City of London Economic Research

Why do firms choose London for finance?

 

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

 

Last week (4/07/17), Edouard Philippe, the French prime minister, outlined a series of measures to attract international businesses to Paris, with the aim of making the city the “number one financial centre in Europe after Brexit”. These measures include: scrapping the highest bracket of payroll tax on finance employees and lower corporation tax rates; reviewing financial regulation; and establish an international tribunal in Paris to handle financial cases in English, reflecting the prevalence of English law in financial contracts[1]. While Paris is undoubtedly trying to emulate the success of London as the world’s leading global financial centre, London’s attractiveness to international firms goes beyond its competitive tax regime, strong regulatory regime, robust legal framework, and the use of the English law and language.

A couple of weeks ago (23/06/17), our research manager Ed looked at why firms continue to choose London as a base – its size, thriving and talented population and workforce, and growing network of innovative and competitive business services. This week, we’re looking at how London stacks up against Paris and other major European centres as a place to raise finance, providing firms with the benefits of deep and liquid capital pools and financial services expertise, as well as what it gives back to the UK economy.

Source: Data taken from the World Federation of Exchanges, the Bank for International Settlements, the World Trade Organisation, Eurostat, Helaba, the Office for National Statistics, the Organisation for Economic Co-operation and Development and fDi Intelligence.

Financing business growth, capital investment and job creation

As a cluster of highly specialised financial and related professional services firms, drawing on a pool of talented, highly-skilled staff, London continues to draw internationally mobile firms to its stock exchange.  15% of all listed foreign companies choose the London Stock Exchange to list their shares and raise capital to finance growth, and the LSE has over double the number of international firms listed than its closest European competitor, Euronext, based in Paris. If we look at the flow of funds based on initial public offerings (companies listing shares on the exchange for the first time) in 2017 so far, newly listed companies have raised $3.4 billion in London, compared with $590 million in Paris.

European financial centres
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Firms can also borrow to help fund job-creating investment and spending – the UK’s has the highest ratio of credit to the private sector as a percentage of GDP, illustrating that the UK punches well above its weight when it comes to lending and supporting business activity. Foreign governments, businesses, and financial services firms choose London as a place to raise debt finance; with the value of outstanding international funding issued in London at $2.8 trillion, over double the value of London’s closest European competitor, France. The world’s largest corporate Masala bond started trading on the London Stock Exchange in March, following several high profile Rupee bond issuances, reflecting the diverse and international nature of finance in London[2].

Managing risk and promoting trade

As well as raising finance here, firms choose to trade currencies to manage risk in the UK, either through their treasury functions or directly – over a third of total foreign exchange turnover is traded in the UK, almost double the average daily turnover of its next closest competitor, the US. If we look at euros specifically, the UK accounts for 43% of global trading in euros, over eight times the amount of euros traded in France.  The forex market is critical in facilitating global investing, by allowing companies to buy and sell foreign assets and securities, as well as supporting import and export trade. This is supported by the fact that the UK accounted for 17% of total global financial services exports in 2016, while Germany, France and Ireland accounted for 6%, 3% and 3% respectively.

What does this mean for London and the UK?

London’s specialised and interlinked ecosystem of complementary financial and advisory services contributes to its strengths as a both a global and European hub for firms looking to grow and trade, and enables the financial services industry to act as an engine of growth and employment in the UK. As well as FS being the largest net contributor to the UK’s trade surplus in services, with London accounting for over half of FS exports, London acts as a draw for international investment. London attracted 149 overseas direct investment (ODI) financial services projects between December 2013 to November 2016, creating over 5,000 jobs, and London’s financial services industry employs over double the amount of workers as Frankfurt’s, and generates over six times the amount of economic output as Dublin. As Ed’s blog notes, a high proportion of London’s workers are graduates – contributing to the highly-skilled and highly-productive nature of financial services.

Looking ahead, the outcome of Brexit negotiations on the UK’s access to a highly-skilled and talented labour pool, as well as market access to our largest financial services trading partner, the EU27, will have implications for the competitiveness of the financial services industry, and its ability to contribute to give back in terms of generating trade and investment, providing jobs, and contributing to output and tax revenues. However, the City’s comparative advantage as an outward-looking centre for international commerce, finance and trade, will remain fundamental to its future competitiveness.

