Economic Research Review of 2012

City of London Economic Development Research Programme Review of 2012

Independent in-depth research Accurate, timely and well-focused Informing evidence-based policy making Understanding the City economy

2012

research February 2013

Economic Development Research Programme Review of 2012 Introduction City of London research is commissioned to be independent, accurate and evidence-based. Our intention is to inform and support practitioners and policymakers both inside and outside the City of London, often working in partnership with others including relevant trade associations.

The research, the product of an active engagement with our stakeholders and collaborators, looks at the performance factors that affect the City, London and the UK’s success as a competitive provider of professional and financial services to the global economy.

The global economy in 2012 continued to offer little encouragement by way of a return to sustained and widespread economic growth. The eurozone fell into recession and shows little sign of returning to growth until 2014, while output was weaker than expected in the large emerging economies of Brazil and India. China also saw economic output, while still at enviable levels from the perspective of many developed economies, slow significantly while the US continued to struggle with the fiscal balancing act of achieving debt control without stifling its own delicate economic recovery.

Illustrating how this global economic uncertainty impacts the City of London and its position at the heart of the global financial system, highlighting both threats and opportunities, is one of the core aims of the 2012 programme of research. What does London need to provide in terms of its infrastructure, for example, in order to continue to attract the high quality businesses it needs to maintain its dominance in the financial and professional services sectors? How will the changing regulatory framework impact the City of London, whether it’s the development of EU banking union, or the introduction of a financial transaction tax?

Despite the threats to London’s global position, there are also plenty of opportunities, not least as far as China is concerned. In 2012 we were able to quantify, for the first time, just how much financial business was executed in London using China’s renminbi currency, as well as being able to put a figure on trading volumes for the BRIC economies.

By partnering with some of the leading experts in their field, we have again sought not simply to respond to developments, but to drive debate and put London at the forefront of the major issues that will shape the financial and professional services sectors in the years ahead.

As in previous years, we have a number of different types of publication. Our Research Reports address an overarching research theme or set of issues in depth, generally involving new primary research or substantial review. Special Interest Papers look at a specific issue to generate discussion and inform debate or act as a thought piece. Practitioner Policy Papers focus on technical issues of particular relevance to our practitioner advisory groups.

Topical Issues Papers are short pieces exploring a current issue. Partner Publications are reports that may have been co-authored, jointly-commissioned or supported by the City of London Corporation.

During 2012, the research programme has covered five key areas:

■ ■ ■ ■ ■

City Industries Competitiveness and Infrastructure The EU and Regulation International Markets Corporate Responsibility and Community

Economic Development Research Programme Review of 2012 Key Areas

City Industries

Competitiveness and Infrastructure

In 2010/11, London delivered around 18.5% of the UK’s overall tax take according to London’s Finances and Revenues, and was one of only two UK regions in 2010/11 to have made a consistent fiscal surplus, despite its growing share of total UK public spending at 14.4%. These figures illustrate the City’s importance to the overall UK economy and underline the importance of continuing to provide the infrastructure that can support the City’s future economic growth and competitiveness.

As the debate on UK aviation capacity continued to roll on through 2012, the importance to London of the aviation hub status of Heathrow is analysed in London’s Air Connectivity: The Importance to London of Having World Class Aviation Hubbing Capacity. The report finds that London is the best connected for business compared to a number of European benchmark cities while a second study, London’s Air Connectivity: Emerging and Growth Markets, warns that London’s status as a leading hub for developing markets such as Brazil, Russia, India and China, is being challenged by rapidly expanding Middle East aviation hubs.

The fifth edition of The Total Tax Contribution of UK Financial Services, looks at how the changing financial climate has altered the composition of the financial sector’s tax contribution to the UK economy, with corporation tax having reduced in percentage terms since 2007 and employers’ national insurance payments having risen over the same period.

The business population of the City is explored in Mapping SMEs in the City which shows that 98% of companies actually employ fewer than 250 people, with those in particular fields clustering together to generate economies of scale and competitive advantages.

Publications 2012 ■ Mapping SMEs in the City ■ Capacity Trade and Credit: Update ■ Characteristics of SMEs and Social Enterprises around Tech City ■ The Total Tax Contribution of UK Financial Services (Fifth Edition) ■ London’s Finances and Revenues

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Being competitive however, demands more than just world class travel links. The quality of life in London is compared to that in several other top expatriate destinations in Cost of Living and Quality of Life in International Financial Centres.

