City of London Economic Research

Coming Together: The importance of face-to-face contact for business relationships in the City

 

Mikaela Belcher and Hugo Le Ridou, Reed Smith Trainee Solicitors

 

The City’s best resource is its people. Although we are now able to work from anywhere, anytime, businesses remain willing to invest heavily in offices in the City due to the rich interconnections and expertise available within the Square Mile.

As incoming trainee solicitors at Reed Smith LLP, a Global 20 law firm, we partnered with the City of London Corporation to find out how face-to-face interactions contribute to the City’s competitive edge on a global scale.

 We conducted twelve interviews with professionals working within financial, legal, and professional services in the City; our findings are outlined below.

 

• The importance of the Square Mile for sharing knowledge and accessing global talent.

Participants all stressed the importance of having a ‘City location’ to attract talent, host partners, and meet clients. The client-focused nature and complexities inherent to financial and professional services made networking events and informal encounters valuable for city businesses. Face-to-face contact in the Square Mile allows for a “freer exchange of ideas” and making complex and nuanced points that might be lost on paper.

 Interviewees were overwhelmingly positive about the City’s network, feeling that there was always a trusted advisor moments away. This connectivity fosters strong inter-firm knowledge sharing and was also seen to be a catalyst for career development in the City: many interviewees had found jobs through their City networks and more senior workers had built a ‘City Career’ thanks to this.

• Business opportunities are still created through proximity and face-to-face contact

These formal and informal face-to-face interactions in the City generate new business opportunities. Not only does a City location lend a certain prestige and credibility to a business, interviewees were more likely to interact with firms, professional networks, and clients that hosted events in direct proximity.

Events and meetings hosted in the City, were seen as more convenient and therefore were more likely to attract participants than events outside the Square Mile. At such events, “new business relationships can arise just from people meeting you for a short period of time, for example very often people get in touch after attending a talk or presentation where you were presenting. It’s not about the knowledge necessarily … but about the person themselves.”

• Face-to-face contact helps build trust in the business relationship

Face-to-face contact with business partners was always interviewees’ preferred way of understanding a client’s needs, deepening the relationship, and understanding complex ideas. As one interviewee put it, “you never know what somebody actually wants until you sit face-to-face with them with an example of what you’re going to produce.” Regular face-to-face contact brings a personal element and a deeper understanding of business needs into client services, which gave participants “a much better working relationship”. 

Face-to-face relationship management was also seen - across different industries - as the principal way for firms to differentiate themselves from their competitors, who on paper might offer similar services: “The key differentiators are who you trust, and who you think can pull a deal through.”

 The City’s best resource is its people. This ecosystem relies on the network of related businesses and industries that operate here. The City of London Corporation is currently undertaking an extensive programme of interviews, polling and research to deepen the understanding of the specific and distinct business advantages of locating in London – and more broadly in the UK – and the reasons why clients choose to use the world-leading FPS & tech services based here. This programme of work will highlight how the City is continuing as the global hub for financial and professional services.

 

Creative professionals in the Square Mile

 

By Dr Edward Jones Research Officer at the City of London Corporation

 

Creative professionals might make up a small proportion of the City’s workforce but they are a crucial component of the wider business draw of the Square Mile. Whilst accounting for 7% of City professionals, creative talent provides crucial services to other businesses, helping to foster innovation and support competitiveness. Digital breakthroughs lead to innovation, and advertising and marketing expertise aids business communication, meaning that creative skills help City businesses push the boundaries and remain competitive. So its unsurprising that the largest employers of creative talent in the City are those which complement the wider business ecosystem – digital agencies, publishers, advertisers and architects.

More than half of the creative jobs in the City (18,405 workers) are in tech businesses. These jobs in IT, software and computer services have seen phenomenal growth in recent years, increasing 80% since 2010. This outpaces the growth of this sector in London (54%) and in Great Britain as a whole (48%). Their location in the Square Mile means they are close to the clients and competitors that keep them at the cutting edge. Digital tools and capabilities are rapidly transforming other services as fintech, insuretech, legal tech and regtech become part of the ecosystem’s landscape. This process requires the specialist knowledge of digital agencies, whose growth in recent years reflects the increasingly crucial role of tech to City businesses.

