City of London Economic Research

Tech and the City - is it the place to be for fast-growing tech?

 

By Maxine Kennedy, Researcher in the City of London Research Team

 

The tech sector identifies the City of London as having all the ingredients for startup success – talent, capital, superb infrastructure and potential for partnerships with larger corporates – according to a new research report launched at MIPIM, the world’s largest property convention.

Commissioned by the City of London Corporation and the City Property Association, in association with Cushman and Wakefield and KPMG, the research aimed to find out whether the City is still attractive to cutting-edge businesses – is it the place to be for fast-growing tech, and if not, why not?

This is an important time to be asking this question: tech jobs now make up approximately 8% of the City’s workforce, and the City is one of the few London boroughs to have seen year-on-year growth in the number of startups. The growth of AI and automation is likely to affect traditional City sectors, namely financial and professional services.

Interviews were carried out with landlords, large corporates, the tech sector and other interested parties and focused on startups in the fintech, legaltech and insurtech spheres.

For me, three interesting themes came out of the research:

 

1. There remains a misperception about the cost of being located in the City. Some firms interviewed for this study view the City as a traditional and expensive location, yet firms were surprised at the relative cost of renting here. Property owners were quick to point out that for every modern high-rise and listed building, there are other offices that offer a better fit in terms of size or budget. City rents are generally lower than in Paddington, Marylebone and Mayfair, and on par with others such as Southbank and Shoreditch.

 

2. As well as office space at a suitable cost, what startups really need is flexible leases that allow them to scale. Co-working spaces, such as WeWork are growing rapidly, reflecting the demand for this type of space. WeWork alone accounted for 342,450 sq ft across 6 deals in the City in 2016 and 546,549 sq ft across 7 deals in 2015, making them the tenant who acquired the most space in the City in both 2016 and 2015. Yet, there are only a handful of new entrants and the feeling is that demand is still outstripping supply. The research found that just under half of those in accelerator or incubator spaces are in a co-working or shared working space. A further 20% are located within parent organisations - showing how few are in traditional leased space.

 

3. The City’s built environment was highlighted as a key draw, especially in terms of its many transport links but there was a feeling that the perception of the City could become more aligned with tech if there were more independent and pop up shops and street vendors. Promoting the many hidden green spaces such as churchyards was also as a way to make the City more appealing to the start-up culture. Placemaking, therefore, is increasingly becoming integral to a competitive offer.

 

Overall, interviewees felt that by promoting emerging technology startups the City would ultimately benefit from being at the centre stage of advances in innovation.

These findings echo those of a report we released last year, which found that SMEs and startups in the City really value flexible space to support their growing business. The research also highlighted that small businesses believe that being located in the City helps them to attract the best talent.

Click here to read the full report

 

 

Dispelling the myths about apprenticeships

By Ododo Ediagbonya, Employability and Enterprise Project Officer in the Economic Development Office 

 

Apprenticeships are a key talking point for government, with apprenticeships seen as a method of addressing skills shortages and stimulating economic growth.  As part of this refocus on apprenticeships, last year the Government announced plans to increase the number of apprenticeship starts to 3 million. Alongside this, from April 2017, employers with an annual pay bill of over £3 million will have to pay an Apprenticeship Levy of 0.5% to HMRC, to fund their apprenticeships. Discussions are on-going about how unspent levy money will be used. However, it is thought that it may be used to fund apprenticeships in small businesses.  It is hoped that this new scheme may incentivise more industries to explore the apprenticeship route for employment, particularly given the additional subsidies received from Government.

 Yet as the Government begins to implement the changes to the apprenticeship industry, many still have questions about apprenticeships. Here are a few common apprenticeship misconceptions debunked:

• Apprenticeships are for young people

Although there is more government funding available for young people aged 16-18, apprenticeships are accessible to all age groups. In fact in the year 2014/15, 39.9% of apprenticeships were taken up by people aged 25 and over.

• Apprentices don’t have 'real' jobs

An apprenticeship is a work-based training programme. This means that apprentices work in real job roles for a minimum of 30 hours a week.

In addition to this, an apprentice will undergo a training programme, which will result in them gaining an NVQ, BTEC HND/HNC or Degree qualification. In some cases apprentices obtain a specialist qualification such as an Accountancy ACCA qualification.