Ensuring the right power infrastructure is in place will play an important part in providing both new and existing businesses with the ability to expand. Delivering Power: The Future of Electricity Regulation in London’s Central Business District, finds that current investment in the electricity infrastructure is insufficient for future needs and calls for better coordination between developers, the District Network Operator and other stakeholders.

Publications 2012 ■ The Implications of Global Capital Flows on the London Office Market ■ Delivering Power: The Future of Electricity Regulation in London’s Central Business District ■ Cost of Living and Quality of Life in International Financial Centres ■ London’s Air Connectivity: The Importance to London of Having World Class Aviation Hubbing Capacity ■ London’s Air Connectivity: Emerging and Growth Markets 1

Economic Development Research Programme Review of 2012 Key Areas

The EU and Regulation

International Markets

An ongoing reaction to the banking crises of recent years is the development of new powers to supervise banks within the eurozone. The resulting agreement for a eurozone Banking Union (BU) by EU nations, is analysed within EU Banking Union – Operational Issues and Design Considerations which suggests that getting a number of carefully balanced trade-offs right, will help ensure that BU is effective and widely supported.

As economic growth in the developed economies continues to stagnate, the importance of maximising opportunities within the developing major international markets of Brazil, Russia, India and China (BRIC) grows.

London is already a major centre for renminbi (RMB) business and, says Corporate and Investor Perspectives on London Renminbi Business, can build on that success by replicating and scaling up successes already achieved in servicing RMB users.

Another area developed in the EU is the concept of a financial transaction tax to help raise funds to cover the cost incurred in tackling the debt crisis. A Financial Transaction Tax – Review of Impact Assessments looks at responses to the EU’s proposed financial transaction tax and argues that, given the market distortions the tax will produce, it is unlikely to raise significant incremental tax revenues.

Similarly, overall trading in BRIC currencies has increased dramatically since 2008 and London is well placed to continue this growth given its favourable geographic location, access to highly qualified talent and reliable legal system.

Publications 2012 ■ A Financial Transaction Tax – Review of Impact Assessments ■ EU Banking Union – Operational Issues and Design Considerations

Publications 2012 ■ London: A Centre for Renminbi Business ■ Corporate and Investor Perspectives on London Renminbi Business ■ BRIC Currencies Trading in London

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Economic Development Research Programme Review of 2012 Key Areas

Corporate Responsibility and Community

Key to publications

Providing a high quality working environment in the

Research Report

City of London includes ensuring that health provision meets the needs of a working population that, due to long working hours and commutes, has limited access to healthcare facilities at home. The Public Health and Primary Healthcare Needs of City of London Workers shows that there is currently an unmet demand for healthcare services

Special Interest Paper

in the City.

Practitioner Policy Paper

Topical Issues Paper

Periodical

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P

Publications 2012 â– The Public Health and Primary Healthcare Needs of City of London Workers

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Economic Development Research Programme Review of 2012 Key Areas

City Industries

Economic Development Research Programme Review of 2012 Key Areas City Industries Mapping SMEs in the City July 2012 Special Interest Paper

Produced for the City of London Corporation by Experian, this Special Interest Paper maps Small and Medium sized Enterprises (SMEs) in the City across a number of sectors.

The maps show the Square Mile’s concentration of SMEs by sector, and demonstrates that the City’s world class strength in financial and business services is supported by – and in turn supports employment for – SMEs providing legal, technical and general business support, as well as a flourishing hospitality industry. The cluster maps illustrate the way in which smaller businesses in particular fields tend to locate in close proximity to each other, generating economies of scale and competitive advantages.

Defining the City’s SME population Only SMEs operating with a City of London postcode are included in the maps, with the European Commission’s definition of SMEs used as the basis for determining the categories used to profile businesses along two dimensions – employment and turnover.

The maps, which will help inform the City of London Corporation’s policies towards SMEs, illustrate a mixed and diversified business cluster and reinforce the need to work with smaller businesses in and around the Square Mile to promote both their formation and their growth.

Supporting smaller businesses Despite its reputation for ‘big business’, the vast majority of companies in the City – over 98% – actually employ fewer than 250 people and are classified as SMEs. Supporting these SMEs is a key priority for the City of London Corporation when it comes to: ■ Ensuring provision of suitable workspace; ■ Planning policies; ■ Procurement activity; ■ Encouragement of business angel investment and other routes for raising capital.

