich PeninsulaGreenwich23,000Manufacturing, wholesale & retail, accommodation & food, admin & support Wood WharfTower Hamlets25,000Finance, professional, admin & support iCityHackney3,600Wholesale & retail, transport, accommodation, info & comms, finance, real estate, professional, admin & support, education, health, arts / entertainment, other services QE Olympic ParkNewham4,421Wholesale & retail, transport, accommodation & food, info & comms, admin & support, arts / entertainment, other services

37 Summary of economic developments included - other BoroughProjectsGross jobs (total) in 2030 Sectors Barking and DagenhamSanofi (Business East), Dagenham Dock, London Road, Orion Park, Abbey Retail Park, Beam Park, 5,525Manufacturing, Waste management, wholesale & retail, transport, accommodation, info & comms, professional GreenwichWoolwhich Love Lane,468Wholesale & retail NewhamRoyal Docks, Canning Town, Custom House 7,800Manufacturing, wholesale & retail, transport, accommodation, info & comms, finance, real estate, professional, admin & support, arts / entertainment, other services Tower HamletsOcean Estate, Blackwall Reach, Tesco District Centre, Sugar House Lane, Neptune Wharf 3,676Wholesale & retail, accommodation, info & comms, finance, real estate, professional, admin & support, arts / entertainment Waltham ForestBlackhorse Lane1,000Wholesale & retail, accommodation, info & comms, finance, professional, admin & support, arts / entertainment, other services 37

38 Economic developments – overview and GVA – HBs The scenario presented here assumes that all of the planned economic developments described above go ahead. GVA growth rates are boosted by an average of 0.5% points between 2013 and 2030. This creates a cumulative gain of £14bn by 2020 and £35bn by 2030 (at constant 2009 prices). The biggest share of these GVA gains in absolute terms is expected to be attributed to financial, professional and administrative services, with developments of new office space expected to attract companies to the area. Trade will also receive a sizeable boost with the planned creation of new retail space Higher growth in GVA will then feed through to annual workplace earnings, which in real terms are forecast to be £20bn higher in 2030. Because some of the jobs and therefore income will be taken up by commuters, the gain in annual resident earnings is lower at £11bn. 38

39 Economic development – employment impact - HBs Compared to the baseline, when all economic scenarios are modelled simultaneously our employment forecast is for the host boroughs to see an additional 92,600 jobs by 2020 and 170,500 by 2030. This represents a significant boost to growth of around 0.5% points per annum between 2013-30. Industries expected to gain the most from the expected developments are business services, with professional, technical & scientific activities forecast to gain 45,700 additional jobs by 2030 while administrative & support activities gain 47,000. Schemes such as the Wood Wharf development are expected to drive this growth, and together these two industries represent more than half of all the created jobs. The third biggest benefiter is the wholesale & retail trade sector, which is expected to see an additional 12,800 jobs compared to 2012 levels. Even though the majority of planned developments are in the office, retail and leisure sectors, there will be indirect and induced jobs created in transportation & storage, education and health, albeit these will be smaller than the direct gains. 39

40 Economic development scenarios – employment rate and unemployment - HBs Despite the big gains in employment, we forecast the population growth from 2012 levels to be 318,000 by 2030. This is largely due to the spare capacity within the Host Boroughs, with unemployment currently 1.7% points above the London average in 2012. Commuting is also a factor, with the potential for people to in-commute to work in the Host Boroughs. Therefore the resident employment rate is forecast to hold up much better than in the baseline and we calculate it to be 60% if all developments are realised by 2030, instead of 58% under the baseline projection. As a result of a higher proportion of host boroughs’ residents being employed, the unemployment rate is forecast to fall to 4.7% by 2030. 40

41 Economic development scenarios – summary of local impacts As the scenario presented considers all the planned economic developments taking place, when looking at each of the Host Boroughs there is evidence of the displacement effect. In particular, the growth hubs in Greenwich, Newham and Tower Hamlets are forecast to displace jobs in some of the other boroughs and therefore leave them with a smaller impact. For example, comparing the impact of all economic developments with the baseline we forecast Greenwich to have 23,600 additional jobs by 2030, Newham 37,100 jobs and Tower Hamlets 93,000 jobs. Barking and Dagenham, Hackney and Waltham Forecast will see only marginal increases in employment, as displacement outstrips the direct employment created in the longer term. There is a similar effect for GVA, which is even more pronounced by differences in productivity. For example, even though the additional number of jobs in Newham and Tower Hamlets is roughly the same, the GVA gain of Tower Hamlets is twice the size of that in Newham as most of its jobs will be in high value-adding financial and professional business services. 41 Note: This impact includes the direct, indirect and induced impacts.

