Announcing HSBC’s annual results on Monday, Stuart Gulliver, the banking giant’s chief executive, summed up the views of many global occupiers based in the capital. “The company is headquartered in London and we hope to remain there,” he said flatly. “London’s pre-eminence as an international financial services centre is widely recognised and well-deserved, and reflects successful government policy over decades to build that position.”
That was the compliment. Then came the warning: “It is therefore important to us that the UK’s competitive position is protected and sustained. Appropriate supervision is an important part of the larger equation. Policymakers should continue to legislate and regulate, but they must not destroy London’s competitive position in the process.”
In short: continue to wreak further destruction on our ability to operate profitably in your back garden and we’ll take our ball off to Hong Kong.
It may be easier for an international financial services business whose origins lie on the other side of the world to up-sticks but, in truth, the number of businesses that cannot be easily uprooted is shrinking all the time.
And with so much attention devoted to how London is losing the battle, Estates Gazette, with help from GVA’s new report London’s financial and business centre: the role of property in sustaining success, identifies the five key areas London must address if it is to win the war and retain its place near the top of the global competitiveness rankings.
1: Tax and regulation
In truth, it’s not austerity measures that are taking their toll on London’s international standing. Rising personal and corporate tax rates – or even just the threat of them – have been dampening enthusiasm for the capital for some time.
“Although corporation tax rates in the UK have risen in recent years, they remain broadly competitive, but there are concerns that a tipping point may have been reached,” says GVA. “However, the government plans to reduce corporation tax from the current 28% to 24% in 2014-15, which is considerably lower than many of its rivals. But higher personal tax rates and stricter rules on pay and bonuses are thought by some to be reducing the capital’s appeal to internationally ‘footloose’ employees.”
Basel III reforms lurk in the shadows. The Independent Commission on Banking is due to report to government in September 2011, and the implications could be profound. A split between investment and retail banking? Bonus reform? At the risk of sounding like a politician, any isolationist measure is likely to do the most short-term damage.
2: Build on natural advantages
London has natural strengths that cannot easily be replicated, all of which add up to a tremendous and hard-to-match offer for employers and employees alike. “These include the prevalence of the English language, a rich cultural heritage, a good range of high-value-added, highly skilled business support and service industries, and a convenient time zone that bridges North America and the Far East,” says GVA.
But even these natural advantages can be built upon. A mooted move to single or even double summer time could boost the tourism industry by £1bn a year. It would lift the summertime mood no end, too.
3: Skills
London has a skilled workforce, and is an attractive destination for skilled foreign workers, from inside and outside the EU. But, says GVA: “The government’s decision to announce a cap of 21,700 on the number of skilled workers from outside the EU (save for ‘exceptional talent’) risks reducing London’s attractiveness as a destination for skilled workers.”
As well as continuing to attract skilled workers, we need to continue to attract international students, whose numbers rose by 60% between 2001 and 2009. The majority now come from China.
As business moves east, it would be absurd to weaken what is a tremendous advantage. This must be a consideration as ministers weigh up the effects of lower public-sector investment in universities. Will higher tuition fees be a deterrent? As with anything to do with education reform, this is a long-term problem that requires long-term solutions.
4: Transport
London is a fabulously connected international city, though too often it doesn’t feel like it. International access and domestic ease of movement both cry out for improvement.
Plans to improve and deliver the East London line, the London Underground upgrade, Thameslink and Crossrail are still on the table, as are high-speed links to Birmingham and Manchester. But even if they survive the cuts, trouble is brewing.
“Transport for London forecasts that transport capacity in London may increase by between 37% and 44% by 2031, including delivery of Crossrail, as well as additional schemes proposed since the original London Plan,” says GVA. “However, by this time, based on historic growth patterns, this could be matched by an increase of about 70% in demand, which would lead to a major shortfall in capacity. If the transport system lacks capacity and is not able to expand, this will limit the amount of office development that can take place.”
We underestimate transport investment at our peril.
5: Housing
Doug Saunders’ recent book Arrival City tells us how the world’s people are on their last great migration and moving as one into cities. So it’s no surprise that house prices in many world cities are heading north.
That said, in central London, it’s worse. The government estimates an additional 37,000 households are created each year in London. Yet housebuilding in the capital has averaged only 17,000 annually over the past 20 years.
“Given current uncertainties in the planning system, and the reduction in housebuilding following the recession, we think it unlikely that housebuilding rates will be higher over the next 20 years than over the past 20,” says GVA. “And the UK’s relatively high proportion of owner-occupied stock means that availability of rental accommodation is also a problem. London’s housing market represents a significant constraint on its development.”
As with transport and education, there is no easy solution.
The worst thing we could do – and the most likely outcome from a policy perspective – is to pretend that it isn’t happening. Comforting oneself that the world’s best financiers would rather live and work in London than in a canton in Switzerland – which, for all its natural beauty, is two hours away from almost any other stimulus – may only work for so long.