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Economic Development Research Programme Review of 2012 Key Areas City Industries Capacity Trade and Credit: Update August 2012 Research Report

Commissioned by the City of London Corporation, this report by Z/Yen is a follow up to Capacity, Trade and Credit: Emerging Architectures for Commerce and Money, published in 2011, which looked at the feasibility and benefits of establishing a capacity exchange in the UK to help facilitate multilateral reciprocal trade. A roundtable was held in June 2012 and this updated report looks at the potential economic impact of multilateral reciprocal trade, as well as the need for standards and/or regulation of the issuance of common tender to support and improve its wider development.

A number of questions arose when looking at the potential impact of multilateral reciprocal trade activities. The experience of the Brazil Central Bank indicates that a barter or alternative currency system will have a greater impact at the level of the local economy and a lesser one at the national level. Another way to look at the economic impact of capacity trade is to take a bottom-up approach and consider who the businesses and customers currently using these alternative trading systems are.

The roundtable concluded that more data needs to be collected and analysed in order to make clear the case for the economic potential of multilateral reciprocal trade.

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Regulation and standards With regards to regulation and standards, there are a number of different models that can be classified under the term ‘multilateral reciprocal trade’ (e.g. counter trade, corporate barter and retail barter), suggesting the appropriate regulatory response can be difficult. One option is to regulate the issuance of common tender itself, rather than individual models of barter exchange and common currencies.

Standards for the issuance of common tender need to be further discussed and defined within the community of organisations that extend credit through common tender.

A ‘standards road map’ would be a useful resource for anyone looking at creating a standards market in financial services, using labelling or kite marks with competitive certification audit.

It is clear that continued debate around the role and potential for capacity trade is necessary and welcome.

Economic Development Research Programme Review of 2012 Key Areas City Industries Characteristics of SMEs and Social Enterprises around Tech City November 2012 Special Interest Paper

Following on from Mapping SMEs in the City (published July 2012), this research looks at the characteristics of SMEs and social enterprises in the Tech City area, which is located immediately around Old Street roundabout. Published by the City of London Corporation and produced by Experian, the paper looks at the profile of businesses across the last three years in Tech City, finding that there has been a small overall increase of around 3% in the number of businesses during that time.

Understanding Tech City The City of London Corporation has a long standing interest in supporting enterprise in its neighbouring areas and the current exploration of Tech City helps develop understanding of this important cluster. The findings from the mapping exercise, which combined ten electoral wards located in the vicinity of Old Street roundabout, include:

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■ Even though the growth in the number of businesses over the most recent three year period was small at 3%, only around 40% of the companies have remained the same across this period; ■ Over a quarter of the businesses in the sample were present at the start of the period but not at the end; ■ A further quarter were present at the end but not at the start; ■ Business services represent almost a third of the Tech City population; ■ Over three quarters of Tech City business sites have fewer than ten employees; ■ 75% of businesses are independent; ■ Firms tend to be relatively young, with half of the Tech City population five years old or younger.

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Economic Development Research Programme Review of 2012 Key Areas City Industries The Total Tax Contribution of UK Financial Services (fifth edition) December 2012 Special Interest Paper

This is the fifth edition of the Total Tax Contribution study which looks at the size of the contribution that the financial services (FS) sector makes in tax revenues in the UK, how this has changed over time, and has been affected by the economic climate.

In this research, prepared by PwC for the City of London Corporation, the Total Tax Contribution (TTC) of the financial services sector includes all the different taxes that companies pay and administer including corporation tax, employment taxes, VAT and other taxes. As well as taxes borne by companies – all the taxes levied on a company – the paper also includes the total of the taxes that the financial services sector administers on behalf of the Government such as employee income tax and national insurance contributions administered through the payroll.

The key findings The study shows that for the UK’s FS sector, in the year to 31 March 2012: ■ The sector paid an estimated amount of total taxes, (including both taxes borne and taxes collected), in the region of £63.0bn, or 11.6% of total UK government tax receipts. This is the same level as the estimate of the contribution of the UK financial services sector in 2011 ■ 1.1m people (3.8% of the UK workforce) were employed by the FS sector; ■ Estimated employment taxes were in the region of £27.7bn, equating to 11.8% of government receipts from overall employment taxation;

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■ Payments of irrecoverable VAT and employers’ national insurance contributions have increased and are now the largest taxes borne, accounting for 24.1% (2011: 20.1%) and 35.2% (2011: 28.8%) respectively of total taxes borne; ■ Corporation tax is the third largest tax borne (21.9% of total taxes borne) and has decreased compared to last year (2011: 27.0% of total taxes borne) as a result of a fall in the tax rate and lower profitability; ■ The sector paid increased amounts of personal income tax, VAT and social security contributions compared to the previous year, which helped to maintain the overall level of total tax contributions; ■ £1.6bn was paid in respect of the new bank levy.