42 The impact of major residential developments 42

43 Residential developments – an overview The residential developments are modelled separately for the major growth hubs (Stratford, Greenwich Peninsula and Wood Wharf), with the remaining developments modelled on a Borough- by-Borough basis. The gross number of dwellings and timing of the developments were provided and approved by the respective Borough’s and LLDC. To convert the housing developments into population impacts, we applied our baseline occupancy rates in the first instance. Within the model it is possible to tweak occupancy rates, based on expectations regarding the nature of the developments. For example, it was noted that the Barking Riverside development was targeted at families, and as such, the occupancy rate was adjusted upward, from 2.58 people per dwelling in 2012 to reach 2.92 people per dwelling in 2030. No other adjustments have been made within the scenarios discussed in the report. It should be noted that our baseline forecasts shown earlier are driven by economic demand; population forecasts are derived as a function of the labour market conditions (accounting for employment, unemployment and inactivity levels) and natural change. Our baseline forecasts do not consider potential supply side issues (e.g. a constraint on the housing availability.) The baseline forecast suggests that the Host Boroughs population will grow from 1.54m in 2012 to 1.85m by 2030, a growth of 312,000 people or 21%. In comparison, London is expected to grow by 19%. The planned housing developments reported to us and contained in the HBEM 2.0 could be considered either as part of the supply required to meet this demand, or as an entirely additional factor in attracting new people to the sub-region.. 43

44 Residential developments – an overview (2) 44 There are risks associated with relying entirely on either approach; for example, assuming complete additionality could overstate population levels in 2030, given the magnitude of growth inherit in the baseline. Similarly, considering no additionality (and no impact on the characteristics of the people) could lead to an understatement of growth. To be prudent, we have modelled both within this report and the HBEM 2.0 allows flexibility to achieve ‘in-between’ outcomes. Scenario 2 considers the residential developments as entirely additional. Scenario 3 incorporates the stock within the baseline outlook, and as such, there is no additional impact on the population, beyond that in the baseline. Essentially, scenario 3 assumes that the residential developments provide housing for the 312,000 additional people forecast in the baseline. However, in scenario 3, we assume the nature of the housing attracts a younger, dynamic and higher skilled population, with a greater propensity to work. Essentially, this scenario replaces the population within the baseline forecasts, who are considered to have ‘typical’ characteristics with a more employable and productive working age population. This trend is evident in recent data and is modelled through an upward increase in the employment rate of the new population. The assumptions used are based on the London Housing Plan and are presented in the table on the next slide.

45 Residential developments – an overview (3) It is assumed that the residential developments will displace residents from the rest of London and the wider UK. However, no assumptions regarding displacement from within the Host Boroughs have been applied. We believe this is the most appropriate central case for the residential scenarios: The next slide provides an overview of the residential developments included. The following slides discuss scenario 2 (residential developments with entire additionality) and scenario 3 (residential developments within baseline population growth, but enhanced population characteristics). 45 Increase (percentage point) Adjusted emp rate of additional people in 2030 Barking and Dagenham4.3pp60.9% Greenwich6.8pp66.4% Hackney9.4pp74.1% Newham4.2pp51.7% Tower Hamlets12.8pp68.4% Waltham Forest4.0pp71.0% Upward increase to resident employment rate (above baseline), Host Boroughs Source: London Plan