[1] https://www.ft.com/content/464c67d8-630e-11e7-91a7-502f7ee26895

[2] https://www.lseg.com/resources/media-centre/press-releases/london-stock-exchange-welcomes-largest-corporate-bond-issuance-cis-region-2014

 

 

 

What keeps bringing firms to London?

 

By Edward Clarke, Research Manager in the Economic Development Office

 

Following the vote to leave the EU a year ago, observers have been concerned as to how this will impact on London’s role as the financial services centre for Europe and, by most measures, the world. So what can the announcements from City based firms regarding moving staff out of the city tell us?

The first observation is that whilst fewer firms have so far confirmed moves out of the city than some initially feared, with current figures suggesting fewer than 200 jobs publically confirmed to move, there remains enormous potential for many more to move. The Financial Times and Reuters both estimate that around 10,000 moves are already planned. Estimates for potential future moves go as high as 35,000 (Source: Oliver Wyman).

Secondly, all of the confirmed movements and most suggested moves are to three cities within Europe: Paris, Dublin and Frankfurt. Using the Centre for Cities data tool, I looked at how these cities compare on issues such as the size of population, skilled people to hire from, density of businesses and productivity – some of the key economic indicators.

 

 

Firstly, London is the largest of the four cities; it has the largest population [1] and the largest number of jobs – about the same as the other three combined.

Secondly, Business services (including FS) make up a high proportion of the total jobs across all four cities, but whilst Frankfurt is the most concentrated (43%), the share of business services in London’s economy is higher than in Paris or Dublin – meaning there are around two million jobs in Business services across the Capital compared with 1.3m in Paris. While Frankfurt has a higher share there are 7 times more of these jobs in London due to its size.

Thirdly, all three cities have a high proportion of highly skilled residents and workers. Businesses choosing London have access to the largest pool of talent from which to hire due to its larger size.  

So what does this mean for London?

It is clear that firms and especially financial or professional service firms choose London - and particularly the City- in large part to be close to competitors and the access to talent that it provides. London does well at attracting people to the Capital in part because of the jobs on offer and the chances for career progression – the so called jobs escalator.

Alongside the draw for businesses, there is the draw for individuals. A range of competitiveness studies[2] highlight the draw of London’s lifestyle, culture and entertainment offer, highlighting the breadth of advantages a place needs in order to attract businesses and individuals from around the world. This was reinforced in a set of interviews with relocation specialists conducted by the New York Times about the factors financial services businesses would be looking for [3] – in essence, English language – seen to be essential for attracting a global work force,  a favorable regulatory environment, especially around employment, excellent transportation and communications infrastructure, availability of prime office space and housing, good schools, restaurants and cultural offerings -  and an energy level and openness.

With Brexit negotiations coming up, London’s openness – and attractiveness - to businesses and talent from around the world will therefore remain a cornerstone of its global competitiveness.

 

[1] These use comparable geographies of the built up areas of cities (rather than administrative boundaries, so London in this case is larger than the GLA boundaries), details can be found at the original source: http://www.centreforcities.org/welcome-european-cities-outlook/

[2] 2015, NESTA http://www.nesta.org.uk/sites/default/files/citie_report_2015.pdf; PWC, 2016 https://www.pwc.co.uk/industries/government-public-sector/insights/cities-of-opportunity-7.html  Mori Foundation 2016, http://mori-m-foundation.or.jp/english/ius2/gpci2/index.shtml

[3] http://www.nytimes.com/2016/07/01/business/after-brexit-finding-a-new-london-for-the-financial-world-to-call-home.html?_r=0 

The UK’s productivity puzzle: regional and sectoral differences

Maxine Kennedy, Research Officer in the Economic Development Office

This week’s blog looks at the new data on productivity in the UK.

What is productivity and why is it important?

Productivity, measured as output per worker, per job and per hour, tells us how efficient resources are being used and is a key indicator of how well the economy is performing.

Long term global data has shown that productivity accounts for the majority contribution towards Gross Domestic Product (GDP), and as such is a key determinant of economic performance, and an indicator of a country’s living standards.

What is the long-term trend in UK productivity?