Due to the timing of the introduction of the bank levy, this only includes three of four quarterly bank levy payments and the full impact will not be seen until the 2012/2013 tax year.

A changing tax system The study reflects a changing tax system over the five years it has been carried out. In 2012 for example, corporation tax represents 21.9% of taxes borne (2007: 40.8%), employers’ national insurance represents 35.2% (2007: 21.3%) and irrecoverable VAT 24.1% (2007: 19.1%). The profile of taxes borne has moved from corporation tax to other taxes.

Economic Development Research Programme Review of 2012 Key Areas City Industries London’s Finances and Revenues December 2012 Research Report

Prepared for the City of London Corporation by Oxford Economics, this report updates and extends Oxford Economics’ previous work, London’s Competitive Place in the UK and Global Economies (published January 2011).

The study extends analysis of the historical trends in London’s tax revenues and public expenditures back to the financial year 1999/00 and updates estimates of London’s public finances into the current financial year as well as setting out London’s fiscal prospects to 2025/26.

Amongst the conclusions drawn it is estimated that, over time, London is one of only two regions having a net fiscal balance in 2010/11.

The key findings include: ■ Delivering a fiscal surplus In the nine years prior to the economic and financial crisis of 2008/09, London’s surplus ranged between £10bn and £20bn. During the worst years of the economic downturn, London’s fiscal account dipped just below balance in 2009/10, before rebounding to around £5bn the following year. Only the South East of England and the East of England have matched London in delivering a consistent fiscal surplus. In 2011/12, the surplus for London is estimated to approach £10bn; ■ Revenue generator London generated around 18% of the total UK tax take on average from 1999 to 2001, climbing to 18.5% by 2010/11; ■ Growing share of public spending The study estimates that London now accounts for around 14.4% of total UK public spending, compared to 13.6% a decade earlier. Much of this can be accounted for by an ever-rising share of public order and safety expenditure.

By 2025/26, London’s share of UK spending is expected to rise to 15.4%; ■ Tax revenue generation set to rise over the long term Almost 80% of the new jobs generated in London over the years to 2025 are likely to be in the business and financial services sector, compared to just less than 60% in the 20002012 period. Given higher average salaries in these sectors

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than those accounting for a higher proportion of employment in other regions, this implies that London’s share of income tax generation will rise further over the long run. These trends overall mean that London’s share of total UK fiscal revenue generation is set to rise from 18.8% in 2011/12 to 19.9% by 2025/26.

The impact of three economic scenarios Given the events of the past five years or so, and the uncertainty surrounding the outlook in the UK and European economies in particular, the study also forecasts London’s revenues and expenditure in the context of three possible economic scenarios: ■ Higher growth If the underlying rate of growth in the UK economy is boosted by 0.25 percentage points, from its baseline of 2.7%, this will generate faster growth in taxes on labour income and consumer spending, driving revenues around £6bn higher and increasing London’s fiscal surplus by £5bn in the long run; ■ A further economic downturn Should the UK move back into a recession between 2014-16, triggering a second round of austerity measures with a relatively sharp rebound in 2017, London’s annual tax generation will be £15-20bn lower in the medium term than in the baseline, and the shortfall grows to £30bn by the end of the projection period (2025/26), decreasing London’s fiscal balance by £5bn; ■ The impact of stronger inward migration The study currently assumes net inward migration of 130,000 per year into the UK. However, the ONS projections are substantially higher than this, at around 200,000 per year. With around 25,000 of the annual 70,000 extra migrants settling in London, increased demands placed on public spending of £4bn are outweighed by increased revenue generation of £8bn from income tax and other revenue sources; resulting in an increase in London’s fiscal balance of around £4bn in the long run.

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Economic Development Research Programme Review of 2012 Key Areas

Competitiveness and Infrastructure

Economic Development Research Programme Review of 2012 Key Areas Competitiveness and Infrastructure The Implications of Global Capital Flows on the London Office Market March 2012 Special Interest Paper

Given that London’s position as the top global financial centre is intrinsically linked with its office real estate, this study looks at the evolution and drivers of demand for the London office market, and how it will evolve in the short to medium term. Commissioned by the City of London Corporation and the City Property Association, and produced

by Jones Lang LaSalle, the report finds that in the last three years, 65% of the central London office market was purchased by overseas investors with no immediate risk that the global demand will recede over the next five years.