46 Summary of residential developments included BoroughProjectGross additional housing in 2030 Gross additional people in 2030 Barking and DagenhamLondon Road, Vicarage Fields, Barking Riverside, Estate Renewals, Abbey Retail Park, Academy Central, Fresh Wharf, Cambridge Road, Colier Row, Marks Gate, Lyminton Fields, Battery Wharf, CIQ, Beam Park, Barking Station, Thames Road 17,17547,314 GreenwichKidbrooke, Royal Arsenal, Woolwich Estates, Woolwich Love Lane, Greenwich Millenium Village, Heart of East Greenwich, Lovall & Granite Wharf, Greenwich Reach East, Charlton Riverside, Tripcock Point 31,03882,401 NewhamChobham Farm, Great Carpenters, Canning Town and Custom House, Rathbone Market, Hallsville Quarter, East City Point, Silvertown Quays 9,10226,269 Tower HamletsOcean Estate, Blackwall Reach, Bromley-by-Bow North, Sugar House Lane, Neptune Wharf, OLCS 14,55930,042 46 BoroughProjectGross additional housing in 2030 Gross additional people in 2030 NewhamStratford4,17112,038 GreenwichGreenwich Peninsula10,00026,548 Tower HamletsWood Wharf1,6683,729 NewhamQE Olympic Park7,00017,530 Major growth hubs Other

47 Scenario 2 Residential developments with complete additionality 47

48 The impact on dwelling stock and population - HBs Scenario 2 estimates that there will be an additional 205,000 dwellings in 2030, from 2012 levels, across the Host Boroughs. This represents growth of 33%. Should this be realised, the Host Boroughs would contain 821,100 dwellings by 2030, representing almost one fifth of all London dwellings, assuming a policy neutral outlook for the rest of London. Driven by these developments, the population in the Host Boroughs is forecast to grow by 521,000 people by 2030 from 2012 levels. Under this scenario, the Host Boroughs would be home to 20% of London’s population in 2030, representing an 2pp increase from the current position. 48

49 Impact on employment rate and unemployment – HBs Although the incoming population are assumed to have a greater propensity to work, the employment rate is still forecast to fall by 2030, as the characteristics of the existing stock prevail. Nevertheless, the employment rate is still 0.6% above a policy neutral outlook in 2030. The unemployment levels are forecast to rise as a result of the increased population. Unemployment is forecast to reach 80,000 by 2030, higher than 2020 levels but lower than the current position. As a proportion of the working age population, unemployment is forecast to be 5.6% by 2030, broadly similar to the current position. 49

50 Summary of impact of residential developments - HBs The assumptions used in scenario 2 do not place any direct employment in the Host Boroughs. The parameters are solely residential. However, due to the surge in population, the model linkages suggest an additional 129,800 workplace based jobs by 2030, 19,000 higher than the baseline. These are created through the supply chain, with higher numbers of residents predominantly requiring additional public services, retail and leisure facilities although jobs are created across all sectors Resident employment is forecast to grow by 191,200 jobs; this figure refers to the number of people who live in the HBs and are in employment, regardless of where they work.The fact that the resident employment outlook is higher than the total employment outlooks suggests that under this scenario, the majority of new residents will find work in wider London, and not directly in the Host Boroughs. As the majority of the scenario is residential, there is a noticeable difference between the earnings generated on a workplace and residential basis. GVA is measured on a workplace basis, and hence the impact is lower than the average resident based earnings. The additional workers will generate an additional £32bn of GVA in the Host Boroughs economy by 2030, but perhaps the more significant impact is the potential generation of an additional £14bn of resident wages, which is likely to translate into significant additional consumer spending within the Host Boroughs. 50

51 Residential developments – the local dimension In housing stock terms, almost two thirds of the additional stock are located in Barking and Dagenham (22%), Greenwich (40%) and Tower Hamlets (18%). On an individual development basis, this is driven by Barking Riverside (10,800 homes by 2030), Greenwich Peninsula (10,000 homes) and the QE Olympic Park homes (7,000 homes) With occupancy rates broadly similar across the Boroughs, the population impact is of a similar shape, with 77% of the additional population attributed to the same three Boroughs. 51

52 Scenario 3 Residential developments facilitating baseline growth, with the new population having a higher propensity to work 52

