"We don't plan London very much. Nobody planned to have the euro-dollar market, for example. It rose because clever people were very quick at responding to market signals.”
Speaking at a debate at the Museum of London on the future of the capital, hosted by Eversheds, The Independent’s Hamish McRae set out the optimistic case for the city’s post-Brexit prospects.
Drawing on London’s evolution from trading entrepot to the greatest financial centre on the planet by some margin, his point was that the city has grown rich and powerful not because some policy-maker had willed it so, but because it has long been both highly adept at responding to those market signals and a magnet for talent.
“We have to see where we are now in the context of this very long history,” said McRae. There is a sizeable potential prize from Brexit, whatever the uncertainties. But securing it will require London to remember – and build on – the reasons for its success thus far.
“The future is uncertain, but one thing is certain. London has been a leading global city for centuries and, in order to maintain its status, it’s had to reinvent itself many times,” said Phil Hussey, vice-president at IBM.
Fintech has been perhaps the capital’s most notable reinvention in recent years. “We are Europe’s banking headquarters, we are a centre for professional services excellence and are the energy behind the tech sector... demonstrated in the emphatic success of fintech. Fintech truly speaks to London’s ability to evolve,” says Lee Ranson, managing partner at Eversheds. “Here we see the co-joining of the established and the new and elevating that to a world-beating level.”
By many measures, London fintech certainly is world-beating. According to EY, for example, more people work in the sector in London (61,000) than in the fintech sectors of Singapore, Hong Kong and Australia combined.
It generated £6.6bn in revenue last year, and attracted £524m in investment. “From 2010 to 2015, 10 per cent of all fintech investment in the world has come to the UK, more than the whole of Europe put together,” said Hussey. “It’s not come because somebody has said ‘let’s build a fintech market’. It’s because London has the regulatory environment, the skills environment and the talent to do it.”
Magnet for talent
Across the wider technology sector, however, despite big investors like Google and Facebook recommitting to the capital after the referendum, many fear leaving the European Union will undermine these foundations. “Forty-five per cent of London’s startups employ more than 30 per cent of their staff from abroad,” said William Newton of WiredScore. “If you start threatening that, just the uncertainty of it could really lead to stagnation.”
Remaining an attractive destination for foreign talent is a multi-faceted issue, wrapped up in challenges like the cost of housing, but there was broad agreement on the panel that a Brexit deal which did not accommodate businesses’ skills needs could be calamitous.
“The deal that the government strikes with the EU must allow London’s world-leading sectors to meaningfully access European markets and European talent,” said Jules Pipe, deputy mayor for skills. “We as IBM use the UK as our services base,” said Hussey. “Restrictions to our ability to deploy talent will severely impact our position as an exporter from the UK to the EU.”
With the contours of Britain’s exit deal unlikely to become clear for several years, however, there is much that can be done in this area in the meantime.
“The number of vacancies in London due to skills shortages has more than doubled in recent years,” said Pipe, highlighting a wider issue around the skills training of Britain’s domestic workforce that Brexit has made more pressing.
He called for greater devolution to City Hall, so that skills training in London can more closely meet the needs of the capital’s businesses and young people.
“A closer relationship with business will allow us to protect the economy and facilitate future success,” he said. While our universities are world-class and schools among the best in the country, “we need the levers to create high performing colleges to help reduce youth unemployment. We also need to be able to map skills gaps. We don’t have that map of where there are gaps in skills.”
The vibrancy of London’s tech sector – in fact the countless areas that make up the digital economy – depends on more than just skills.
“People in London want to do amazing things. They want to create a path to artificial intelligence. They want to build new cryptocurrencies on the blockchain. They want to find new ways to cure disease. But it’s impossible to move fast and break things if it takes five minutes to upload an attachment to an email before you can send it,” said WiredScore’s Newton. “There is a disconnect between the enormous and increasing importance of the internet and the digital connectivity of businesses.”
His company rates office buildings on the quality of their digital infrastructure, giving them a score based on things like resilience, speed and cost. And in general, London does relatively well compared to its competitors.
But there are two problems. First, smaller firms cannot afford to secure the internet they require, with many still working on home broadband products. Second, there is almost no fibre in some bits of London. “The worst is Rotherhithe,” said Newton. With demand for data increasing year-on-year, the capital must keep on top of these challenges if it’s to realise its true potential.
Looking to the world and to Britain
“London is the most visited city on earth by a huge margin. It has the largest non-national professional workforce in the world, again by a huge margin,” said McRae.
The longer-term potential prize from Brexit, he argued, is to some extent an acceleration of this global openness: to be part of an “outer ring of Europe, going back to being an entrepot capital, looking at the world. Europe is a big market, but it’s a stagnant market. The rest of the world will grow much more quickly.”
But in a post-Brexit world, where a gulf between London and the rest of the country is perceived to be wide and widening (particularly on issues such as immigration), the capital cannot forget that it is a British city, as well as a global one. In remarks preceding the panel debate, the BBC’s Evan Davis set out a further two challenges facing the city.
“First, the gap between London – the psychological, income, and so-called investment gap – and the rest of the country was one of the factors behind the undercurrent of discontent outside London. If that gap is left to fester, it could be a big problem for London,” he said. “When decisions are made about Brexit, you can expect London to be at the back of the queue if London is not really loved by the rest of the country.”
For all its cultural diversity, the second challenge is ironically that London will become too monotone. “London is not just a place that feels distant,” said Davis, “it’s a place that’s hard to get into. The danger is that there will be a hollowing out of London, because the housing is unaffordable.”
There is no silver bullet solution, but our history should give us cause for optimism. “London has proved itself a leading global city through a mix of inventiveness, an ability to attract global investment and its magnetic lure to bright and driven people from around the world. There is no doubt that this is a time of great change for the world and London’s offer must continue to evolve in response,” says Ranson.
“There is speculation about Brexit and whether a plan exists or not. However, what we know about London is its ability to endure, adapt and respond. We need to ensure this is maintained so London can continue to develop for the benefit of the country as a whole.”