The evolution of foreign investment into London offices The credit crunch and subsequent recession changed the London office real estate market irrevocably. The lending freeze meant that leveraged investors could not enter the market and existing holdings breached loan to value covenants. Those who did not have to sell would not sell into this falling market and the pool of potential investors quickly became shallow. London’s values corrected quickly and deeply.

During this same period, the devaluation of Sterling added a further element to re-pricing. On top of the 55-57% ‘saving’ on capital values relative to the peak, overseas investors achieved significant relative currency savings. For buyers focussed on capital value per sq ft, this was compelling. In early 2008 German investors bought strongly and then the market opened up internationally. During 2009, overseas investors from at least 28 countries bought £6.1 billion of London office product and today the market is truly diversified with Sovereign Wealth Funds, institutions, individuals and syndicates fronting a spectrum of geographies.

Global Capital Flows data shows Greater London ranked first in global cities for office investment volume in 2011, retaining its top spot from 2010 and increasing its lead from around US$4bn to over US$5bn.

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Why London?

Key reasons why London is more attractive to international capital investing in office real estate than other markets include its position as a global financial centre, availability of stock, lease lengths, tax position, as well as other softer factors such as culture, language and familiarity.

Conclusions: risks and opportunities Country sources of capital may open and close but the report concludes that there is no significant risk that will divert capital flows away from London, although there are a number of potential issues to consider: ■ Longer trading cycles will reduce valuation evidence; ■ Market transparency will deteriorate as properties exit benchmark samples; ■ An increased reliance of overseas money for development funding will impact product type; ■ There will be geographic polarisation of value and market participants with domestic investors priced out into the non-core, or outside London; ■ Lower market volatility is a real possibility as a new sustainable yield platform is established with supply bubbles less likely.

Should capital recede, or be diverted elsewhere – not seen as likely – the following implications are the most strategically important: ■ The removal of capital would cause yields to move out: a reversion to mean would create outward yield movement of at least 50 basis points from current levels of 5.25% and a 10% drop in capital values; ■ The return of lot size differentiation - a spread of 50 basis points across lot sizes would re-emerge as greater risk for holding larger lots is priced in; ■ A lack of funding for development and increased obsolescence risk to the market as a result.

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Economic Development Research Programme Review of 2012 Key Areas Competitiveness and Infrastructure Delivering Power: The Future of Electricity Regulation in London’s Central Business District March 2012 Research Report

Having the right power infrastructure in place is a pre-requisite for London’s future economic growth and competitiveness. This report, prepared for the City of London Corporation, City Property Association and London First by South East Economics and Stephen Jones Associates, examines the regulatory issues underpinning power supplies to new office developments in the Central Business District (CBD) of London. The research concluded that investment in electricity infrastructure is insufficient to meet future needs, with the constraints of the current regulatory system providing limited incentives for forward-looking investment.

London’s on-going competitiveness depends on its ability to develop new, high quality office space in the CBD which, in turn, depends on the availability of utility infrastructure (water, gas, energy, telecoms), delivered in a timely manner.

Yet developers and businesses in the CBD have reported problems in securing new electricity connections, and have concerns around potential capacity constraints in the CBD in the medium term.

Following interviews with a number of developers and other interested parties, other key findings include: ■ Concern that the current regulatory system provides limited incentives for investment ahead of the direct need to anticipate future electricity demand; ■ Concern that investment in electricity infrastructure in the CBD is insufficient to meet future demand for electricity; ■ Service to developers from the District Network Operator (DNO) could be improved, particularly in relation to communication, transparency of processes and delivery of electricity connections; ■ Concern from developers that they cannot get the certainty of service they want, or feel is necessary for their projects.

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Recommendations A further examination of issues and dialogue between the DNO, the energy regulator, developers, businesses and other stakeholders is advised. Other recommendations include: ■ Improved transparency and consultation in relation to DNO demand estimates both on an aggregate and location specific basis; ■ Greater clarity on the basis of the DNO’s investment programme, how it incorporates uncertainty over future customer requirements, and its relationship to future levels of expected demand for electricity; ■ Consideration of the extent to which flexibility can be built into the DNO network, for example through investment in capacity in selected substations or in ducting ahead of need; ■ An examination of the incentives on the DNO to invest on an incremental basis, ahead of need and consideration of the appropriate allocation of the risk of such investment between DNO, consumers and developers; ■ Consideration to a greater degree of targeting of Guaranteed Standards Of Performance and measures of customer satisfaction, to ensure that the DNO is incentivised to meet the requirements of all customer groups; ■ To facilitate these enhancements to the current arrangements, there may be merit in the formation of joint working groups between the DNO, developers and other stakeholders to improve coordination of the future development of CBD electricity infrastructure.