Often termed the ‘productivity puzzle’, UK productivity has been relatively stagnant over the past decade or so. Following the economic downturn in 2007/08 productivity fell, and despite a strong labour market, it has not yet returned to the pre-crisis trend.

UK, seasonally adjusted, quarter 1 (Jan to Mar) 1994 to quarter 4 (Oct to Dec) 2016[1]

Source: ONS. https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/labourproductivity/articles/ukproductivityintroduction/octtodec2016

There are several hypotheses for this: first, that the financial crisis led to decreased lending and investment in potentially productive firms; that a lack of investment in equipment and machinery has meant that employees are not working with the most efficient technology available; that there are slowing rates of innovation, or that employees are not making the most of their skills at work. Others have also proposed that how we calculate productivity doesn’t capture the rising importance of the digital economy.[2]

It is also interesting to note that there are sectoral differences affecting productivity. For instance, it has been noted that increased compliance and regulation in the financial services sector following the crisis may have had a negative effect on productivity in that sector, though this may be only be for the short term while the sector adjusts.[3]

However, economists believe that none of these reasons on their own can explain the trend, hence it being coined a ‘puzzle’.

What does the latest UK productivity data show?

The latest data was released by the ONS earlier this month and shows a positive upswing in productivity. Productivity in Q4 2016 was 0.3% higher than Q3 2016, and 1.1% higher than in Q1 2008, immediately prior to the recent economic downturn.[4]

However, the 0.4% quarterly growth remains below the 1994 to 2007 average, and even the ONS warn that the recent positive trend doesn’t indicate an end to the UK’s productivity puzzle.[5]

Regional and sectoral differences in the UK’s productivity?

Andrew Haldane, Chief Economist at the Bank of England, recently analysed UK productivity by looking at firm level data, showing the differences and similarities between firms through a regional, sectoral and export status lens.

We might suspect that productivity varies considerably across the UK’s regions. Looking at data compiled by the ONS and the Bank of England, we can see that overall, London’s productivity is the highest of any region in the UK; it is 75% higher than the region with the lowest productivity, which is the North East.[6]

However, looking at data on productivity at the firm level, we can see that high productivity firms consistently feature in every region in the UK. The distribution does vary from region to region, but the same pattern is seen throughout: a smaller pool of highly productive firms, compared to a majority number of lesser productive firms.

The graph below shows that London has a tighter distribution of highly productive firms (i.e. there are more highly productive firms and fewer low productive firms in London as opposed to the North East, where the pattern is reversed).

Firm level productivity distribution, by region

 

Source: ONS, ONS Research Database, BvD and Bank of England calculations. See: http://www.bankofengland.co.uk/publications/Documents/speeches/2017/speech968.pdf

Looking at the firm level data across different industries, we see a similar trend. There are overall differences between sectors, for instance the information and communication and the professional, scientific and technical activities are the most productive (this might not be so surprising since we would expect to see innovation particularly in these sectors), and manufacturing tends to be more productive than construction. It’s important to remember that each sector also faces unique circumstances that affect productivity.[7]

Yet, again, we see a similar pattern: within each sector there is a similar distribution, will all sectors having a smaller number of highly productive firms, who are innovating and leading the way, and a larger number of less productive firms.

Firm level productivity distribution, by sector

Another key finding is the difference between firms who export as compared to those who don’t. The graph below shows that those firms which do export, and so are faced with global competition, tend to be highly productive. This suggests that openness to global trade is a key contributor to long term economic growth.

Firm level productivity distribution, by export status

Source: ONS, ONS Research Database, BvD and Bank of England calculations. See: http://www.bankofengland.co.uk/publications/Documents/speeches/2017/speech968.pdf

Quite clearly, productivity is crucially important to the future of the economy, and consequently we’re seeing more focus on the topic by the Government and other stakeholders. In 2015, the Government launched its Productivity Plan – the latest update to its implementation is here: https://www.publications.parliament.uk/pa/cm201617/cmselect/cmbeis/931/931.pdf

[1] https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/labourproductivity/bulletins/labourproductivity/octtodec2016

[2] See: https://www.publications.parliament.uk/pa/cm201617/cmselect/cmbis/87/87.pdf

