London: City of eternal resilience
February 24, 2017
Mark wrote the following article for today’s City AM.
We have been here before.
Seismic political or economic events strike like a tsunami; panic breaks out that London’s position as a leading world city is endangered. It happened in the aftermath of 2008’s financial crisis and it’s happening as Brexit looms.
In 2009 the Economist observed magisterially, “Before the credit crunch, talk that London would replace New York as the world’s financial centre was commonplace. That claim sounds rather hollow now.” It was convinced that investors would flee post-crunch regulation and taxes, leading to the inexorable decline of the City.
Yet this concern seemed not to be shared by those with money to spend as a new wave of international cash poured into our metropolis. This was partly down to sterling depreciation, alongside turmoil across the world that ensured London maintained its relative attractiveness. But it also underlined the breadth of London’s appeal as a bastion of commercial certainty and reliability.
London has always enjoyed innate advantages, including its time zone and the lifestyle assets of culture, an excellent educational offering and an educated population so diverse that all can feel at home. We also have the inestimable benefit of the rule of law, a crucial ingredient for investors who regard London as synonymous with justice, neutrality and fairness.
Equally significant is our reputation for innovative, adaptable people, so just as jobs were falling away from the financial services sector, talented workers were reallocating themselves to entrepreneurial pursuits and burgeoning new industries such as tech, film production and biomedicine. London is now the biggest hub in Europe for IT startups, and tech is cross-pollinating with the capital’s other thriving industries, digitising everything from food and finance to property, health and lifestyle firms.
London was sufficiently resilient to withstand the 2008 crash. Its appeal is unlikely to be comprehensively undermined even by the worst that Brexit can throw at it.
It should also be remembered that Brexit is taking place not in isolation but as one of a series of momentous political shifts underway in the West. Insofar as there is uncertainty in the UK, it is surely matched by upheavals elsewhere. In a city as dynamic as London, even a clean break Brexit will be seen as a fantastic opportunity for legions of creative business minds to turn uncertainty to their advantage.
Nonetheless, UK policy-makers must not be complacent about London’s future, particularly its role as the leading global financial centre. Our capital has historically benefited from arbitrage with Wall Street, from the withholding tax under President Kennedy (which precipitated the creation of the Eurodollar and Eurobond markets) to Big Bang in the mid-1980s and the effects of Sarbanes-Oxley (2002) in the aftermath of the Enron and Worldcom scandals.
Our competitors now hope to benefit in a similar way from our withdrawal from the EU, particularly if rules governing the Eurozone are changed to exclude London-based operators from certain transactions. Brussels should be mindful that if euro-clearing is lost, the long-term beneficiary would likely be New York since diluting London will likely undermine broader financial stability across the EU.
Furthermore, while Eurozone members fret about the next banking crisis, the new US administration seems set on reforming its ponderous tax code and unleashing Wall Street from restrictive regulations. The UK may have to act nimbly and quickly to retain key financial and related professional services firms here in London.
London businesses remain extremely concerned that access to competitively-priced, skilled migrant labour is not cut-off once we have exited the EU. Talk of specific visas for tech and financial services, or perhaps even a London visa, is now all the rage but also highlights a strategic choice the government will need to make on whether or not to try to carve out an exceptionalist deal for London in the negotiations.
This is tricky ground. On the one hand, special deals for pro-Remain areas could help address the dismay of those who wish our EU membership to continue. On the other, such deals could undermine the Prime Minister’s passion to bring the country together as one nation.
If the government, understandably, cannot deliver certainty over Brexit during the fraught negotiations, it must seek to give London’s firms as much security as it can in areas within its control. This will involve the implementation of a much-heralded new industrial strategy – a confident, deliberate approach towards cooperation between government and business in the granting of loans, tax incentives, skills and the creation of physical and cultural infrastructure.
Faster rollout of broadband has already been promised but the capital’s firms need delivery. Perversely, while rural areas are often talked about as most in need, there are vast swathes of the city centre with appallingly slow broadband. This and the business rates revaluation present a major challenge for the legions of self-employed in London.
London also requires sustained action to ensure it provides an excellent lifestyle offering. Ever-steepening house prices, congested roads and oversubscribed schools are gradually chipping away at the capital’s appeal. The past 20 years have been spent regenerating our inner boroughs, and there is plenty still to do. But if London is going to function as a dynamic, liveable city, it will be the housing and infrastructure in the suburbs that policy-makers will need to turn their attention to in the coming years.
To know London’s history is to understand that our great city has suffered innumerable setbacks – and revivals. There are many reasons to believe our capital will once again reinvent itself. But we cannot take anything for granted.
If London is to maintain its reputation as a premier world city long into the twenty-first century, it must also maintain the characteristic diversity and openness that have been crucial to its former glory. If one thing is for sure, if this wonderfully resourceful city stalls, so too will Britain.