Economic Development Research Programme Review of 2012 Key Areas Competitiveness and Infrastructure Cost of Living and Quality of Life in International Financial Centres August 2012 Special Interest Paper

Focusing on areas such as quality of living, costs and expenses, and the economic environment, the study delivers a better understanding of expatriate life in different financial centres around the world, from the cost of housing to the visa regulations in a particular country.

personal tax regimes and career opportunities play an important part but so too do broader factors around quality of life. For each financial centre, the paper looks at categories such as: ■ Entering the country – includes visa/entry requirements and comments about expatriate policies; ■ Economic environment – general guide to local taxation as well as banking information; ■ Costs and expenses – cost of living figures for a range of goods and services, as well as accommodation; ■ Quality of living – based on three factors: health considerations, transport and schooling.

Influencing an individual’s decision about where to live and work There are many factors that will influence an individual’s decision about where to live and work. Remuneration,

Each city chapter also provides a calculation of take home pay after tax for a nominal salary of £100,000, for those with and without dependents to provide a snapshot of different tax regimes.

What is life like for an expatriate choosing to locate to and work in one of the world’s leading financial centres?

This paper, commissioned by the City of London Corporation and produced by Mercer, aims to answer that question by providing a snapshot of 14 different major financial services centres.

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Economic Development Research Programme Review of 2012 Key Areas Competitiveness and Infrastructure London’s Air Connectivity: The Importance to London of Having World Class Aviation Hubbing Capacity December 2012 Special Interest Paper Prepared for the City of London Corporation by York Aviation, this study contributes to current debate on London’s airport capacity needs and the importance of retaining hub status. The analysis within the paper finds that routes to emerging markets are much more dependent on hub feeder traffic and that hubbing is a key factor in securing a wider aviation network than would otherwise be the case. The study also concludes that it is critical that British airlines have an airport that is capable of serving as a hub if they are to develop new routes and services.

London’s connectivity Through Heathrow, London is currently the best connected for business of the European benchmark cities (which includes Frankfurt, Amsterdam, Paris and Madrid), with hub connecting traffic underpinning the provision of services to 20 key business centres. These centres represent a mix of emerging and established markets which together account for over 35% of all end destinations for business travel to and from London today. Over 20 million passengers travelled on routes to these destinations from Heathrow in 2011, including passengers transferring onto these flights and passengers transferring onwards at the end destination airport.

It is evident that while connectivity to many UK and European business centres is provided by a range of London airports, Heathrow remains the pre-eminent airport for key long haul business routes.

The report reveals a complex web of interrelationships between routes and airlines at Heathrow. This complexity is a function of the sheer scale of operations there, allowing airlines to inter-connect passengers between a multiplicity of routes.

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The study highlights: ■ Routes to emerging markets are much more dependent on hub feeder traffic to sustain current frequencies of service; ■ Whilst many routes to the more established business centres are much less dependent on connecting traffic at Heathrow themselves, such routes are key sources of hub connecting traffic which underpins the viability of routes to new and emerging markets; ■ Analysis of the pattern of traffic on such routes also highlights the role of alliances and hubbing overall. The high frequencies of service, which benefit business travellers, are sustained not just by connecting traffic at Heathrow but by passengers connecting at hubs at the other end of the many routes where other alliances operate hub networks with their alliance partner airlines, similar to that of BA at Heathrow; ■ The indivisibility of business and leisure traffic on routes to key business centres. Many passengers connecting will also be travelling for leisure purposes and it would not be practical to seek to differentiate between business and leisure markets in terms of the use of the hub.

Conclusions The analysis concludes that the conditions for some airlines to enhance the range and frequency of connections are, to a large extent, dependent on being able to retain a range of feeder connections at a hub and this has been significant in supporting the development of services to emerging business centres in India and Latin America.

Economic Development Research Programme Review of 2012 Key Areas Competitiveness and Infrastructure London’s Air Connectivity: Emerging and Growth Markets December 2012 Special Interest Paper

Given the growing role of emerging markets such as Brazil, India and China, this paper looks at London and the South East of England’s air connectivity to these increasingly important business destinations. Prepared for the City of London Corporation by York Aviation, the research explores data regarding the number of passengers served and the proportion of those who are business passengers for 22 emerging markets, with comparisons for London and its competing primary European air travel hubs.

