London hasn't been “left behind”, it hasn't suffered from “deindustrialisation”, and there is little sign that it was harmed by “40 years of neoliberalism”. So Britain's new prime minister, Andy Burnham, probably hasn't given much thought to London, except as a place to escape as he pursues his relentless focus on Manchester and the rest of the North. But he should. There are worrying signs that the economic decline of the capital is starting to accelerate – and that is turning into an emergency.
Last week, we learned the population is falling for the first time in three decades. More than 400,000 Londoners left the capital for other parts of the country in 2025, according to the Office for National Statistics. Sure, plenty of people still moved to London, but there was still a net outflow of 130,000. That might make it easier to get a seat on the tube, or to find a flat to rent, but it is hardly a sign of economic vibrancy.
What's more, the latest data from HM Revenue & Customs showed that figure includes 1,200 non-doms. Not everyone approves of allowing wealthy foreigners to pay less tax than the locals, but there is no question that the money they brought into the country fuelled a lot of London's finance and service industries, from lawyers to wealth managers to family offices.
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Meanwhile, the property market is slumping. In Westminster, prices are down by 23% over the last year, and are still going down. It is almost as bad in other areas, with falls of 10% in Kensington and Chelsea, and 7% in Hammersmith and Fulham. Measured in real terms, prices are now down by 40% or more from their peak, as a slow-motion crash unfolds.
Even some of our best-known retailers are feeling the pain. Harvey Nichols was one of the most glamorous stores in the capital – a destination for celebrities and high-rolling tourists from around the world. Yet its long-time owner, the Hong Kong entrepreneur Dickson Poon, has tired of its constant losses and has put the business up for sale. Rewind 20 years and the world's luxury giants, or the wealth funds of the Gulf, would be battling for control of this trophy asset. Not now. The leading bidders are Next, Mike Ashley's Frasers, and even Gordon Brothers, the owner of Poundland and Laura Ashley. There is nothing wrong with any of those companies – Next is one of Britain's best-run businesses – but they are hardly the kind of owners associated with Knightsbridge. London’s high-end retailers are not worth as much any more.
London is the engine of the British economy
Add it all up, and one point is surely clear: London's economy is in deep trouble. That matters for the rest of Britain, since London is central to the wider economy. The capital accounts for over a fifth of the nation's output, even though it has only 13% of the population. The average worker is 28% more productive than workers in other parts of the country. London pays 27% of the income tax the Treasury collects every year, and 36% of the corporation tax. It is the engine of the British economy. It is impossible to imagine any other part of the country replacing it.
It is not hard to understand why London is in trouble. The decision to end non-dom status may have played well to voters and activists, but it was hugely destructive. After leaving the EU, we could have done a lot more to help the City find new business, but instead kept it wrapped up in regulation. The city's infrastructure is in steady decline, and housebuilding has collapsed. Shops have been hit by the decision to end VAT refunds for tourists. Successive governments seem to have been on a mission to damage it as much as possible.
So while the new government spends its time worrying about the regions, it urgently needs to get to grips with London's rapid decline. Once a city starts to contract, that can accelerate very quickly. The world's wealthy stay away because it does not have the services they require. Global businesses don't bother with it because it doesn't matter so much any more. Success is turbo-charged by a network effect, but so is failure. London, unfortunately, is starting to switch from one to the other.
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