 

 

Both publishing (6,200 workers) and advertising and marketing (4,675 workers) also employ a lot of workers in the City, the latter having more than doubled its job count since 2010. The strength of these specialisms highlights the importance of communication and messaging to the knowledge based businesses in and around the Square Mile today.

The music, performing and visual arts sector is a small but fast-growing component of the City’s creative workforce. Home to world-leading cultural institutions such as the Barbican, the Guildhall School of Music and Drama, and the London Symphony Orchestra, the cultural impact of City is also felt in the presence of artists and performers, who have increased in number by 145% between 2010 and 2016, albeit from a modest numerical base of 745 professionals.

 

Our recent City as a Place for People report showed that there is an increasing blurring between specialisms, with creative solutions and novel perspectives being readily adopted in fields such as finance, insurance and law. The creative work done in-house by IT, marketing or communications workers is not necessarily captured in official estimates like the Business Register and Employment Survey (used in this blog), which are based only on the business area of the employing firm. This means that creative professionals in the Square Mile might will likely make up much more than the official 7% of the workforce.

The Culture Mile initiative has focused interest in the creative ecology of the City. An exciting new research project has recently begun exploring creative enterprise in Culture Mile, getting to grips with the activities which characterise the area’s unique creative offer. The data analysis and in-depth case studies that this project will generate promises to shed further light on the appeal of a Square Mile location for creative businesses.

 

Professional services in the City - focus on legal, accounting & auditing and management consultancy

 

By Katharina Ehrhart, Research Officer at the City of London Corporation

 

Professional services are key to the City’s unique business ecosystem as employers, as clients and as business partners. While financial services include different forms of banking, insurance or asset management, the professional services sector refers to a wide variety of activities from architecture via real estate activities to photographic activities.

Almost one in five workers in the City are employed in just three industry subsectors of professional services which are particularly closely related to financial activities - sometimes referred to as ‘related professional services’. Together, accounting & auditing, legal services and management consultancy employ 90,000 jobs in the City across a total of 6,505 firms.

Looking in more detail at the City, legal services employ the biggest share of people, followed by management consultancy and accounting & auditing. Legal services also have the highest number of firms in the City, followed by auditing & accounting firms, while the number of management consultancy firms is much smaller.

 

 

 

The City’s legal sector is highly competitive and world leading in key areas including litigation, arbitration and dispute resolution. The City alone hosts 25,000 solicitors, and 3,000 barristers – that’s around 40% of solicitors and barristers in London. The combined number of legal services in the City is higher than in any other local authority in the country.

The City’s management consultancy sector employs 29,000 professionals. They provide firms with strategic advance on a range of issues, with 28% of fee income derived from Digital and Technology Consulting (MCA).

With 17,000 accounting and auditing professionals, the City employs the 2^nd highest share of accountants and auditors in the country.[1] Many of them work for the Big Four which have their head offices in the City, Southwark and Canary Wharf. The high-quality financial reporting the sector provides underpins business management and can help investors identify profitable investment opportunities (ICAEW).

These professional services are based in the City because they support financial services firms in providing legal and management advice as well as producing financial records, aiding the smooth running of operations.

This is reflected in the significant share of demand for services from professional services firms which comes from financial services firms: Financial services firms account for 17% of the total demand for legal services, 24% of the total demand for accounting services, and over 20% of demand for management consultancy (estimated). The data is from ONS input-output tables.

 

You can more about financial services’ demand for services from other sectors in Fiona Morrill’s blog on the “Chain Reaction”.

Professional services play a key role in the City’s ecosystem; they provide services which are key to each other as well as financial services operations and make up a substantial share of employment in the City. Firms and individuals come to the City because they can get not only access to financial services but also all the related advice in the same place.

 

Sources: BRES 2016 data, UK Business Counts 2017 data, ONS, Input-Output-Tables

[1] After Southwark (SIC 69201).

