How work from home could be denting London’s GDP

The new work-from-home era has inflated London’s GDP by over £8bn, as outdated measures of regional growth have warped official calculations.

When adjusting for where people actually work from, rather than where their jobs are based on paper, the size of London’s economy falls by 1.4 per cent, data from Cebr has revealed.

This pushes London down from being one of the fastest growing regions in England over the last few years to the fourth slowest and reduces its overall contribution to the UK economy.

Regional gross value added (GVA) is a measure describing the value of goods and services produced within an area and is calculated using the registered location of a workplace, rather than where a worker actually lives.

While there has historically been a gap between the two, as commuters come from outside of London, this has shifted due to the rise in working from home as a result of the pandemic.

Now, people are less likely to commute in, and therefore won’t be spending any money in London, even if their jobs are registered there, leading to a debate over whether they should still be counted as ‘City workers’.

“Under the principles of economic accounting, the profits earned on the labour of those employed in London but conducting all or a portion of their work elsewhere should legitimately contribute to the capital’s economic activity,” said Sam Miley, managing economist and forecasting lead at Cebr.

“However, their employment incomes, which make up a significant portion of GVA, should not.”

As 59 per cent of workers now conduct at least some of their activity remotely, Cebr adjusted the figures to account for this, and found the inflation of London’s figures, while other regions have seen their contribution fall.

Particular boosts are given to the East of England and the South East from the adjustment, gaining £3bn and £4bn to their economies, respectively.