53 Scenario 3: summary Under scenario 3, the additional housing facilitates the increase in population expected under the baseline. However, the higher propensity of the new people to work means residential employment rises by 125,800 from 2012 levels. As no new workplace jobs are directly created (just housing), we see that workplace employment only increased by 120,000 over the same. The creation of additional workplace jobs is largely driven by the need to service the larger working – and essentially wealthier – population, with almost 70% of net employment growth in in the public sector and an additional 21% in the retail, accommodation and leisure sectors. Financially, despite the upward trend in the employment rate, the sectoral pattern in the workplace based employment, towards lower value added retail / leisure sectors results in only £30bn additional GVA from 2012, with a £18bn increase in workplace wages. By comparison, an additional £11bn in resident wage levels is generated through increased resident employment rates, much of which is likely to translate into consumer spending in the Boroughs. 53

54 Scenario 3: employment rates and unemployment Under scenario 3, the resident employment rate in 2030 is expected to slip to 59.1%, a fall of almost 3% points from 2012 levels, but 0.9% points above the baseline level in 2030, driven by a higher propensity to work within the incoming population. In comparison, the London resident employment rate is forecast to be 65% in 2030, 6.4% points higher than the Host Boroughs, but the gap does converge marginally. As a result, the unemployment rate in the Host Boroughs is forecast to fall to 4.4% by 2020, before rising to 4.8% in 2030, as a smaller proportion of the new population attracted are unemployed. 54

55 Scenario 4: All planned developments (economic and residential 55

56 All planned developments – an overview Scenario 4 includes the impact of all developments – both economic and residential – being realised. This scenario is a combination of scenario 1 and scenario 2 presented earlier in this report. Scenario 4 to represents the ‘upper’ limit of what the Host Boroughs could hope to achieve by 2030. The impacts are not simply an addition of the two scenario outputs; certain levels of agglomeration, supply chain effects and population impacts are inherit within the modelling methodology and as such, the results differ due to this behaviour. 56

57 Scenario 4: summary In its entirety, the developments in the Host Boroughs could lead to an additional 521,300 people living across the Boroughs, bringing the total population up to over 2 million, or one fifth of the Greater London population (compared to 18% currently). An additional 190,400 jobs above base could be created in the sub-region, generating an additional £36bn in GVA. Higher employment levels would generate an additional £20bn in workplace earnings or £15bn in resident terms. Although not modelled, this is likely to lead to significantly higher levels of consumer spending in the sub-region, through both worker and resident impacts. The resident employment rate is forecast to be only 1.7% points above the baseline in 2030, with 4,500 fewer unemployed people. 57

58 Scenario 4: wider labour market impacts The short-term increase in employment levels, with the majority of residential developments more long term, leads to an increase in the resident employment rate in the short term; this is forecast to reach 61% by 2019. Pension reform, which extends the state pension age to 65 for women by 2020, leads to a ‘step’ increase in the working age population in one year, hence bringing the employment rate down in the longer term (along with further pension reforms scheduled in the mid 2020’s). Nevertheless, the employment rate is forecast to be only 1.6% points below 2012 levels by 2030, only 5% points below the Greater London average, compared to the current divergence of almost 6% points. Under scenario 4, the unemployment rate is forecast to decline steadily, reaching it’s lowest point of 4.1% in 2020, before it plateaus out over the remainder of the forecast period. 58

59 Scenario 4: the local dimension The local impacts are driven largely by the scale and nature of the developments planned within the Borough. With all developments considered, Greenwich, Newham and Tower Hamlets are expected to be the largest benefactors at a local level. A combined 169,000 additional jobs, or almost 90% of the net total employment growth above base are expected to be across these three Boroughs. This is expected to generate an extra £30bn GVA over the same geography. The GVA growth is driven by productivity levels, with the higher value added activity base in Tower Hamlets generating the majority of the output gained. Due to an assumption on the displacement effects, and minimal planned developments, Waltham Forest is expected to gain only a net 200 jobs from current levels by 2030, as many jobs locate in other Boroughs. t. The timeliness of the expected displacement is evident, with the range of developments expected in the latter half of the period causing greater displacement over the longer term (as would be expected in theory). 59