Mainstreaming Green Finance at the Green Finance Summit

 

By Katharina Ehrhart, Research Officer at City of London Corporation

 

On 17 July, the City of London’s Green Finance Initiative is hosting the 2^nd  Green Finance Summit at the historic Guildhall.  This year’s summit is dedicated to “Mainstreaming Green Finance”.

Green finance means the investment in climate-friendly technology and infrastructure which will support the transition to a low-carbon economy. This is a global challenge, estimated to be worth trillions of dollars. In Mark Carney’s (Governor of the Bank of England) words, “Investment on this scale cannot be financed in niche markets. It must be mainstream and global.”

The UK and specifically the City of London is recognised to be a global hub for green finance. Thanks to the quality and depth of its green finance offer, London ranks 1st in Z Yen’s Global Green Finance Index 2018.

In 2015, the London Stock Exchange (LSE) launched a range of dedicated ‘green bond’ segments. There are strict admission criteria for those green bonds, based on the ICMA’s Green Bonds Principles.

Currently there are 78 green bonds listed on the London Stock Exchange. These are popular with investors from across the globe. The LSE issued the world’s 1^st certified green bonds and green covered bonds from China, India and the UAE, while Fiji has just launched a sovereign green bond. Since the 2017 Green Finance Summit, the amount raised in green bonds on the London Stock Exchange has doubled from $10.5bn to $24.5bn, demonstrating investors’ commitment to green finance. In the preceding year from 2016 and 2017, green bond issuance grew by 78% worldwide to $155.5 billion (Reuters). Green bonds are generally over-subscribed which means that demand for them outstrips supply and there is a large potential for growth (ClimateBonds.net).

Current challenges in green finance are questions regarding green loans and securitisation, targeted support for green infrastructure as well as give investors greater transparency to measure climate risk. The Task Force on Climate-related Financial Disclosures (TCFD) has developed recommendations for improving investor transparency which already been endorsed on a voluntary basis by 275 companies have a combined market capitalization of over $7.1 trillion (May 2018 data)

The UK Government have already responded to one of the recommendations the Green Finance Task Force made in its March 2018 report. In his Mansion House speech on 21 June, Chancellor of the Exchequer Philip Hammond announced the establishment of a new Green Finance Institute in London, jointly funded by government and the City of London. The objective is that “firms from across the world can access our one-stop-shop for world-leading climate science, and for capital.”

Drawing on the theme of Mainstreaming Green Finance, the 2^nd Green Finance Summit will bring together high-level speakers to present on policy and regulatory developments in the sector. Over 900 delegates are expected to attend the summit which is supported by Amundi Asset Management, Carbon Delta and Green Investment Group.

Banks: in the City and across the UK

 

By Katharina Ehrhart and Fiona Morrill Researchers in the City of London Research Team

 

Last week, Chancellor of the Exchequer Philip Hammond in his Mansion House speech, spoke about his vision for extending “London’s position as the world’s number one international financial services centre” post-Brexit.

The City is the home of global banking

Banking is a critical part of the City’s financial and professional services ecosystem that underpins the UK’s position as a global centre for finance. Across the UK there are over 250 foreign banks, but it is in the City that the world’s banking sector clusters. Banks from 26 countries are represented here and many cluster around the Bank of England. This includes banks from North and South America (US, Canada, Brazil), from Asia (China, India, Japan), from Africa (Ghana, Nigeria) as well as the Middle East, next to banks from several European countries (Germany, France, Spain).

Banks supporting businesses and households across the UK and Europe

In the words of the Governor of the Bank of England, Mark Carney, who also spoke at the Mansion House, “The City is Europe’s investment banker, and it is leading the internationalisation of green, Islamic, renminbi and rupee finance.” Moreover, he noted that the UK banking system channelled £300 billion in finance to UK businesses and helped 700,000 households to purchase homes in 2017.

Banks’ direct contribution to the UK economy

As well as the services that banks provide, they are major direct contributors to the economy. They provide 360,000 jobs across the UK and over 96% of these jobs are in large firms. One in five of those banking jobs are based in the City.