• Apprenticeships are a less academic route

The types of apprenticeships available are extremely varied. They range from skills such as butchery to a degree apprenticeships in laboratory science.

Employers in all industries are leading the way by creating a wide variety of apprenticeship standards through the current Trailblazers programme. The apprenticeship offer will continue to grow and hold a range of both practical and academic options.

• Apprenticeships are for new employees only

Apprenticeships can be accessed by both current and new employees. Apprenticeships can provide current employees with a flexible method of gaining new skills.

I hope this gives readers a quick update and overview of the apprenticeship landscape today and encourages serious consideration of apprenticeships. In London only 8% of firms employed apprenticeships in 2014, compared to the national average of 11%. It will be interesting to see how this figure grows over the next few years.

If you're based in the City and want to know how the City of London Corporation can support you in taking on apprentices, - or if you would like to know more about becoming an apprentice in the City, have a look at our dedicated webpage. 

You can also contact [email protected] for more information.

 

For further reading on non-graduate routes to employment, read Saif Ullah's blog piece

Full steam ahead - the UK leads the way in maritime business services

By David Z. Smith, Assistant Director, PwC

 

Our recent study (published by City of London Corporation) - The UK’s Global Maritime Professional Services: Contribution and Trends – reveals that the UK is the leading global hub for maritime business services. The sector contributes around £4.4bn to the UK economy and leads the way internationally in maritime insurance, law, education and shipbroking.

Industry leaders we spoke to identified a range of strengths behind the UK’s dominance in maritime business services. These included:

• The depth and breadth of expertise – The size of the sector in the UK means that there is a depth of talent and expertise which cannot be matched anywhere else in the world. While some business has moved to other hubs in recent years, much of the most complex work still takes place in the UK;

• The pre-eminence of English Law – English law remains ubiquitous in the maritime sector and is trusted by maritime professionals around the globe. In addition, the English legal system maintains a strong reputation for fairness, making the UK a desirable location to do business;

• The cluster effect – Many of the individual sub-sectors of maritime business services interact with one another. Strength in one part of the cluster therefore becomes mutually reinforcing for the others, with a flow of business and talent between them.

The factors above are difficult for other countries to emulate, but the industry does face growing competition. This competition underlines the importance of government and industry taking action now to preserve the UK’s position as world leader.

 In the report we identify three main threats:

• A shift in vessel ownership towards Asia;
• Tax and regulatory burdens in the UK;
• Proactive policies from foreign governments to build their own maritime services hubs.

To respond to these challenges it is essential that UK firms and government continue to invest in maritime education and skills development. Companies must also focus on innovation, either by being at the forefront of emerging industry issues or through the use of data and analytics. Institutions that are important pillars of the maritime business services cluster, like the International Maritime Organisation and the Baltic Exchange, must be maintained.

Despite the challenges, the sector also has a number of opportunities for growth. The sector could encourage inward investment by emerging Asian services companies and drive an increase in shipping capital markets activity in London. By focusing on the growth areas as well as addressing the main challenges, the UK will be able to keep its position as world leader for maritime business services.

For more detail on the advantages, challenges and opportunities for the UK’s maritime business services sector you can read the full report here.

The changing nature of financial and professional services in the City of London

By Kerri Bridges, Student at BPP University, Masters Legal Practice Course with Business 

The City of London is constantly evolving. The way financial and professional services organisations have driven changes in how workspaces are designed, the adoption of new technology, and implementing regulation, across small and large businesses in the City, is a particularly interesting trend. The changing nature of financial and professional services in the City aims to outline some current trends and potential explanations for the changes taking place in the City today. By interviewing industry experts and collecting perspectives from academic literature, it has been possible to begin to forecast the main themes of change within the City. With relevance to a broad array of industries within the City, as well as read-across to the rest of London and the UK, this report is likely to be of interest to any person employed in roles both within financial or professional services firms, those who work for or with such firms as well as those with an interest in how these organisations are changing. 

There are four main themes discussed within the report: workspaces, technology, regulation and financial technology.

Office spaces are becoming ever more modern, and part of their modernisation involves a change to open-plan layouts, and in some cases, hot-desking. There is some debate as to whether this is the best option for all businesses in the City. The main change in this arena is the way workplaces are changing to accommodate and encourage employees to work collaboratively.

