Tighten those City belts

I walked yesterday from the Aldwych to the City past nothing but For Sale signs. As this war rages, the home front faces a different sort of pressure. I have seen London slumps before but the one now facing the capital is proving murderous. London's prosperity rests on the twin towers of tourism and financial services. Both are being devastated.

Transatlantic travel is down a staggering 70 per cent on last year. Yesterday BA had to cancel another batch of flights out of New York. Americans may love us, but they are treating us like lepers.

As London hotels empty, the average price of a room has fallen below £100, a level not seen for five years. Takings are down 10 per cent in only two weeks at Liberty's. Tourist agencies report that the only overseas visitors still arriving are, ironically, the French.

Meanwhile the City is behaving like a neurotic teenager. It plunges on news of war, soars when the war goes well, collapses when troops get stuck and rises on the hint of rebellion in Basra. But last year's downturn in City financial services is becoming a rout.

The Economist recently reported that in the past two years alone 10 per cent of "City-type" jobs have gone, or well over 30,000 people. This year another 15,000 expect to be cut.

Everything that depends on London boom is vulnerable to a London bust. When a City banker loses his job, three others lose theirs. A recent Standard taxi survey suggested a fall of 25 per cent in cab usage this year. Nannying agencies claim a 50 per cent drop, as women return to child care. House prices in the capital are continuing to fall, down by more than 10 per cent in the richer boroughs. Flat rentals are down by 20 to 40 per cent.

David Murrell of the City Golf bar, whose walls have watched a million deals celebrated and sorrows drowned, reports glumly: "Champagne at lunch has gone." You can find a parking meter anywhere in the West End. How much of this is due to the war and how much to recession is moot.

Tourism will recover as soon as the fighting ceases, provided ministers stop the mindless terrorist scaremongering of the past six months. Last month's lunatic decision to ring Heathrow with tanks and machine guns must have cost the capital millions of pounds in lost business. That business, at least, should return.

London, as the latest Lonely Planet Guide reminds us helpfully, is still "one of the truly great capitals", and a falling pound should at last relieve its "jaw-dropping expense".

I am less sure about the City. It is suffering not just from the war but from structural recession. Jones Laing LaSalle reports vacancies in central London are leaving one in seven office blocks empty.

Anyone still wanting to build a skyscraper must be mad.

The Gherkin is not let. Canary Wharf is emptying and facing another financial crisis. Ken Livingstone's thesis that London would be "strangled" without more towers is plain idiotic.

Some such course correction is overdue. London has seen its longest stretch of unbridled growth in half a century, and needs a breather.

It cannot be bad news that corner shops are no longer threatened by Starbucks and All-Bar-One. The closure of a handful of McDonald's outlets is fine by me.

It cannot be bad that more young people will now seek work as teachers and nurses, perhaps even as bus and Tube drivers. It cannot be bad that key-worker housing is getting cheaper relative to income. Developers have had their latest greedy slice of the skyline, most hideously at Paddington Basin. They can lay off.

Of course recession is no fun for those who lose their jobs. But capital cities are tough places. They have always dished out the rough with the smooth. The next recovery, when it comes, will be very different from past ones.

Three years ago, business guru Peter Drucker called London's financial surge of the 1980s the equivalent of America's Silicon Valley boom of the 1970s. He also predicted its demise. Corporate finance, and its parasitic tail of consultants, analysts and lawyers, would decline. Their huge office blocks would empty. Investment banking alone is now reckoned to have shed 100,000 jobs worldwide in the past two years. These jobs will not return to central London.

The cry in every firm is that "80 per cent of our profit comes from 20 per cent of our staff ". Every employer will be out to identify that 20 per cent, and cosset them. That will mean not dumping them in Canary Wharf or even the City, but putting them where they can enjoy the city in the round, in the smaller office suites in the West End or closer to where they live. One day The Office will seem as old-fashioned as Are You Being Served?

I am convinced that the wealth of inner London in its next recovery will depend, as never before, on its quality of life and the dignity of its appearance. This will be required to appeal equally to the banker, the tourist and the service worker generally.

London will have to fight to regain its business. It can take nothing for granted. Ken Livingstone's plan will need tearing up and starting afresh.

That is for the future. For the present, London must tighten its belt, sit out this war and pray for confidence to return. War could not have come at a worse time, but it will leave a capital slimmer and less arrogant. Many will suffer. But the geese will lay golden eggs again.