Banks also account for £35.4bn or 5% of all government tax receipts - enough to pay for the total UK transport budget, including central government and local authority spending.

Our Total Tax Contribution research identified that more than 90% of the taxes banks generate for the UK depend on the geographical location of their operations and employees – a higher proportion than any other financial service, highlighting again, the value that banks locating in the UK bring to the country as a whole.

 

Sources: ONS, Business Register & Employment Survey 2016; CoLC & PwC, Total Tax Contribution of UK Financial Services, 2017; BEIS, Business Population Estimates, 2017; ukpublicspending.co.uk, Mint UK data, 2018. Mark Carney, “New Economy, New Finance, New Bank”, 21 June 2018.

How does financial services support the wider economy?

 

By Fiona Morrill, Financial Services Research Officer in the Economic Development Office

 

Recently the House of Commons debated the future of financial services, and the role it plays in supporting the UK economy, and we’ve been informing the debate by looking at the contribution financial services makes to other sectors. This contribution comes not only from investing in and financing their activities, but more widely by purchasing their goods and services.

In 2015, financial services spent £138bn on goods and services from other sectors – equivalent to 7% of total demand for those goods and services, and up from £136bn in 2014. This is a key part of its contribution to the wider economy, alongside the £72.1bn it generated in tax receipts for the UK government in 2016/17.

The contribution FS makes is particularly strong in highly productive sectors like tech services and related professional services, buying around a quarter of total outputs in many of those activities. FS accounts for 22% of the total demand for computer programming, 26% of demand for telecoms, and 20% of demand for information services, while it buys 24% of total accounting and tax services, and 18% of legal services. This illustrates the links between FS and other knowledge-intensive, innovative and productive sectors.

The infographic below looks at the contribution made by financial services in buying these goods and services, supporting jobs and growth in other sectors, alongside the role of related professional services (accounting, legal services and management consultancy) in doing the same.

While we might not be able to predict the future of financial services, facts like these are crucial to the debate around how the sector boosts jobs and growth in its own right, alongside playing a key role boosting innovation and productivity right across the UK economy.

 

Source: ONS, Input-output supply and use tables, 2017

 

Business’ view on London’s housing affordability

 

By Katharina Ehrhart, Researcher in the City of London Research Team

 

Much is written about London’s housing crisis. Academics, politicians and businesses agree one of London’s key, and enduring, challenges is the cost of housing. Globally, London is among the top 5 least affordable cities with ramifications on who can afford to live and work here.

Remarkably, only the top quarter of earners in the capital can afford even London’s cheapest homes (bottom 10% of house prices).[1]

 

 

This is despite a small decline of 0.5% in London house prices in 2017, as recorded by Nationwide. Chartered surveyors who participated in the RICS survey from February expect prices in London to fall further over the next month and the next quarter. But none of this will likely have a decisive impact on housing affordability. The graph above uses January 2018 figures, but the findings are virtually unchanged from three years ago.

High housing costs have a negative impact on businesses who are struggling to attract or retain staff. Business groups such as LCCI, London First, the Federation of Small Businesses and the CBI have all highlighted London’s unaffordable housing as one of their member’s top priorities. Campaigns such as “Fifty Thousand Homes” were set up as response to the impact of housing costs on staff recruitment and retainment.

Not only do high housing costs put pressure on employers to raise wages to compensate for higher living costs but long commutes and suboptimal living conditions can also impact on the productivity of staff at work.

The Resolution Foundation’s latest research also highlights that housing costs put off potential workers from moving to London for work, despite increasing their average pay by 18 % in real terms. House prices at more than twice the national average are discouraging potential workers from moving to the Capital.

High housing costs challenge London’s businesses ability to hire the people they need. As the LCCI highlight, “As housing costs rise further, London risks losing the skilled workers who are critical to the city's future competitiveness” (LCCI).

Accordingly, some key FRPS employers are taking innovative steps to support their staff with the cost of housing. For example, Grant Thornton, Morgan Stanley, Schroders have all signed up to the Fifty Thousand Homes pledge – a business-led campaign with the objective of a yearly 50,000 homes being built in London by end of 2020.