Technology is playing an increasingly important role in business strategy; the ability of the firms in the City to harness technology that is able to support the nature and of volumes of transactions they handle accounts for a significant proportion of their continuing success. With thousands of employees and customers, this requires significant investments and careful management of overhead costs. Technology must also be considered in relation to the increasingly strategic and central role played by IT staff within organisations.

Regulation has changed the landscape of the City to an enormous extent in recent years. Organisations have excelled at adapting, and continue to do so. The role of compliance professionals is changing; fundamentally it is becoming far more attractive as a City role, with individuals who specialise in compliance becoming far more important as a strategic driving force in large organisations.

Financial technology (‘FinTech’) is a rapidly developing new industry on the physical fringe of the square mile, but has a significant impact within. The London talent pool is increasingly engaging with this industry, as are top investment funds and venture capital firms. There are potential challenges posed to top City financial firms by the FinTech sector, but far more opportunities.

The aim of this research is to highlight the developments for individuals and organisations within the City of London, and the way it is advancing in line with an increasingly employee-focused culture.

Download 'The changing nature of financial and professional services in the City'.

 

 

London is primed to lead the way in cultural innovation

by Toby Kress and Peter Tullin, Culture Label authors of Cultural innovation and entrepreneurship in London

The UK, and particularly London, has experienced a ‘golden age’ in  arts and culture over the last decade. While public subsidy has declined in recent years, this has been offset by record investment in cultural infrastructure over the last twenty years. This has helped boost audience numbers and attendance for the arts and spawned a series of cultural ‘mega’ brands with multi-faceted income streams. Increased consumer demand means cultural institutions now have to cater to audiences which are global in nature and increasingly, expand their offer to be ‘multichannel’ (i.e. experienced in more than one way). For example the British Museum’s  live broadcast exhibition, Pompeii Live - this grossed £471,000 at the box office, and reached the UK Top 10.

What is driving cultural innovation in London?

 The rise of trends such as  ‘urbanomics’ - business models which focus purely on city consumers - are reshaping the cultural landscape and creative economy in cities.  London is at the forefront of this shift. A concentration of affluent urban consumers hunting for the latest alternative cultural experiences and seeking to escape the uniform offer of clone high streets and copy-cat brands has led to a surge in new creative enterprises such as Punchdrunk, Spectators’ Guild, Ginger Line, The Art of Dining and Secret Cinema.

In addition, the digital revolution has enabled the birth of a growing number of culture start-ups which challenge traditional business models. By intersecting with the technology sector, cultural institutions are increasingly offering up exciting new ways for cultural content to be created and distributed. This is increasingly evident in London – which was ranked first of 30 global cities for ‘technology readiness’ and second for ‘intellectual capital and innovation’ in PWC’s Cities of Opportunity, released earlier this week.

 The proximity of London’s technology district to the east, ‘Tech City’, to the City of London, a leading global finance hub, is also helping to accelerate the development of these innovative approaches, by providing opportunities to access capital and a growing number of international venture capital funds with London outposts. Sedition.com, Retronaut.com and DigitalTheatre.com are just a few of the examples of specific culture start-ups alongside other technology companies such as YPlan that are revolutionising tools the sector can use to grow and develop.

 Collaborating and innovating for growth 

Against this backdrop, our paper looks at how collaboration between different sectors can be fostered to fuel new growth in London’s creative economy, as well as to create resilient business models for arts and culture organisations.

We look at cultural sector innovations in London – such as iCITY, a new digital hub for London being developed on the Olympic Park Site, bringing together arts, technology and start-up organisations. We also consider learning from international examples, such as New INC, a multi-disciplinary lab space for arts and technology collaborations launching this summer at the New Museum in New York, and the new Google Cultural Institute in Paris designed to help the cultural sector co-produce new innovations with one of the world’s leading technology companies.

What next?

 The ‘golden age’ can be sustained, if the cultural and creative industries that make London great and help drive its economy, continue to be brave enough to push boundaries, reinvent themselves and reach out to new collaborators.

 Cultural Innovation and Entrepreneurship is available to download from the City of London’s research webpage. 