[3] http://pwc.blogs.com/press_room/2015/06/financial-services-firms-want-government-to-reduce-cost-of-regulatory-compliance-cbipwc.html

[4] https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/labourproductivity/bulletins/labourproductivity/octtodec2016

[5] https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/labourproductivity/bulletins/labourproductivity/octtodec2016

[6] Latest data available for the regional level. See: http://www.lse.ac.uk/Events/2017/03/20170320t1830vOT/The-Productivity-Puzzle

[7] http://www.cbi.org.uk/better-off-britain/Productivity.html

UK Financial Services – Clustering and Concentration of Firms and Jobs

 

By Dr Laura Davison, Head of Research at the Economic Development Office, City of London Corporation

 

In this article, I've analysed data on the distribution and location of UK firms and jobs in financial services, highlighting how highly concentrated employment is in large firms, and how concentrated financial services clustering is in particular locations.

Across the UK, there are 1.07 million people employed in financial services and insurance (2016) - 3.1% of UK jobs - with two thirds (66%) of these located outside London. There are 89 thousand UK financial and insurance businesses (2016) - 1.6% of the UK total - of which 21 thousand employ at least one person.

Across the UK, in all sectors most businesses are small - 91% employ fewer than five people. Large businesses - those with 250 or more employees - are rare. Out of a total 5.5 million private sector UK businesses, only 7,200 (0.1%) are large employers - 355 (5%) of these large employers are financial services businesses.

Financial services employment is highly concentrated in these large firms - although they make up only 0.4% by number of UK financial services firms, they account for 72% of the sector’s jobs. Large firms play a much more significant role as employers in financial services than other industries - across all sectors, the equivalent proportion is 40%, and only the utilities industry (68%) comes close to this level of concentration (all other sectors are below 55%).

You can see this difference in the following two charts, where I've plotted the distribution of businesses and jobs by firm size, for the UK overall and for financial services specifically.

 

 

You can see from the first chart how similar the spread of firms is by size, for the UK overall and for financial services. But as the second chart shows, in terms of how jobs are distributed across these firms, it’s a very different picture.

It’s particularly noticeable that financial services employment is heavily concentrated in the really large firms - those with more than 500 employees. Across all UK sectors, there are 3 ½ thousand of these firms, of which 210 (6%) are financial services businesses.

These 210 firms account for 67% of the UK’s financial services jobs - the equivalent figure across all UK sectors is 35%. 

So, large employers are clearly very significant employers in financial services. But even this high proportion masks some differences within the industry, given the different types of activities it encompasses.

Banks are a substantial sub-sector in financial services, making up around 40% of financial services jobs[1], with insurance being another well-recognised component- nearly 10% of financial services jobs.[2] [3] But the businesses that provide what’s known as ‘auxiliary’ services are also very important. They provide the market infrastructure for transactions to take place, and a range of sales, fund management and advisory services - and together account for around 40% of financial services employment.[4]

As the following chart shows, these don’t all have the same patterns of employment though.[5]

 

This chart really emphasises just how important the largest firms are for employment in banking and insurance - with 84% of banking jobs in the 80 companies with 500 or more employees, and 81% in the 35 very large insurers and pension funds. By contrast, the auxiliary jobs are much less concentrated - 42% in the 95 very large firms.

It’s also worth noting that the ‘more than 500 employees’ category (the highest category for the Office for National Statistics reporting of firm size) is a little misleading when it comes to financial services. The largest banks – HSBC, Barclays, Lloyds and RBS – each employ tens of thousands of people across the UK.

The financial services industry isn’t just concentrated in a small number of firms, it’s also concentrated in particular geographic locations. ONS have just released their latest analysis looking at how jobs in different sectors are located across the UK, and where they are particularly concentrated – known as the ‘location quotient’.

The map below shows this for financial services.[6] A score above one illustrates a relatively high concentration of jobs; the lower the score, the lower the concentration.

 

As you can see, a number of areas have high financial services concentrations – eight regions have a score greater than one, including Eastern Scotland, West Yorkshire, and Cheshire. Inner London East (3.14) and Inner London West (3.00) are the highest.