• Many employers also offer flexible working options, travel loans as well as interest-free loans for housing. A prominent example for the latter is KPMG who help employees obtain preferential mortgages rates with Clydesdale & Yorkshire Bank.
• Deloitte have gone a step further and directly provide housing for employees on graduate programmes. The accommodation is free from credit checks or rental fees and comes with two weeks of rent paid for.

The initiatives taken by FRPS employers show both how critical the issue of housing affordability is, and which solutions employers can make available. But ultimately, more needs to be done on all levels to make more affordable homes available to Londoners so that businesses in the Capital can continue to attract the best and brightest of the workforce.

 

[1] Assuming a mortgage of 4 times annual salary. Data is from Land Registry, “Prices Paid”, January 2018; ASHE, “Annual Pay – gross”, 2017.

International financial services: opportunities for emerging markets and the UK

 

By Karen Hindson, Researcher in the City of London Research Team

 

In their recent report, the World Bank discussed the value of openness to competitive international financial sector in contributing to faster growth and giving households and business around the world access to financial services. In this blog post we discuss how investment in emerging markets also represents significant opportunities for UK financial services.

Openness to international financial services is key for emerging markets

International banks represent an important source of finance, constituting between 40–60 percent of the banking industry in many developing regions[i]. Domestically, the competitive pressure provided by international financial services can promote market penetration - improving access to finance for SMEs and households that have historically been excluded. They also facilitate exchange of skills and new technologies, and invest in R&D to bring novel products and ways of working to improve efficiency and market access.

More widely, international finance also plays an important role in bringing much-needed capital and longer-term investment; stimulating foreign direct investment and international trade flows, and transmitting liquidity to local financial systems via cross-border bank flows. Despite a sharp decline after the global financial crisis, international Foreign Direct Investment inflows to developing countries have since recovered (see fig), and bank lending continues to be an important source of funding for emerging markets, enabling infrastructure investment, and stimulating business and job growth.  

 

 

More than ever, remaining open to international financial services is key to ensuring developing countries continue to benefit from global flows of funds, risk-sharing and diversification, and knowledge and skills transfer.

Emerging markets are also a source of opportunities for UK financial services

By 2030, over half a billion Africans[ii] and a billion people in Asia[iii] are projected to be middle class, representing a significant future demand for banking and financial services abroad. This is one of the key trends highlighted in The City of London Corporation’s Asia Next Decade Campaign, which emphasises the wider opportunities for UK financial and related professional services in Asia across the next ten years.

Fintech is rapidly expanding in emerging markets, where it also represents valuable opportunities to meet a growing demand for innovative financial products, both for fintech firms as well as traditional financial services. Fintech is helping to drive forward a crucial evolution in financial services, particularly in emerging markets, where it is reducing the cost and improving the ease of conducting financial transactions. Technology is facilitating a movement away from traditional ‘bricks and mortar’ banking, and establishing access to financial services via mobile phones for many rural and remote communities – giving previously under-banked households and SMEs access to financial services. As our report ‘The Value of Fintech’ highlights, London’s role as a leading global fintech hub makes UK Financial Services well placed to capitalise on this growing market.

The World Bank’s research speaks to the clear mutual benefits that international finance can bring. For emerging markets, it can play a crucial role in improving access to finance – promote entrepreneurship and act as an accelerator for economic growth. Where international financial services are dynamic and respond to the enormous commercial opportunities that emerging markets provide, this can strengthen global relationships, and help to secure a shared prosperous future.

 

[i] http://www.worldbank.org/en/publication/gfdr

[ii] https://www2.deloitte.com/content/dam/Deloitte/ng/Documents/consumer-business/the-deloitte-consumer-review-africa-a-21st-century-view.pdf

[iii] http://oecdobserver.org/news/fullstory.php/aid/3681/An_emerging_middle_class.html

 

Financial Services careers in London – a breakdown of jobs by occupation

 

By Katharina Ehrhart, Researcher in the City of London Research Team

 

In this blog we are interested in the occupations that are predominantly located in London and the City. We want to know what attracts highly skilled workers to this location. It is often said that people chose London because of the career opportunities it offers, and we will look at whether the data confirms this. Our focus will be on financial services (FS).

