IS LONDON finally pulling out of recession? In this article, written exclusively for News Shopper, mayoral policy director for economic development Anthony Browne says while the signs are encouraging, there could still be trouble ahead.

The worst of the financial crisis may be behind us, but the years ahead are not going to be easy.

We have just been through the worst recession since the 1930s, caused in part by the implosion of the leading sector of the London economy – financial services.

Banks have collapsed, and many companies in the wider economy have folded, from corner shops to Woolworth’s.

Unemployment has shot up, and families have had to tighten their belts.

There’s a limit to the economic powers at our disposal, but we continue to do everything we can to help Londoners and London companies – from helping the jobless to find work, to helping small businesses get loans from banks and export to foreign markets.

London is finally clambering out of the recession.

House prices – a tell-tale sign of confidence – are rising again, and unemployment has nudged down slightly.

London has an amazingly dynamic and diverse economy, which makes it far better placed to bounce back than other regions of the UK.

Tackling the deficit will be painful

Nevertheless, following the election the new coalition government has made it clear that tackling an unsustainable government deficit will be its top priority.

This is going to be painful, but it needs to be done – whether it is spending cuts or tax rises.

London, with its powerful private sector, is actually less dependent on government spending than other regions of the UK, so is likely to be less impacted by the Treasury axe, however, there are still clouds on the horizon.

The biggest challenge for London will be to ensure that our infrastructure spending continues - whether it’s on the Olympics, Crossrail or the tube upgrade.

We have been lobbying the Treasury hard to ensure they carry on investing in the capital.

It is in the Treasury’s own long term interest – the capital is the major generator of taxes for the country, and this infrastructure spending will make us more productive, helping us generate more taxes to distribute to the rest of the UK.

Cutting infrastructure spending in London might save a little money for the Treasury in the short term, but it will reduce its tax take in the long term.

The position is reversed in terms of tax rises – as a major tax-generator already, London is more affected by rises than the rest of the country.

That is particularly true of taxes on the better off – increases such as the 50p tax, or cutting the personal allowance for those earning over £100,000, have far more impact in the capital than anywhere else.

The other big risk to London is the backlash against financial services.

Better regulation needed

We clearly need better regulation to make sure the unacceptable behaviour of bankers doesn’t continue – and no longer poses a threat to the world economy.

But we have to make sure that we don’t kill the goose that lays the golden egg.

Financial services will continue to be a cornerstone of the London economy, and it is still very much in our interest that London remains the financial capital of the world.

The risk is that, in the fury of the moment, legislators – whether in Westminster or Brussels – over-react, and drive companies away from Britain to more friendly jurisdictions.

That would not only harm the London economy, but also leave a big hole in the government’s finances.

London to remain business capital of the world

The Mayor will be lobbying hard against any threats – whether excessive regulation or excessive taxes – that threaten London businesses.

As the Mayor makes clear in his economic development strategy, to be published shortly, we are determined that London remains the business capital of the world.

We are committed to supporting the entire range of the London economy, from small companies to big ones, from sectors such as computing to retail, to culture and manufacturing.

Small and medium sized businesses are the bedrock of the economy, and we will strive to ensure there is a competitive business environment in London so that these companies can thrive. We will support innovation, which is the motor that has driven the London economy ahead over the past couple of centuries.

Whatever the challenges ahead, London retains its fundamental strengths, from its deep pool of talent, to the English language and an international business-friendly time zone.

I am confident that London will retain its position as the best city in the world for business.

Anthony Browne is Mayoral Policy Director for Economic Development at City Hall and will join Boris Johnson, original Apprentice winner Tim Campbell, and Sky Business Correspondent Dharshini David, at a special Business Question Time event: Small Business is Big Business, on Monday 24th May at the Mermaid Conference and Events Centre, Blackfriars. The event is free and doors open at 6pm, but you must register in advance for tickets