What effect will Brexit have on London?

Kaleesha Rajamantri, project manager and digital strategist at IRN, talks to David Lutton, executive director of policy at London First, to get his thoughts on what matters most for businesses who are deciding on whether or not to stay in the UK.

1. What are the benefits to the financial services industry to remain in the UK?

London is home to world-leading financial and business services sectors. For example, London has more employees in both financial and professional services than any other city, and has more offices of highly global services firms in law, accountancy and finance than anywhere else (although New York holds the top spot for consultancies and advertising firms). The financial services sector sits at the centre of a highly integrated and networked cluster, instigating instructions, loans and transactions that facilitate the flow of capital, contributing to jobs and growth across London.There are significant productivity gains that arise from increased proximity of people and firms. This phenomenon is called agglomeration, the benefits of which fall into three main categories:

• Matching: Reducing search frictions in the labour market, making it easier for different types of worker and firms to find each other, and therefore increasing the likelihood of a productive match
• Learning: Providing greater opportunities for people and firms to exchange ideas and information, known as ‘knowledge spillovers’, both through vertical learning (e.g. when firms learn best practices from their competitors through observation) and horizontal learning (e.g. when firms adopt innovations from their suppliers or gain market information from their customers)
• Sharing: When large numbers of firms or workers benefit by drawing on a common pool of resources (e.g. sharing of public goods and/or infrastructure such as heating or public transport) or by investing their resources in joint ventures to mitigate risks or increase expected returns (e.g. joint R&D efforts)

Read more stories from the Brexit Series:

• Brexit: What happens if a deal can’t be reached?
• Relocation considerations for businesses post-Brexit

2. What makes London a great place to live and do business?

London’s economic performance has been driven by a set of complementary strengths, which, in combination, delineate its unique position in the world economy.

• London has the highest-talent population in the world with a higher proportion of graduates than any other major city, underpinned by more world-leading educational institutions than anywhere else and an environment that attracts talented people from around the world
• London is the leading global hub for business, with more large international subsidiaries located here than any other city in the world, lured by a business-friendly environment and access to a global network of opportunities
• London holds the strongest position in financial and professional services, a combination that has driven impressive jobs and GVA growth.
• London is a world-leading centre for technology, creativity and entrepreneurship, benefiting from the rich and mutually supporting connections between its positions in technology and the creative industries
• London is the global capital for international tourism, the most visited city in the world

3. Does Brexit put any of these factors at risk?

Yes, the vote to leave the EU poses a set of challenges if London is to maintain its status as a leading global hub for business.

• International businesses may be discouraged from investing in London due to the uncertain economic environment in the short term
• Talented individuals may be put off from working given uncertain immigration rules and/or reduced potential for career development and experience, if London is no longer servicing the world’s largest single market
• The mobile nature of the financial and professional service sectors makes the UK’s exit from the EU a particularly significant challenge, the scale of which will largely depend on the precise arrangement around access to the Single Market, coupled with the rules over movement of people
• A major risk for London’s status as an international business hub is that a small number of decisions may cause London’s access to diminish, causing material economic loss

4. How do we mitigate these risks?

It is clear that London’s future prosperity as a global hub for business hinges on its ability to trade freely and access talent from across the world. To enable British businesses to drive UK growth and prosperity via a new deal with the EU, the key planks of a new deal must be.

• A British approach to immigration which ensures that business continues to have access to the talent the country needs, combined with a much more effective focus on improving our citizens’ education and training
• Full access to the European single market, so that British business can continue to trade in both goods and services on a level playing field with our largest export markets
• Continue the benefits of the customs union, to ensure frictionless movement of goods and services between the UK and the rest of Europe and, in particular, to ensure no hard border between NI and Eire. This can complement a more vigorous approach to driving trade globally

If a comprehensive deal isn’t reached by March 2019, we need transitional arrangements that ensure British jobs growth or living standards aren’t threatened while negotiations continue.For more news and interesting articles answering your questions about Brexit, visit the Brexit Series website. Click here to find out more about the upcoming Brexit Business Planning Forum, London.For related news and features, visit our Brexit section.Access hundreds of global services and suppliers in our Online Directory  Get access to our free Global Mobility Toolkit

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