COMMENTARY

Peter Burgess

Don't cripple the City - London can lead the recovery ... Vital to the economy: last week's report found London is no longer the fastest growing part of the country

A thriving London economy is vital for the millions who live in the capital. And it also really matters for the rest of the country too.

Don't listen to those who claim London doing less well is somehow good news for the rest of Britain. The whole country stands to benefit from having the most dynamic and exciting capital city in the world - a magnet for ideas, talent and investment from across the globe.

That is why families and businesses across Britain should worry that the London economy is faltering. Every part of Britain is suffering from falling real incomes and rising unemployment. But a report last week found London is no longer the fastest growing part of the country and in the past year it has seen the biggest rise in unemployment of any region.

So we need action now to get the whole British economy moving again. But given the vital role London plays, we also need to ensure the capital emerges from this downturn stronger and better equipped for the future.

New figures tomorrow will show how our economy has performed in the last three months. Britain has not grown since last autumn, well before the eurozone crisis of recent months. So simply to stay on track for the Chancellor's Budget forecasts, already downgraded three times, we will need to see growth of 1.3 per cent in the third quarter.

Trying to cut spending and raise taxes too far and too fast over the past year has crushed confidence, choked off the recovery and pushed up unemployment. The result? The Government is now set to borrow £46 billion more than planned.

Without growth and jobs, we cannot get the deficit down - which is why Labour has set out a five-point plan for jobs in London and across the country.

• First, repeat the tax on bank bonuses to fund more than 10,000 jobs for young people in London and build thousands more much-needed affordable homes.
• Second, bring forward long-term investment projects, such as the 160 school buildings cancelled in London last year, to get construction workers back to work.
• Third, temporarily reverse January's damaging VAT rise to help our high streets and give a couple with children a £450 boost.
• Fourth, cut VAT on home improvements and repairs to five per cent for a year to help homeowners and small businesses.
• And, finally, a one-year National Insurance tax break for small businesses which take on extra workers - which could benefit up to 650,000 small firms in London and the South-East.

It's the same out-of-touch attitude which leads to the capital's Mayor arguing that the first tax-cutting priority right now should be abolishing the top rate of tax for the richest one per cent. But he has nothing to say on the imminent abolition of child benefit for families earning as little as £43,000 - not a king's ransom for a couple with kids living in London or the South-East. For all his 'man of the people' act, Boris Johnson is silent on the growing cost-of-living crisis facing millions of Londoners, while Ken Livingstone has rightly put forward a plan to cut bus and Tube fares if he is elected next year.

Another false view is that the London economy is entirely, or even mainly, reliant on financial services. As Ed Miliband and I are highlighting today, the Government is cutting capital allowances for firms that reinvest their profits. The result is thousands of manufacturing and service businesses in London will lose out as tax incentives to promote good business practice and long-term investment are ended.

We must do more to support manufacturing and high-skilled industries. But financial services must and will have a vital role to play in London and Britain's economic future. That is why I am determined that the City of London remains one of the world's most successful financial centres. It's clear that, before the global financial crash, bank regulation wasn't tough enough here in Britain and around the world. We got that wrong.

And it is no wonder people are angry - not just those protesting at St Paul's but millions across the country - when they see the Government giving a tax cut this year to banks that had to be bailed out.

But we must be careful not to throw the baby out with the bath water. Yes, we need radical reforms to the banking system to protect customers and taxpayers and support the wider economy. But we must also get the balance right and ensure reforms are pursued internationally to protect the hundreds of thousands of British jobs dependent on financial services. And we must stand up for Britain's interests in the European Union, because we cannot defend jobs at home by retreating to the sidelines abroad.

And while I support an international tax on financial transactions, doing it only in Europe and not including major financial centres such as New York risks real damage to the City. Rather than simply trying to block proposals for an EU tax, our Prime Minister and Chancellor should use this week's G20 summit to push for a 'Robin Hood Tax' with the widest international agreement.

The City is vital to our capital. But the debate on the future of London's economy should not just be about one square mile. The Government must also act now to help families feeling the squeeze, get young people into work and support small businesses.

If tomorrow's figures show the economy falling short of the Chancellor's last set of downgraded forecasts, then calls for a change of course will rightly grow louder. For the sake of millions of Londoners and businesses, I hope the Government realises that before it is too late.

Ed Balls MP is the shadow chancellor