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Post-Brexit London to remain a global city

11 May 2017

Post-Brexit London to remain a global city

Christopher Barrow, CEO of Metropolitan Safe Deposits, argues that London’s position as one of only two truly global cities will not be challenged by a European competitor.

London and New York City are often cited as the world’s two pre-eminent cities. This clearly does not reflect their size since London is dwarfed by the likes of Tokyo, Delhi, Shanghai and Mexico City. Size is a factor, but what matters most is the level of influence and the extent to which the city has become integrated with the global economy. This includes such determinants as foreign direct investment, the concentration of corporate headquarters, racial diversity, the domination of particular business sectors, the strength of support and financial services, technology etc.

Uncertainty about the future of the UK’s access to the EU market and its workers has resulted in warnings by major banks and corporates of the need to move staff members out of the UK. The main European contenders to attract financial service jobs from London are Frankfurt, Paris and Dublin. Other competing centres are Amsterdam, Madrid and arguably Milan.

Frankfurt is seen as the frontrunner since Germany is the dominant EU economy and is the location of the European Central Bank, which not only sets Eurozone monetary policy, but also supervises the bloc’s largest banks. It also shares a language with the large Swiss banks. The downside is that Frankfurt is a small, provincial city that has weak demographics and is an unappealing place to live. Another important issue is the relative inflexibility of German labour law, which is a particular concern for international banks and other cyclical businesses that need to expand and reduce their staff levels.

Paris is the most international city in continental Europe. It has an established financial ecosystem and offers a diverse range of businesses, a large and skilled workforce, and high-quality buildings. It is also the only European city to compete with London as a major cultural centre, with its wealth of theatres, opera houses and restaurants. However, Paris suffers from an uncertain political and fiscal environment with high levels of corporate and personal taxation. In addition, its accommodation costs are almost as high as London’s and language is often cited as an issue for multinational companies. Like Germany, French labour law is also a potential issue militating against Paris.

Dublin has emerged as an attractive financial centre in Europe, offering an English-speaking, flexible and a skilled workforce, a pro-business environment and stable legal system. Its recovery since the 2008 economic meltdown has been remarkable. Its main success has been in attracting the European headquarters of multinational organisations, notably US technology companies, which have benefitted from favourable tax arrangements. That said, such tax arrangements are being challenged by the EU and US authorities. However, Dublin is a small city in a country that will suffer disproportionately from the UK’s exit from the EU since Britain is by far Ireland’s biggest trading partner.

Whilst Frankfurt, Paris and Dublin are currently regarded as the frontrunners in terms of picking up financial and business service sector jobs from London, other industries, such as the information and communication sector, will be a different story. For example, cities such as Stockholm, Berlin, Amsterdam, Madrid and Milan are as likely to attract top tech jobs away from London as Paris or Dublin.

The most likely scenario would appear to be that London will gradually lose jobs to a broad range of European cities and that there will be no big EU winner. No European country will replace London in the near future. London has a genuine competitive advantage that has been built up over many centuries. This will prove to be very difficult to replicate or displace.

Compared with New York especially in the Trump era, London should remain as the more international of the two global cities. In the foreseeable future, London is unlikely to be replaced as the most linguistically diverse city in the world. It should also remain a top global financial centre and the world’s most visited city. It will continue to be a key safe haven for global investors. Wealthy families will still move to London and invest in residential property, more recently attracted by sterling depreciation.

Ranking or explaining the “global-ness” of cities is a complex exercise. One acid test is why people and companies come to a city. What goes through the mind of a family, a tourist, a business person, an investor or, for that matter, someone seeking protection or security? Why London? Arguably, the most important single factor is the UK’s rule of law. The equal application of the law with a parliamentary democracy has long been at the heart of fundamental rights and freedoms in the UK.

We are a trading, global nation. As a people, the British are pragmatic and principles-based. Tolerance and fairness are part of our cultural DNA. We have a long history of stability and engaging with foreign nations and different cultures. The UK has an enterprise culture with global connections (Commonwealth, UN, WTO, Five Eyes etc). We are in favour of free trade and against protectionism. We are inventive and entrepreneurial.

Speculating about a post-Brexit London is as precarious as predicting the future of the EU. The political and economic uncertainties in the Eurozone have already seen substantial numbers of Europeans settling in London. Many have ventured to London having been unsuccessful in finding employment in their home country. Some will clearly wish to return, but large numbers will want to stay.

Ultimately, it is largely a question of whether individuals and families like to live in London. If instructed to move to Frankfurt or another EU city by their employer, how much resistance will there be? Banks and other multinational organisations are developing contingency plans cautiously by establishing European subsidiaries and moving small numbers of employees across to countries where there is a specific need to service customers. To date, there has been little evidence of wholesale moves.

Neither have Brexit fears diminished London’s attractiveness as a place to live and work. It is a dynamic, creative and exciting place to develop businesses and career paths for all ages and nationalities. For the young, London is often regarded as the most diversified start-up ecosystem in the world. It is also a global centre, like Switzerland and Singapore, for the storage of “high-end” items of value, such as art and precious metals. Global vaulting facilities are located only in the safest countries with a strong economy, a stable political system and an independent judiciary that protects individual and property rights. Interestingly, European demand for safe deposit boxes in London remains strong. This may reflect a low level of public trust in EU institutions. It may also be another indicator that London’s position as the most global of global cities will not be surrendered to a European competitor any time soon.

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