60 The Host Boroughs and public finances 60

61 The HBs fiscal position: a net deficit Oxford Economics have applied our established sub-regional public finances analysis to calculate the net fiscal position of the Host Boroughs within the UK. This analysis considers the Borough’s contribution to key government levies, such as income tax, NCIS, business rates, corporation tax, VAT and council taxes, less it’s expenditure on health, social protection and other identifiable expenditure. At a regional level, London is one of only 3 regions estimated to be regularly contributing a fiscal surplus to the Exchequer, along with the South East and Eastern regions. The other 9 UK regions are regularly in ‘deficit’. However, replicating this analysis for the HBs sub-region suggests that in its entirety, the HBs are estimated to have a net cost of almost £4bn to the Exchequer in 2012/13. This is due to the above average levels of unemployment, a subdued employment rate, and low earners vis-a-vis the London average. Locally, only Tower Hamlets is estimated to be a net fiscal contributor, contributing £95m (0.4% of GVA) in 2012/13. This is driven by the high levels of corporation tax attributed to the Borough, largely due to the presence of high-value added financial and professional services. 61

62 The HBs fiscal position: recent trends The net fiscal position of the HBs is also strongly influenced by the national position. This is apparent when looking at the sub-regions fiscal balance historically. The deficit was being eroded in line with national trends in the 2003 – 2007 period. Following the onset of the global recession in 2008, the position quickly weakened, ‘peaking’ at over £5bn (13% GVA) in 2010 in the HBs. The balance currently (2012/13) has increased somewhat since 2009, with the position now estimated at 9% of GVA, or £3.8bn. 62 Fiscal balance as % of GVA, 2011 & 2030

63 The HBs fiscal position: the outlook The trajectory is forecast to remain on a steady increase over the next 5 years, in line with the current government’s national austerity agenda. By 2017, the deficit in the HBs is forecast to have been reduced to £2.8bn, or 5% of GVA, but is still expected to be in deficit. Following 2017, the rate of increase is expected to plateau, again in line with national expectations. By the end of the forecast period (2030), the position is forecast to have improved in percentage terms, but the HBs are still projected to cost more than they contribute to the Exchequer, to the tune of £4.5bn. Host Boroughs fiscal balance, HBs, 2000 - 2030 63

64 Still forecast to be in fiscal deficit...despite maximum growth potential Achieving a position whereby the sub-region contributes more than it costs is a fundamental and plausible aspiration. The analysis presented on the previous slides do not explicitly take into account the potential impact of the ongoing developments across the Boroughs. Despite the development potential having a clear positive impact on the fiscal balance of the HBs, under no situation are the HBs forecast to become a net contributor. This suggests there is still scope for improvement, with an impetus on striving to attract high value added employment, skilled, well waged people who spend locally and business activity, above and beyond that which is already in the pipeline. In addition, reducing unemployment levels across the HBs will lead to reduced levels of benefit payment, postively contributing to the fiscal balance. This could be achieved through up-skilling the existing population and encouraging people to re-engage with the labour market 64 Fiscal balance (% 0f GVA), Host Boroughs, scenarios, 2000 - 2030 The fiscal balance is forecast to significantly improve by: £780m under scenario 1 (all economic developments) £279m under scenario 2 (all residential developments) £756m under scenario 3 (increased propensity to work) £1.1bn under scenario 4 (maximum growth potential)

65 Conclusions 65

66 Conclusion – revisions This report has presented 5 alternative scenarios for the Host Boroughs; the Oxford Economics baseline, a consideration of the economic developments, 2 residential based scenarios and a ‘maximum’ upward scenario, combining the economic and residential developments. The report also provides the context in which the baseline forecasts are based, and how and why they have varied since the original HBEM in 2010. The differences are largely due to significant data revisions over the historical period, recent employment data releases – which suggest ‘higher than anticipated’ employment growth in 2011 and 2012 – and a changing macro outlook, driven by ongoing EU uncertainty and slower-than-expected growth in the emerging markets over the long term. In terms of the scenarios, the economic scenarios are largely similar to those within the previous HBEM (notwithstanding the data revisions) and we estimate that under this scenario, the Host Boroughs could generate an additional 170,500 jobs and £34bn GVA above base by 2030. The residential picture has changed since 2010 given major revisions to population numbers. Scenario 2 considered the impact of the ongoing residential developments, and assumed they were additional to the baseline. Under this outlook, the Host Boroughs could potentially house an additional 521,000 people, creating 129,800 resident jobs and £14bn resident wages. 66

