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The Parisian arriving in London by train alights at a resplendent station. St Pancras, and the adjacent King’s Cross, make Gare du Nord look like a provincial hub. The surrounding area, once a ramshackle collection of properties, is gleaming with new hotels, offices and prime accommodation. It is a clear sign of how London’s economic geography has changed in the 21st century. The inner city has developed rapidly. Poverty is moving to the outskirts of the capital. As its core grows faster than its periphery, London is becoming more like Paris.

The UK capital is administratively divided into boroughs: 19 outer and 13 inner, plus the idiosyncratic City of London. Five million people live in the outer boroughs, from Hillingdon in the west to Havering, Bexley and Bromley in the east and south. These areas encircle 3m Londoners in boroughs such as Hackney and Kensington and Chelsea. Although the poverty rate in inner London remains higher than that in the outer boroughs, the gap between the two is narrowing.

In the years 1999-2002, for example, child poverty in inner London was about 53 per cent. By 2009-2012, however, it had fallen to 42 per cent, according to figures from London’s Poverty Profile, 2013. Over the same period the rate in outer London rose slightly. Poverty among working-age people increased faster in outer London over the period, while the number of pensioners in poverty dropped much faster in London’s core than its periphery.

The highest level of unemployment in London used to be found in the borough of Tower Hamlets, the area between the City and Canary Wharf, according to the New Policy Institute, a research organisation. Today, it is in the outer eastern areas of Barking and Dagenham and Newham. A similar pattern can be seen on the western side of the capital: Hillingdon has a higher unemployment rate than Wandsworth, for example. The six boroughs that had the biggest increase in unemployment since the recession were all in outer London, the NPI says.

Where there is work, in the outer boroughs it is more likely to be low-paid. Approximately one-fifth of jobs in the outer boroughs are low-paid (defined as less than the £8.50 an hour London living wage, a needs-based amount calculated by the Greater London Authority). In inner London about one in 10 jobs are low-paid – jobs that increasingly are done by people who live further out; one-third of low-paid jobs in inner London are done by outer Londoners.

London has been undergoing its own version of what scholars of US cities have termed “the Great Inversion”: the return of people, swish housing and high-paid jobs to city centres, that were once thought of as places defined by high levels of deprivation and blight.

By 1981, London’s population had reached its 20th-century nadir. A city of nearly 9m people on the eve of the second world war had shrunk to less than 7m. The dwindling of the capital happened at the same time as the growth of suburbia. Suburban expansion was in turn both a cause and consequence of economic development on the outskirts of London. Large employers established themselves in cheaper satellite towns where their workforce wanted to live.

Or so the theory went. Starting in the early 1980s, London became perhaps the prime example of what Ed Glaeser, an economist at Harvard University, calls the “central paradox of the modern metropolis”: just as technology makes it easier for companies and workers to set up anywhere, they are becoming concentrated in large conurbations. The expansion of London’s financial and creative sectors, encouraged by globalisation, is emblematic of this trend. By the turn of the 21st century, London’s population had increased to about 7m, with growth spread evenly across outer and inner London.

Over the past decade, this balanced growth has been replaced by an asymmetric pattern. The total number of jobs in outer London is essentially no higher today than it was in 2000; over the same period the number of jobs in the 13 central boroughs has grown 15 per cent. The new generation of large global companies is rejecting the suburban office park for the buzz of the inner city – Google and Facebook are among companies moving to new buildings in or near King’s Cross.

Inner London’s economy has a gravitational pull on people. Its population grew at a faster rate than outer London’s between 2001 and 2011. Immigration from around the world is part of this story, but so too is the influx of younger people of childbearing age, attracted to the lifestyles of gentrified inner areas such as Hackney and Lambeth and their improving schools. There has been a new, diverse baby boom in the capital. And unusually, the past 10 years have seen more people arrive in inner London from the rest of England and Wales than leave. The opposite is happening in outer London.

These employment and population shifts have pushed up house prices and rents in inner London, making it too expensive for many people on average incomes or below.

According to a report by Shelter, a housing charity, “the majority of London boroughs have median rents that cost more than 50 per cent of median local full-time earnings”. In inner London, where the private rental sector accounts for about one-third of housing, this means there may soon be only two types of people left: those wealthy or willing enough to meet its rapidly rising costs (for example, by squeezing into less space) and those who are in some form of social housing.

Inner Londoners in the social housing sector are being disproportionately affected by the UK coalition government’s changes to social security benefits, a central part of its broader cuts to public spending. About one-quarter of Londoners receive housing benefit, a rent subsidy given to low- or no-income households. Given the high cost of London housing, the changes have led some Londoners to move house, often to outer boroughs. Structural factors are the main cause of London poverty’s migration, but public policy has a role too.

There are three potential implications of London’s internal shift. The first is economic. Inner London’s growth was in part fostered by the ability of creative people from various fields to cluster together and share ideas. The “agglomeration” effect is what economists typically use to explain city growth. If inner London is too expensive, though, these workers will go elsewhere. Its service industry depends on workers who commute from poorer parts of the capital. If poverty is dispersed, these people will find it harder to get to work.

The second is political. Boris Johnson, the current mayor and possible future Conservative leadership candidate, won election and re-election thanks in part to his “doughnut strategy”: winning the support of suburban London while his labour rival won a majority in the inner core. Yet as outer London becomes relatively poorer and inner London becomes richer, this presents a challenge to political strategists of all parties ahead of the mayoral election in 2016.

The third implication from London’s changing geography is less tangible. It concerns the character of the city. Far more than in, say, New York or Paris, poor and rich Londoners have lived cheek by jowl. Mixed communities have been a reality in most inner London boroughs for decades; social housing is found on the same street as multimillion-pound mansions. If poverty in the capital were to become a preserve of the outskirts, this would change how its citizens saw each other – literally and figuratively.

Copyright The Financial Times Limited 2017. All rights reserved.
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