Connecting to emerging markets According to the UK Civil Aviation Authority, in 2011 there were 89 million two-way passenger journeys to and from the Greater South East of England. Approximately 21.5 million were for business purposes, with 5.6% of these beginning or ending in what the paper identifies as Advanced Emerging Nations, and 5.3% beginning or ending in Secondary Emerging Nations. From these two groups, the most important business travel markets from the UK in 2011 were: China, Czech Republic, Hungary, India, Poland, Russia, South Africa, Turkey and the UAE. The study finds that while London is currently well-linked in terms of business-related air connectivity to key

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emerging countries, it must continue to match the pace of competing hubs elsewhere, strengthen links where they are weak and establish them where they do not exist.

Preserving, strengthening and establishing new air connectivity links with emerging markets will benefit London, the City, and the United Kingdom as a whole.

Conclusions ■ London remains – in overall terms – the most wellconnected global hub to the 22 emerging markets; ■ With the exception of India and China, London is less well-connected to the BRICS countries than competing hubs, and is at a particular disadvantage in Latin America; ■ London’s status is being challenged by rapidly expanding Middle East hubs, Dubai in particular, and especially towards non-European destinations; ■ London and the Greater South East of England have improved in terms of aviation connectivity since the benchmark year of 2005, while other major European hubs considered in the paper have followed a similar trend but still maintained their relative distance from London.

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Economic Development Research Programme Review of 2012 Key Areas

The EU and Regulation

Economic Development Research Programme Review of 2012 Key Areas The EU and Regulation A Financial Transaction Tax – Review of Impact Assessments March 2012 Practitioner Policy Paper

Prepared for the International Regulatory Strategy Group (IRSG), authored by Anita Millar, Director of ADM Risk Regulation and Strategy Group Ltd, and published by the City of London Corporation, this paper reviews a number of selected impact assessments and analyses (IAAs) related to transaction taxes, with a specific focus on the proposed EU financial transaction tax (FTT). The central message drawn from the IAAs is that the FTT will not effectively address many of the key objectives of the policyholders, is unlikely to raise significant incremental tax revenues and could give rise to behavioural changes and market distortions to the detriment of EU economies.

The EU Commission’s proposal for a tax (FTT) on a broad base of tradable financial instruments was tabled in 2011. The subsequent IAAs prompted by the proposed tax have been analysed in this study in terms of the remedies that a transaction tax is intended to provide in comparison with the effective tax rate that may emerge; the market distortions likely to arrive; and where the economic burden of the tax will actually fall within the broader economy.

Summary findings The key themes and conclusions drawn from the IAAs suggest that: ■ Transaction taxes do not address systemic risk, arguing that systemic risk is better addressed by regulation; ■ The proposed EU FTT is an imprecise and ineffective tool for addressing high frequency trading (HFT); ■ Contrary to suggestions made by the Commission, the VAT exemption for financial services and investments is not a tax advantage for the financial sector – in fact the removal of VAT exemptions aimed at ensuring consumers pay no tax on, for example mortgage borrowing, would favour financial services firms (as they could claim VAT credits against VAT paid on inputs).

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The IAAs also demonstrate that the proposed FTT will give rise to many potential distortions and unknown consequences; ■ The headline tax rate – 0.01% on derivative agreements and 0.1% on non-derivative transactions – will be very different from the effective tax rate paid; ■ Under the EU proposal, aside from central counterparties, all financial intermediaries (e.g. brokers) to a transaction (and other transactions triggered by it) will be subject to the tax. This cascade effect is but one way that the effective tax rate will be driven upward by multiple layers of taxation levied on related transactions; ■ Increases in the effective tax rate will incentivise those market players that can respond to take steps to reduce the effective rate paid by, for example, reducing the number of intermediaries in a transaction chain, substituting transactions with economically similar products, relocating transactions and some institutions shifting their domicile outside of the EU. The IAAs underline that the Commission’s impact assessment cannot be relied upon. Not only is this assessment based on a closed economy model, but it does not properly reflect the effective tax rate arising from multiple layers of taxation, or account for some of the second or third order effects that the IAAs help to highlight, including the adverse impact it is envisaged to have on: ■ Liquidity; ■ Risk management practices; ■ Corporate governance; ■ Savings.

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Economic Development Research Programme Review of 2012 Key Areas The EU and Regulation EU Banking Union – Operational Issues and Design Considerations October 2012 Special Interest Paper

Following agreement in principle of a eurozone Banking Union (BU) at the euro-area summit on 29 June 2012, this paper aims to support BU by analysing the identifiable components of BU at this stage in addition to discussing the associated operational issues. Prepared for the International Regulatory Strategy Group (IRSG), published by the City of London Corporation and authored by Anita Millar, Director of ADM Risk, Regulation and Strategy Group Ltd, the study also gives particular focus to the future form and nature of supervision, the institutional changes which BU may introduce, potential changes to the EU financial markets and the operation of the single market more broadly.