New sources of capital for the UK's social investment market

By The Social Investment Consultancy and London Economics

Untapped pools of potential investment capital exist

Our research, 'New Specialist Sources of Capital for the Social Investment Market', commissioned by the Social Investment Research Council, examined the potential for raising new finance for the UK social investment market from institutional investors. It focused on eight investor ‘groups’ which have been under-researched to date: pension funds, insurers, housing associations, charitable organisations, faith-based organisations, university endowments, corporations and family offices.

But hurdles to engagement remain

We found that these institutional investors do have an interest in social investment. However, challenges remain which prevent them from engaging more fully with the market. These include:

• a lack of performance track record for many social funds and organisations;
• lack of awareness of suitable investment opportunities among investors;
• and a need for credible investment advice.

In addition, we found that many of the investors interviewed tended to associate the ‘social investment’ market primarily with its more innovative products. When asked for their impressions of market performance, investors frequently cited social impact bonds as their point of reference – rather than, say, a sustainable forestry fund.  Thinking of social investment only in terms of its more innovative elements linked to the market as a whole being perceived as ‘high risk’ in the minds of investors – despite this not necessarily being the case.

A spectrum of opportunities could encourage new investors

To engage greater support from institutional investors, we identified a need to consider the full range of opportunities the market can offer. It can be helpful to think of the social investment market as a spectrum, with two key sets of investment opportunities at either end.

One opportunity is the need for risk finance investments - estimated at £500m - required to support social sector organisations in coming years. This might also include more innovative products such as social investment bonds.

The alternative, at the other ‘end’ of the market, is a multi-billion pound opportunity to invest in more established social industries, such as social housing, microfinance and clean tech.

Matching opportunities to investors

In considering the needs of institutional investors, our research suggested that investments at the established end of the market are most likely to appeal to institutions that would like to make social investments but are currently put off by what they see as a market dominated by small, risk-equity type deals, rather than the infrastructure projects and bonds that large investors such as pension funds are used to considering.

By contrast, risk finance deals are most likely to appeal to institutions that are more able to take a values-based approach to investing, either through philanthropy portfolios (family offices, charitable endowment funds, corporate CSR funds) or as a means of service delivery (housing associations).

Any attempt to engage institutional investors with social investment needs to reflect the different motivations and limitations of each group, and by extension what types of opportunity are most relevant. Such an appropriately-targeted approach is likely to be more successful than a ‘one size fits all’ approach to engaging new investors. 

Read more

The research report ‘New Specialist Sources of Capital for the Social Investment Market’ is available to download from the City of London’s research webpage. 

The impact of the proposed financial transaction tax on European households’ savings

By Shaan Devnani, Senior Economist, London Economics

The revised EC proposal for a financial transactions tax (FTT) landed on the desks of policymakers a year ago this month. However, the potential introduction of the tax in 11 Member States is a subject that is keenly debated today because, among other reasons, its effects are still not very well understood. To add to our understanding of the effects of the tax, we, London Economics, recently researched what its expected effects would be on household financial savings.

Financial assets are an important instrument for saving for European households, providing them with access to emergency funds and allowing them to build future retirement income.

Households save through various types of financial assets. In the UK for instance, life insurance and pension funds are important instruments for savings, making up over half of financial savings. Meanwhile, in Italy, 40% of household savings is invested directly in financial markets. 

The EU proposal for a FTT covers secondary market transactions in a broad range of financial instruments. If introduced, the tax would affect the returns to financial savings households could achieve to the extent that the financial assets they trade (or are traded on their behalf by insurers or pension fund managers) attract the tax.

Specifically, we study the 'instantaneous price adjustment' of financial assets resulting from the tax: Part of the value of financial assets arises due to low transaction costs. With the introduction of a tax on transactions, this aspect of the value of financial assets would fall and be reflected in the price of financial assets. There exists a significant body of empirical evidence supporting the existence of instantaneous price adjustments. ^[1,2,3,4,5] 

We capture the size of the instantaneous price adjustment on equity and debt securities by calculating the tax incidence on household portfolios of financial savings given current trading patterns. This is achieved by identifying the assets held in household portfolios using Eurostat and IMF data; and trading data from, among others, the Federation of European Securities Exchanges (FESE).

