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Post-Brexit Reliance on US Service Exports Deepens UK Economic Inequality

Despite widespread economic stagnation and declining productivity in the UK, service exports -particularly to the US – are buoying the economy, highlighting London’s increasing dominance and escalating living costs

Prime Minister Rishi Sunak during an interview at the G7 leaders' summit at the Borgo Egnazia resort, in Puglia, Apulia, Italy on June 13. Photo: PA Images / Alamy
Prime Minister Rishi Sunak during an interview at the G7 leaders’ summit in Italy on June 13. Photo: PA Images / Alamy

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This week, in yet another setback to Rishi Sunak‘s efforts to showcase how the Conservatives have created – over a decade and a half – a robust economy, the Office for National Statistics (ONS) reported that monthly growth in April in the UK had flatlined.

The British economy was said to be struggling with a faltering retail sector, a decline in manufacturing, and a reduction in construction output, after a 0.4% rise in March. The City’s pundits appeared to blame the weather and not the cost-of-living crisis for the lack of growth. The consequences of Brexit, as it seems to be so increasingly, was absent from the finger-pointing.

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But this news of the parlous state of the British economy comes amidst more of the same. The UK’s labour productivity had increased by just 0.4% annually over the 12 years following the financial crisis – half the average growth rate seen in the 25 wealthiest OECD countries – and has resulted in a cumulative loss of £10,700 in wage growth for the average worker’s annual salary. 

Middle-income individuals in the UK are now 20% poorer than their counterparts in Germany and 9% worse off than those in France. 

And those born in the early 1980s are almost half as likely to own a home by age 30 compared to their parents’ generation.

These are just some of the dire findings of the UK’s economy detailed in The Economy 2030 Inquiry, a recent three-year collaboration between the Resolution Foundation (RF) and the Centre for Economic Performance at the London School of Economics (LSE).

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Despite bad news coming upon bad news, the – until recently – Business and Trade Secretary Kemi Badenoch, has acted as if none of this was happening. She told Chatham House, “we have succeeded, not in spite of embracing free trade, but because of it” and claimed it is “easy to produce statistics showing that exports and investments are up”.

But some statistics are less disputed than others. As this paper has noted, the UK’s parlous goods exports would be far worse if you did not include the UK’s ‘empty calorie’ trading of global gold. If you took out such high frequency precious metals trading, it would mean that the UK’s goods exports are down some £44 billion since 2018. And that the UK’s goods exports are down, the UK’s service exports are up.

As – Badenoch might not be able to dismiss this counterclaim – her own government states: “In real terms, UK exports decreased by 0.5% in 2023…a 6.7% increase in services exports and a 7.7% decrease in goods exports.”

One thing is certain. The one silver lining in this dire economic news is that service exports are buoying up the UK economy. Indeed, last year the UK ranked second in the world for such exports – including ICT (Information and communication technology), education, culture, and finance.

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The leading nation the UK exports such services to is the United States, where the $129.7 billion of services provided equates to over a quarter of the UK’s entire service export economy (27.6%). 

So where does this post-Brexit shift towards a national reliance on service exports and, more specifically, service exports to the US leave the UK?

It has two fundamental impacts.  

First, it makes London even more central to the UK’s economy. Secondly, it makes London even more expensive to those Londoners not linked to US-service provision.


London – the Black Hole

London’s dominance of the UK service economy is evident: the capital’s service exports grew by some 47% between 2016 and 2021, reaching £152.2 billion. In stark contrast, other major UK cities like Greater Manchester and Birmingham saw a minimal growth of 11% and 3%. While services exports in cities like Glasgow saw a modest growth, overall Britain’s other major cities have not kept pace.

Conversely, London’s share of UK service exports has surged from 38% to 46%. This dominance of London in the UK’s economy has been well charted, but Brexit and the Conservatives seem to have done nothing to stop this.


Overpaid, Over-Impactful and Over-Here?

The main driver of this growth has been the US. So much so that, from certain angles, London is starting to look like Manhattan-upon-Thames.

For instance, The Lawyer has noted a 41% year on year increase in revenue by the top 50 US law firms in Britain since 2018: a jump from $5.7bn to $8.1bn. Even factoring in inflation, the rise is 13%. According to The Lawyer in 2021, the top American law firm in the UK was Kirkland & Ellis, and whilst their UK company house listings might not capture all of their UK earnings, it shows a 70% declared rise in profits last year. 

All of this has real life consequences. 

Last month, it was reported that another American law firm, Quinn Emanuel, was offering its newly qualified lawyers in London an eye-watering £180,000 a year, an 18% hike from the year before. Those five years out of qualification will see salaries of £290,000. 

The reason? As Idin Sabahipour on Little Law says, “he main reason is the rise in US law firms coming to London”, and they bring their salary ratings with them. 

To put this all into context, the London Mayor, Sadiq Khan, earns £160,976. And the London Living Wage is currently set at £13.15 or, roughly, £27,352 a year. This means a worker on this rate would have to work for a whole year to earn not even what a US-funded Quinn Emanuel junior lawyer makes in two months. 

Meanwhile, US banking giant Goldman Sachs has announced it is lifting the European Union’s bonus cap in London, making London even more likely to become a mere extension of Manhattan, but without the need to tip.

Lights illuminate the inside of the world headquarters of Goldman Sachs in New York, in January 2024. The investment bank is set to lift the European Union’s bonus cap in London. Photo: Associated Press / Alamy

As the American-funded elites get richer, the rest of Londoners are finding themselves decidedly less so. According to the Institute for Fiscal Studies (IFS), “Between 2021–22 and 2022–23, household income fell across all of the income distribution outside the top 20%, with a 0.5% decline at the median (middle).”

The income per person in the UK’s richest local authority – Kensington and Chelsea (£52,500) – now stands at 4.5 times that of the poorest – Nottingham (£11,700).

This income from the US, making those with American-funded jobs wealthier – appears to have had a real-life impact on Londoners.


A Crisis of Accommodation

Last year, hundreds of homeless families were permanently displaced from London by local councils, with little notice, or choice. The escalating rents in the capital, which have surpassed the local housing allowance (LHA) – the amount private tenants on housing benefits are entitled to for rent, varying by local authority – have driven these forced relocations. 

The campaign group Housing Action Southwark and Lambeth (HASL) reported in 2023 that 319 households accepted private tenancies outside London. These families were frequently given 24-hour ultimatums by council officials to accept homes outside the capital or risk being classified as “intentionally homeless” for refusing the offer. 

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According to Zoopla, the northeast now is the most affordable region in the UK for renters, with private tenants paying an average of £695 per month as of April 2024. In contrast, the average monthly rent in London stands at £2,121, with boroughs such as Hackney, Tower Hamlets, and Camden seeing figures above £2,300. 

The post-Brexit bonus, then, appears to be that the UK has become more and more service economy reliant. That this reliance is increasingly linked to the English-language driven preference by Americans to off-shore their work close to Europe’s mainland. And that this domination by the dollar in London’s economy is having a profound impact on Londoner’s ability to afford to live in their own city.


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