Even within London, there are strong and distinctive geographic concentrations of financial services firms and jobs. Of the 210 very large (500 plus employees) UK financial services firms, 90 are based in London, covering 65% of London’s financial services employment. Around 60 of these firms are based in the City of London, and 15 in Canary Wharf (Tower Hamlets).[7]

To show where London’s financial services jobs are concentrated, I’ve plotted these across London boroughs, using a handy cartogram template from the GLA’s London Datastore.[8] Of London’s 362 thousand financial services jobs, 78% (282 thousand) - are based in the City of London, Tower Hamlets, and Westminster.

 

 

Jobs in different sub-sectors are strongly concentrated in particular areas – London’s banking jobs are largely split across the City of London (42%) and Tower Hamlets (31%), while fund management is concentrated in the City of London (46%) and Westminster (40%).

 Insurance is the most strikingly concentrated sub-sector, with 74% of London’s jobs located in the City of London (4% in Tower Hamlets, 3% in Westminster). Even within the 1.12 square miles that constitute the City, insurance is tightly clustered in the East, whereas financial services are more evenly spread.

You can see this in the two following maps, which we commissioned as part of a series looking at firm movements and locations (firms in colour moved in the 2012-14 period, those in grey were stable).

 

 Overall, then, you can see just how concentrated financial services employment is, in very large firms and in particular areas, especially in London. London’s financial services cluster is often highlighted as one of its key competitive strengths – with firms in close proximity benefitting from access to a skilled and specialised workforce, ease of knowledge exchange and shared innovation, enhanced reputation and profile, a large customer pool, and the wide range of related professional services that have grown alongside the cluster.

 

[1] Here when referring to ‘banks’, I've used SIC code 64.1 ‘monetary intermediation’, which also encompasses building societies and credit unions.

[2] Here I’ve used SIC codes 65.1 and 65.2 – insurance and reinsurance.

[3] Business Register and Employment Survey (2015 data, released 2016)

[4] SIC code 66 – ‘Activities auxiliary to financial services and insurance activities’

[5] NB Here I’ve used the overarching SIC codes - 64, 65, 66 respectively – due to data availability at this level

[6] NB draws on 2015 data

[7] NB ONS figures are rounded to the nearest five

[8] Business Register and Employment Survey 2015 data, published 2016.

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

 

 

Improving International Access to Credit Markets

By report author Iain Clacher, Associate Professor in Accounting and Finance, Deputy Director of the Centre for Advanced Studies in Finance (CASIF) at Leeds University Business School and Associate at Research Republic.

 

Our latest study, published by the City of London Corporation, ‘Improving International Access to Credit Markets’, shows the increasingly important role that credit markets and innovations in credit markets have played since the financial crisis of 2008. This has been driven by two key factors. The first is the squeeze of bank lending resulting from the demands of recapitalisation and new regulations. The second, as the figure below shows, is an increasing demand for credit in emerging economies.

Emerging Market Corporate Bond Composition

Source: IMF FSR 2015

As part of our analysis, we developed the Credit Market Assessment Framework, which allowed us to undertake a detailed examination of credit markets in 59 countries. These countries account for 91% of global corporate bond issuance and 87% of global GDP. The results show clear trends in the growth and development of well-functioning credit markets and highlight key areas that need to be addressed for each country. Countries with credit markets at the earliest stage of development need more robust legal systems, better bankruptcy and insolvency processes, and a broader investor base. In addition, for some of the most developed markets there are clear agglomeration effects, and this scale is a significant source of competitive advantage.  

Moreover, the analysis shows those countries that have the highest capacity to grow their credit markets and increase the use of debt finance to support economic growth.

In addition to the development of the Credit Market Assessment Framework, we also conducted in-depth case studies across 11 countries: China, Germany, India, Japan, Mexico, Nigeria, Norway, Singapore, the UK, the US, and Vietnam. These cases look at specific credit instruments in each country and highlight the key challenges and opportunities for each market. 

While many of the developed countries in our sample are in a process of deleveraging, it is in these markets that we are also seeing significant amounts of innovation. From our analysis, there are at least three significant areas of innovation:

1. The first is the implementation of the Capital Markets Union. The potential of a pan-European private placement debt market could result in a much more efficient allocation of capital across Europe. This development would allow much of the long term capital that is desperately seeking yield at a time of ultra-low interest rates to find investments that meet this need. At the same, it would allow firms in search of finance access to pools of capital at a time when bank finance is harder to obtain.