The results of the analysis show that the impact of the FTT on household savings is expected to be large in some Member States. In countries that plan to introduce the tax for example, among the countries studied, the impact is in the order of €80bn (Spain) to €200bn (Italy), representing a loss of as much as 15% of the value of the assets being taxed.

This is a multiple of annual household savings in some Member States. If the tax were introduced in Spain for example, households would have to save for an entire year in order to restore the value of their savings to their level prior to the introduction of the tax; in Italy, they would have to save for eighteen months.

The key results from our research are shown in table below for a selection of EU Member States. ^[6]

Total impact of the FTT on household savings in equity and debt holdings
	Reduction in the value of equity and debt holdings
	€bn	Percentage of equity and debt holdings	Percentage of GDP1
Participating Member States
Germany	-150.6	-14.1%	-5.8%
Italy	-204.9	-12.3%	-13.0%
Spain	-79.6	-16.0%	-7.6%
Slovakia	-0.1	-2.3%	-0.1%
Non-participating Member States
United Kingdom	-4.4	-0.6%	-0.2%
Luxembourg	-0.4	-2.2%	-0.9%

 It is important to observe that this study considers the immediate effect of the introduction of the tax on savings. In the long-term, or, on an ongoing basis, savings may also be affected through other channels; for example, due to the effect the tax is expected to have on the cost of capital and in turn GDP, as discussed in previous research. ^[7]

The research is available to download for free from the City of London's research website.

^[1] Jackson, P.D. and O’Donnell, A.T. (1985). The effects of stamp duty on equity transactions and prices in the UK stock exchange, Bank of England Discussion Paper, No. 25.

^[2] Umlauf, S. (1993). Transaction taxes and the behaviour of the Swedish stock market, Journal of Financial Economics, 33, pp. 227-40.

^[3] Saporta, V. and Kan, K. (1997). The effects of stamp duty on the level of volatility of UK equity prices, Bank of England Working Paper No. 74.

^[4] Oxera (2007) Stamp duty: its impact and the benefits of its abolition, Report prepared for the ABI, City of London Corporation, IMA and London Stock Exchange, May.

^[5] Best, M.C. and Kleven, H.J. (2013) Housing market responses to transaction taxes: evidence from notches and stimulus in the UK. Mimeo.

^[6] Six Member States were chosen to reflect those intending to participate in the tax and those not intending to participate and to reflect a mix of sizes and geographies.

^[7] 'The impact of a financial transaction tax on corporate and sovereign debt', City of London

The impact of firm migration on the City of London

By Martin Houghton, Senior Associate, Trends Business Research (TBR) 

Analysis of inward and outward migration by businesses over the period 2008 to 2012 reveal that the City of London – or ‘Square Mile’ – achieved a net gain of over 220 new businesses, 13,500 new employees and over £3.5bn in Gross Value Added (GVA) output.  This meant that while the business population shrunk by some 12% and one percent of jobs were lost, overall output was up by nearly 7.5%.  Over this challenging post-recession period then, businesses in the City have become ‘leaner and meaner’, increasing in productivity and efficiency. Without these positive impacts of firm migration, the City of London would have lost over 2,500 businesses, 22,000 jobs and nearly £2bn in output over this period. 

Moreover, though home to only 4% of London’s businesses, the Square Mile provides 8% of the capital’s employment and generates 16% of the output, a truly remarkable statement of the importance of the City to the economy of both the capital and the nation.

These are just some of the headline findings from a research report published today by the City of London Corporation.  The work was carried out by Trends Business Research (TBR).

The research makes use of the Components of Change model developed by TBR, which considers the impact of business start-ups and closures, firm migration and ‘continuing businesses’ on economic change, factors which are often overlooked.

 

The research also looks at the nature of the City property offer and contrasts the take-up of space by firms moving into the City from outside, with those relocating into the City from serviced premises and the market as a whole. This analysis highlights the growing importance of serviced premises and the increasing jobs and economic output generated by their business tenants. 

In addition, a review of the four key business clusters centred around the City - Financial Services; Insurance; Professional Services; and Technology, Media and Telecommunications (TMT) highlights the continuing diversification of the City business population, with increasing numbers of Professional Services and TMT firms. 

The report therefore highlights that the churn of businesses through firm migration into and out of the City, has helped to provide a dynamic business environment and in so doing, strengthen the City economy over a challenging period. 

