UK: RELOCATION 3 - THE LURE OF LONDON. - As a business location, London has powerful selling points, and it's determined to capitalise on them.

by Erik Brown.
Last Updated: 31 Aug 2010

As a business location, London has powerful selling points, and it's determined to capitalise on them.

If you tried to overestimate the importance of Greater London to the UK economy, the chances are that you would miss the mark. In economic terms, London is a very surprising place. To begin with, its gross domestic product is similar to that of Russia or Saudi Arabia. If it was invited to become a member of the EU in its own right, it would have a larger economy than four other member states: Greece, Portugal, Ireland and Luxembourg. For 1993 - despite the collapse of the financial services sector - London is expected to generate a trade surplus of around £7 billion. Not bad for a conurbation that covers little more than 600 square miles (Saudi Arabia is more than 1,400 times bigger).

Now consider this: 'With an overall deficit in the balance of trade for the UK of £18 billion likely for this year, this implies that a deficit of over £24 billion in the rest of the UK - £1,610 per household - is being partly financed by a surplus of nearly £4,380 per household in London. Without the contribution from London, the trade deficit of the rest of the UK would have been 4.5% of GDP, which would almost certainly have generated some action to adjust the position.

'The rest of the UK is highly dependent on London as a market. Because London, with a low level of manufacturing production, imports most of the goods consumed in the city it is a major source of demand for other parts of the UK, importing £195 million of goods and services per working day. Nearly three million jobs in the rest of the UK depend wholly or partly on supplying the London economy. If London did not exist, about a third of these jobs would be at risk.' Get the message?

The facts and figures come from the first chapter of a special report - London's Contribution to the UK Economy - commissioned by the Corporation of London and produced by Professor Douglas McWilliams of the Centre for Economics and Business Research.

It is a powerful document, in which the figures are largely allowed to speak for themselves. But it does draw two key conclusions: first, the disproportionate split of public finances between London and the rest of the UK acts to the economic disadvantage of the UK as a whole; and second, something should be done about it without imposing additional burdens on a local economy that is already stretched. The fact is that Londoners and those working in London already pay £8.2 billion more in taxes than is spent by central and local government in London.

If this sounds like a preface to UDI, you're nearly right. London is fighting back - and that's official. But it is doing it with Government help.

The spur is that London has been hard hit by the recession. In 1992, for instance, 9,121 London businesses failed - 15% of the national total. The contraction in the financial services sector - which accounts for 31.8% of the capital's GDP (most of the rest is in value added services) - has helped push unemployment in London above the national average; and the property boom and subsequent collapse has left an unhealthy overhang of unoccupied office space, which will act as a brake on the local economy. The office vacancy rate in the City was 15.8% at the end of September 1993. And McWilliams proves that what is bad for London is bad for the UK.

The result over the past few years has been a dazzling array of private and public sector initiatives. Environment secretary John Gummer now chairs a cabinet sub-committee set up to co-ordinate policy on London, and London First, London Forum, A Vision for London, City Pride, the First Stop Shop and the Millennium Project are all helping in different ways. London First and London Forum were merged in November 1993, under the chairmanship of Sir Allen Sheppard.

The latest, which should have been formally announced by the time this issue appears, is a new inward investment agency born out of First Stop Shop, which will probably be called Locate in London - the new name was still being checked as this was being written. Honor Chapman, senior partner in charge of research at Jones Lang Wootton, is acting chief executive; her partners have donated her services half time for two years as part of their contribution to London's recovery. The Corporation of London, Westminster City Council and the London Docklands Development Corporation have raised £1 million between them and the aim is for that sum to be matched by the DTI and London First, which is a private sector initiative that involves 140 companies. The sponsors were aiming to have premises staffed and up and running by the beginning of this year. Michael Cassidy, chairman of the City corporation's policy and resources committee and a leading figure in the initiative, explains: 'I think it is bold. It is new, but it is absolutely essential as a starting point....' The other 30 London boroughs will be invited to subscribe too as it develops; but the City of Westminster and the Corporation have taken the lead to get things moving.

'We are going to examine every company that has left in the last 20 years,' says Cassidy, 'and we are going to tell them that they may be out-of-date in their perception of what the London market is. We're going to talk about the low level of rents, the fact that rates are coming down in 1995, the fact that we have replaced a third of the building stock and that the stock is now up-to-date and that there is a huge variety of choice; not just clustered around the Bank of England, but real points of strength at Broadgate next to Liverpool Street Station and along the Embankment and in Fleet Street. They are all up-and-coming areas. We'll say, don't rule us out as your next corporate move, because you may find that rents in the city are less than Guildford, Bracknell, Reading and all of those other places.'

Chapman, one of the most respected researchers in the UK property industry, adds: 'We know exactly who has gone where and we know who will be thinking of moving as soon as the market picks up and they can get rid of their existing space.'

But inward investment is only part of it. Locate in London will also be working to persuade companies not to decentralise. 'One of our prime pushes will be to persuade them to stay,' says Chapman. 'We will demonstrate that the savings in costs are not as significant as they were, because of the balance of change in property costs and the expense in amortising out your one-off costs in redundancy here and recruitment elsewhere.'

London may have had some difficult times, but the new inward investment team will capitalise on its powerful selling points as a location. These clearly still have pulling power: London was the top choice as a business location in a survey of 527 international companies carried out by surveyors Healey and Baker.

The capital is also the headquarters for 121 of the FT's top 500 companies; it is the world's largest international banking centre, handling more transactions than Paris and New York combined; it is the world's largest foreign exchange market; it has the world's leading shipping market in the Baltic Exchange; and it has the largest stock exchange business in Europe.

Locate in London will have a staff of about 15 people. 'It will network extensively with all the other organisations involved in London,' says Chapman, 'so that it makes more of what they are doing rather than simply duplicating effort.' And research will be a key area.

'We have clearly got to have a database for our target marketing,' says Chapman. 'We also have to build a series of specific databases on London, which are relevant to investors and location criteria. But first we have got to look at London in competition with other cities and work our way out from there to those parts of London that are suited to particular types of activities.'

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