2. The second is the development of peer-to-peer lending. As a result of the financial crisis, many firms have struggled to find the finance that they need, while at the same time, investors have struggled to find yield. Consequently, in the UK for example, peer to peer lending tripled between 2013 and 2015 and consumer and business lending was approximately £3bn in 2015. While this is nowhere close to the value of lending that occurs in mainstream credit markets, this is nevertheless a growing area of importance and is likely to see significant growth in the coming years.

3. The third is green bonds. As the global shift towards a low-carbon economy continues, investors are increasingly looking for sustainable forms of investment. Green bond issuance is an important and growing feature of this new landscape. In 2014, it stood at $37bn - up from around $1bn in 2007. Moreover, this demand is not just occurring in developed markets. The developing Asian markets are a major source of demand for green finance. 

As the City looks towards the future, it should seek to develop and grow these areas in order to maintain the UK’s competitive standing as a global, diverse, and innovative credit market.

 

 

To download a free copy of the report, click here.

 

The long term financial sector development of India - why we no longer need to be cautiously optimistic

 

Angela Lynch,  the City of London’s  lead on India and China policy work.

 

With India’s National Democratic Alliance (NDA) Government under Prime Minister Modi having completed its second year in power at the end of last month (May 2016), there has been widespread commentary, both in India and globally, on its performance. Although some questions remain as to whether progress is moving as quickly as the financial sector would like, the majority of views expressed have been incredibly positive.

The transport sector in India has received a much needed boost, with accelerated road-building and significant investments in the ageing rail network. At the same time, labour laws, have been amended resulting in changes such as increased earning potential for women and encouragement for firms to take on more apprentices. The problem of low financial inclusion levels is also beginning to be addressed. 200 million bank accounts were opened for citizens who had previously never held an account. Several affordable insurance schemes have been opened. Although the agricultural sector has been adversely affected by persistent poor weather conditions, there have been active steps taken to counter this: from the launch of a crop insurance scheme through to diversion of capital into improving irrigation. There is even good news for the legal system, where changes to the Arbitration Act are starting to bring Indian’s arbitration regime far closer to global standards than some international commentators would previously have expected.

Domestic improvements inevitably have an effect on the confidence levels of foreign investors and the above reforms have been accompanied by an active push from the NDA Government to attract foreign institutional investment into key financial sectors in India – including infrastructure and renewables. The recent passing of the bankruptcy law, in addition to bringing expectations for further strengthening of India’s debt markets, also sends a message to foreign investors of the Government’s firm commitment to improve the ease of doing business in India.

The above are only a few examples of the reform that we’ve seen in India and do not even mention reforms and changes that are in the pipeline. They illustrate that change has and is happening across India’s financial and business sectors.

Many within the global financial community have long-since considered India as a market full of potential. As was apparent from conversations at this week’s (2 June 2016) annual meeting of the City of London Advisory Council for India, this potential is now on track to be realised. Clearly there remain challenges to achieving the goals set out by the Government, and much discussion to be had over the implementation of important reforms. However, for now, there is a refreshing change of mood in discussing prospects for India’s financial markets – and no need to be cautious in our optimism.

 

 

The City of London also produces research about Indian markets, including reports on Attracting private capital for Indian infrastructure and Policy and regulatory reforms roadmap for the Indian non-life insurance industry. You can access them all here.

Exploring non-graduate routes into employment

Saif Ullah

 

How easy is it nowadays for early school leavers to gain employment? With graduates now taking up an increasing proportion of the UK workforce, it has seemingly become more difficult for people that leave education after their GCSEs and A-Levels to get on the job ladder, despite this non-graduate group making up a large majority (40%) of the workforce.[1]     

The pathways to employment for this relatively unexplored group are looked at in more detail in the Resolution Foundation’s most recent report, Finding your routes: non-graduate pathways in the UK’s labour market.

The research provides some useful insights. Utilising data from the Labour Force Survey and British Household Panel Survey, the analysis adds further weight to the evidence that higher qualifications bring greater earnings for non-graduates. However, while academic qualifications for non-graduates are generally valued more highly by employers than vocational ones, in traditionally vocational sectors such as construction and manufacturing, vocational qualifications typically yield a higher return.