The report is authored by TBR’s Economic Research Team - Martin Houghton, Senior Associate, Andrew License, Senior Research Analyst, and Mark Edward, Research Analyst. The full research report can be downloaded from the City of London Website.

Total Tax Contribution of UK Financial Services

By Janet Kerr, senior manager in the Total Tax Contribution team

The contribution of the UK financial services sector to the public finances

£65bn.  That’s the estimated amount paid by the UK financial services sector (banks, insurance companies, and other financial companies) into the public finances in the year to March 2013.  The total is made up of twenty different taxes borne and collected by these companies.  Corporation tax, the tax that is often front of mind when thinking about the contribution of large corporates is £6.5bn, 10% of the total.

These are some of the findings in a report released today by the City of London on the Total Tax Contribution of the UK financial services sector.  

The largest taxes borne and collected by the sector are employment taxes (income tax and national insurance).   For anyone with children reaching the end of formal education, you’ll know, like me, that the job market in the current environment is tough.  This sector employs 1.1 million people and estimated employment taxes are £28.4bn, that’s 12% of Government receipts from employment tax in the UK. 

Corporation tax borne, which is often the subject of media debate and public scrutiny, is the third largest tax borne on average for the study participants, after employers national insurance and value added tax which is a cost to the business.

The study findings highlight the importance of looking at the Total Tax Contribution to understand the contribution in taxes borne and collected of the UK financial services sector.  

Janet Kerr, is a senior manager in the Total Tax Contribution team and co-author of the study report.

The full research report can be downloaded from the City of London Website.

London's future employment

By Dr Laura Davison, Head of Research, City of London

In my earlier blog post about London’s economy, I talked about London’s economic performance in terms of some of the headline statistics, and finished with the statistic that over the next five years, one in four of the UK’s new jobs are forecast to be created in London.

This time round, I’ll look at some of our research which looks in more detail at employment in London, including where these new jobs might be arising. As a reminder, the full set of accompanying slides are still available at my previous post.

Source the Economic Outlook for London, Oxford Economics for the City of London, April 2013

This first chart is taken from our most recent set of employment forecasts (April 2013), produced by Oxford Economics, and shows predicted changes by sector over the next few years, to 2016.  Looking forward in this relatively short term, the expectation is that business and professional services continue to perform very strongly and drive this growth.  At the other end of the chart, on-going restrictions in government spending suggest a more negative outlook for public administration, health and education.

The two charts on the following slide look at how this ties in with London’s current sectoral strengths, and patterns of growth over the longer term.  So, from the first chart you can see how London’s sectoral make-up compares with the rest of the UK, with the particular concentration of professional services, financial services, and information and communications.

The second table shows that for the ten years from 2002 – 2012, professional services jobs made up a third of new jobs created, and in line with the short-term forecasts are also expected to underpin longer term growth through to 2025. In combination with administrative services, information and communications, and real estate, these four sectors are anticipated to provide 80% of new jobs in London through to 2025. In essence then, London’s jobs growth is building on existing strengths, reflecting existing expertise, links to global markets – both emerging and established, and London’s prominence as a centre for leisure and business visitors.

Source London's Finances and Revenues, City of London, December 2012

Finally, I’ll just give you a snapshot of some more experimental work that Experian carried out for us, looking at how this picture of growth relates to SME businesses. Experian looked at the figures for high growth firms – businesses whose employment has grown by at least 73% (minimum seven new jobs) across a three year consecutive period.  They looked both at sectors with particularly high growth over the last three years, and modelled those anticipated to show such high growth in the future.

The next two slides pull out the sectors showing highest proportions of these firms in London - it is worth bearing in mind that this solely looks at proportions of high growth firms, and not, for example, company failures or growth averages. But you can see that, complementing the sectoral employment figures, professional services, financial services and computing feature strongly both recently and looking forward.  

In the presentation that these slides come from, I went on to talk more generally about London’s infrastructure and competitiveness, and I’ll post about them soon – but as ever, our published research reports can be found on our website if you’d like to read more before then.

Source Mapping SMEs in the City, City of London, July 2012

Download London's Finances and Revenues from the City of London website

Download The Economic Outlook for London series from the City of London website

Download Mapping SMEs in the City from the City of London Website