67 Conclusions – scenarios Due to this magnitude of growth, and the fact our baseline is demand driven, we considered the residential developments from a different perspective. Scenario 3 assumes all residential developments are required to facilitate baseline level growth, but the nature of the developments continue to attract a population with enhanced characteristics and a greater propensity to work. Under this outlook, the Host Boroughs could house an additional 312,000 working residents and generating an additional £11bn resident wages. The final scenario (scenario 4), considered the impact of all development plants being realised simultaneously, as is the plan. Under this scenario, the combined impact would see the Host Boroughs gaining an additional 190,400 jobs, £36bn GVA and 521,300 people above baseline levels in 2030 (we assume the housing brings in new people over and above the baseline outlook). All outlooks can be considered positive for the Host Boroughs, particularly within a wider UK context. In all outlooks, the Host Boroughs as a sub-region are expected to increase their position within Greater London. The updated HBEM 2.0 – used to derive all the scenarios and baseline within this report – is the primary focus of this research, and it’s robust methodology and enhanced flexibility will allow the policy makers across the Host Boroughs to quantitatively test policy implications on an ongoing basis. 67

68 Conclusions - HBs have been performing strongly and planned investment will boost growth The HBs have captured a growing share of the region’s employment and GVA and have been amongst the fastest growing boroughs over the recession in London. In addition, the HBs have experienced amongst the largest growth in population since 2005, with a significant proportion of the new population being well skilled. Nevertheless, despite relative prosperity, unemployment rates are amongst the highest in the region and resident employment rates are currently 5.5pp below the regional average and forecast to fall (under policy neutral outlook) Without planned investments the sub-region will continue to suffer from: ■high levels of unemployment ■falling resident employment rates Scenario analysis using the HBEM 2.0 shows the potential for improving job opportunities and other economic outcomes through a range of development projects Major employment-related developments could generate over 170,500 net additional jobs in the sub- region by 2030. Indeed this estimate could be significantly higher if displacement turned out to be lower than we have assumed However, some issues will remain – resident employment rates are expected to fall and unemployment rates are expected to remain above 2008 lows. 68

69 Conclusions - looking forward Planned developments will clearly boost the economy and HBs will become an area of growing importance for the London economy Though there is no time to rest, and the Boroughs should look at the implications of our forecasts: ■We expect a significant increase in population - do we have the houses to cope with this? ■Have we sufficient transport links to accommodate the increase in jobs and movement of labour? ■There remains pockets of unemployed (and inactive) – how do we tackle this? ■Do current residents have the right skills? Do they know about these future job opportunities? (the model allows the user to adjust skill levels of the population and estimate the affects) ■Is data reliable? Do we really have that many more people and jobs? ■Can we do more for current businesses? Do we know their issues and problems? 69

70 OXFORD Abbey House, 121 St Aldates Oxford, OX1 1HB, UK Tel: +44 1865 268900 LONDON Broadwall House, 21 Broadwall London, SE1 9PL, UK Tel: +44 207 803 1400 BELFAST Lagan House, Sackville Street Lisburn, BT27 4AB, UK Tel: +44 28 9266 0669 NEW YORK 817 Broadway, 10th Floor New York, NY 10003, USA Tel: +1 646 786 1863 PHILADELPHIA 303 Lancaster Avenue, Suite 1b Wayne PA 19087, USA Tel: +1 610 995 9600 SINGAPORE No.1 North Bridge Road High Street Centre #22-07 Singapore 179094 Tel: +65 6338 1235 PARIS 9 rue Huysmans 75006 Paris, France Tel: + 33 6 79 900 846 email:

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