The report also illustrates the ongoing impact of the recession on young ‘mid-skilled’ non-graduates, whose careers have stalled as a result of more graduates taking typical non-graduate work opportunities.

Given these growing difficulties experienced by non-graduates in trying to find their way into employment, the research poses important questions about the potential value of apprenticeships. With the Government targeting the creation of three million new apprenticeships by 2020, could this pathway present a more viable route into employment outside of university education?

Apprenticeships are becoming more commonplace within “white collar” sectors than previously. A wider range of employers are increasing the breadth of apprenticeships that they offer, which in turn has led to increased take up of advanced (Level 3 – equivalent to 2 A-levels) and higher/degree (Level 4, 5, 6 & 7 – equivalent to HNC through to Master’s Degree) apprenticeships. Across all ages, the number of advanced level apprenticeship starts rose by over 25% to 181,800 between 2013/14 to 2014/15, while during the same period the number of higher level apprenticeships more than doubled to 19,800.[2]  

However, apprenticeships still remain relatively uncommon within sectors such as finance, professional services and insurance. In London only 8% of firms employed apprenticeships in 2014, compared to the national average of 11%.

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, which will be used to fund apprenticeships for all companies across England. This new scheme may incentivise more industries to explore the apprenticeship route for employment, particularly given the additional subsidies received from Government.

The success of such reforms to the apprenticeship system, however, will depend on making sure that the quality of training and education provided is sufficient to meet the needs of a wider range of companies. A coordinated approach to developing sector wide standards, involving government, industry, training providers and universities, may help raise the level of apprenticeships and provide more rewarding long-term opportunities for non-graduates, as well as creating a viable alternative to employment away from university education.     

 

 

[1] Resolution Foundation (2016), Finding your routes: non-graduate pathways in the UK’s labour market

[2] See gov.uk FE data library: apprenticeships

 

Keeping SMEs at the heart of the City

Tehreem Yusuf

With our strong interest in competitiveness we were pleased to note that London once again tops the Global Financial Centres Index (GFCI) in 2016. The GFCI published by the Z/Yen Group examines the major financial centres globally in terms of competitiveness. However with New York only eight points behind (on a scale of 1000) the two cities remain competitive.

London will need to work to retain this status over the next year, not least due to the upcoming EU referendum. This, in conjunction with challenges such as housing shortages, transport and energy inefficiencies as well as issues surrounding public security mean that London and London’s new Mayor, perhaps now more than ever, need to plan for the future.

One way to remain an attractive place for businesses, workers, residents and visitors would be to consider a range of outcomes underpinned by ‘smart’ solutions that can enhance the city’s reputation as a global leader. These could take the form of smart buildings and infrastructure, community services and e-governance and green technologies which improve air quality, energy efficiency and promote healthy lifestyles. This is a key priority for the Greater London Authority who has set up the Smart London Board. As detailed in their recent publication ‘Smart City, Opportunities for London’, London provides a fertile environment for smart city businesses to set up, grow and flourish. 

In the GFCI report, London just managed to retain its edge over New York, in part, due to its booming financial technology sector. For London this, and the expansion of small and medium sized businesses (SMEs), will inevitably be a growth areas for the future.

Our latest report ‘Clusters and Connectivity: The City as a place for SMEs’ analyses the opportunities that a location in the City offers and the challenges emerging from increasing pressure on SME workspace. The City is a thriving place for 16,000 firms with fewer than 250 employees. These businesses make up 98.6% of all businesses located in the Square Mile and employ around half the workforce.

Yet this growth has not come without challenges. Vacancy rates in the City are at, 3.9%, their lowest level since 2001, illustrating the pressures on space. This pressure is particularly marked for floorspace of 300-1000 sq m, often regarded as move-on space for growing firms.

The City therefore needs to look at measures that can safeguard the provision of attractive and cost-effective space for the varied and dynamic community of SMEs. This includes the potential use of protected heritage buildings for small office space, and working with developers to promote the inclusion of affordable space for start-ups in future large developments. The recommendations in this report will help to ensure that the vast array of businesses that make up such an important part of the economy in the City can continue to thrive and ultimately contribute to London’s status as a leading global financial centre.

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.