Highly skilled jobs in London

London has a working population of over 5 million and a significant number of senior positions - 58% of all jobs in London are high-skilled, and in the City this share rises to 68%. Across Great Britain, 45% of all jobs are high-skilled. The Office for National Statistics (ONS) defines high-skilled as occupations that require degree-level education or a high-level vocational qualification[1]. Below is a breakdown of jobs across sectors in London and in GB into high, medium and low-skilled roles.

 

There is a ‘sorting effect’ which means jobs in London overall are more senior than elsewhere. This is even more true for industries that rely on highly skilled workers, and trading with other businesses, e.g. knowledge-intensive business services. It is in these types of firms that more of the jobs in London are ‘top level’ and financial services are a great example for this. Below we can see a breakdown of jobs in and outside of London along the major occupation groups (Fig 2).

Highly skilled jobs in the FS sector

 

Together the three high-skilled occupation groups (highlighted in purple) account for just over 80% of FS employment in London. Outside London, they also represent a majority of jobs at just under 60% of employment. However, Administrative Occupations, a medium-skilled occupation which has the second-highest share of total employment outside London (at 30.1%), is less present in London.

Top 5 FS occupations in the City

By digging deeper into data from the economic modelling service EMSI, we can identify what this means for businesses, by the types of FS jobs located in the City[2]. Clearly these are mostly high-skilled positions but also include medium-skilled positions such as Bank and Post Office Clerks. Below we can see the top five FS occupations in the City.

 

 

The ONS and EMSI data used above demonstrate the wealth of high-skilled employment opportunities present in London and the City. Previous City of London research showed that City professionals choose to work in London because of its rich opportunities for building and advancing a career. These opportunities arise both from the depth and breadth of practice in a global financial centre such as London as well as from the possibility for junior staff of finding an experienced mentor.

The interviews we have conducted as part of our forthcoming report on location decisions “City as a Place for People” have built on this. For highly skilled individuals, it makes sense to work in London, where the most prestigious employers in the private and public sector, numerous international headquarters as well as the head hunters are based.

  

[1] These include occupation major groups 1-3.

[2] Occupations on 4-digit SOC code level.

Sources:

APS, Workplace Analysis, 2016

BRES, 2017

EMSI, Industry Overview, 2018

Ipsos Mori/City of London Corporation, Understanding Global Financial Networks, 2011

ONS user requested data, Jobs in London by SIC, SOC, HiQual, COB and age, 2015

 

Global talent for a global hub: how the City continues to attract workers from across Europe and the rest of the world

 

By Fiona Morrill, Financial Services Research Officer in the Economic Development Office

 

Our research programme for this year focuses on why the City remains a world-leading location for businesses and workers, and new data from the Office for National Statistics (ONS) reveals just how international the City’s workforce is, and how this has changed over time.

In 2016, 41% of City workers were born outside the UK, equivalent to just over 2 in 5. This is a significant jump from 2004 (the start of records), when 26% had been born outside the UK.

The data also allows us to look at the share of workers who come from the European Economic Area (EEA)[1], and workers from the rest of the world. While the share of workers born in the rest of the world has stayed relatively consistent over time, rising from 19% in 2004 to 23% in 2016, growth has been driven by EEA workers, the share of which has risen from 7% to 18%, over the same period.

 

 

We can also look at how this varies by sector, to get a sense of how important EEA and international workers are to key City sectors. The chart below shows that a third of the City’s combined financial and professional services workforce were born overseas, rising to 38% for information and communications, and over half in administrative and support services.

 

 

The data shows the importance of international talent to the City, and particularly how links between the UK and the rest of the EEA have deepened over the past twelve years. Going forward, a key concern for the City of London will be how to preserve these links, and to continue making the case for a clear post-Brexit immigration policy, to ensure the City remains a world leading global financial and professional services centre.

 

[1] The EEA includes EU countries and also Iceland, Liechtenstein and Norway