Eurozone banking union The euro-area summit in June 2012 indicated that BU could include a range of measures including; ■ A European single rule book; ■ A prudential supervisory mechanism, focused on crisis prevention; ■ A resolution authority, focused on crisis resolution; ■ A European resolution fund and a fiscal backstop.

A follow up proposal in September 2012 contained further details with a proposed design for the second element of BU including a Single Supervisory Mechanism.

Getting the trade-offs right The report finds that BU’s final design will entail a number of carefully balanced trade-offs; getting these right will help to ensure that BU is effective and widely supported. Key themes from the analysis include: ■ Systemic risk/macro-micro supervision The proposed Single Supervisory Mechanism (SSM) includes both the European Central Bank and the national supervisory authorities which, in practice, may be a hybrid of a two tier system. The report finds this could introduce moral hazard issues and further consideration will need to be given as to

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how roles and responsibilities align. In addition, the proposals do not provide a detailed discussion of the ECB’s proposed supervisory responsibilities in relation to the current responsibilities of the European Systemic Risk Board; ■ Financial stability/crisis prevention/crisis management and resolution The concepts of financial stability and the roles that supervisory authorities play in both crisis prevention, crisis management and resolution sit at the core of BU’s design and need to be fully discussed and developed; ■ Supervision In addition to the Commission’s plans for a single supervisory handbook, further work will need to be done on assessing how supervision, whether at Member State or EU Level, can become more effective, with a view to perhaps incorporating the work of the Financial Stability Board; ■ Growth While BU needs to create an institutional and behavioural framework that can address sources of financial instability within the eurozone, it also needs to support sustainable growth. These two goals should be complementary, but an overly aggressive approach to the former could undermine the latter; ■ Look for ways to include democratic processes As it looks likely that the first phase of the BU process will rely on a treaty provision that denies the EU Parliament any significant role in the establishment of a centralised microprudential supervisor, it is probable that the Parliament will look to insert the democratic process through leveraging its responsibilities for legislation most associated with BU; ■ Technical issues The licensing of firms, passporting arrangements, and the treatment of third country banks establishing branches or providing cross-border services will initiate a series of specific and specialised discussions that could become detached from the broader question of BU and what it needs to deliver.

Economic Development Research Programme Review of 2012 Key Areas

International Markets

Economic Development Research Programme Review of 2012 Key Areas International Markets London: A Centre for Renminbi Business April 2012 Practitioner Policy Paper

As part of the City of London Renminbi Series and the first deliverable in the City of London initiative on London as a centre for renminbi business, this study looks to quantify the existing capabilities of London in RMB denominated products and services. Produced for the City of London Corporation by Bourse Consult, the study shows that a broad range of RMB denominated products and services are already being offered in London and that London is becoming an important part of the global CNH (global offshore RMB market) market.

The emergence of China’s RMB as a potential new global currency offers great opportunities, with London in a good position to help promote the use of RMB through its: ■ Time zone – a working day that overlaps with China and the rest of the globe; ■ Widely respected legal and regulatory system; ■ Financial community with a proven record of responding to market needs; ■ Ability to bring massive liquidity to the markets.

This report shows the following volumes for RMB business generated and/or executed in London in 2011.

■ Retail banking The value of private banking accounts has total deposits in excess of ¥3.6 billion. This indicates a significant growth opportunity in London for private banking services in RMB and would play to London’s strengths as an important base for wealth management services; ■ Corporate banking A full range of RMB corporate banking services are offered in London, principally focused on forex, corporate accounts and trade financing. There is substantial growth potential in this segment with not all institutions currently offering corporate banking services;

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■ Institutional and interbank market Spot RMB forex trading in London is running at $0.68 billion per day and is estimated to be 26% of the global offshore RMB spot market. Trading in non-deliverable forex products is running at significant levels and is expected to shift into spot and other deliverable forex products as currency controls are eased and offshore RMB liquidity increases.

Future growth The development of RMB denominated products and services in London is a relatively recent phenomenon, but the data shows that London’s market share is growing strongly and is becoming a significant part of the global CNH market. Volumes can be expected to increase and further RMB denominated products and services will be offered by banks and financial institutions in London.

London’s prime position as an international financial centre and its growing level of RMB-denominated business puts it in a very good position to be a major player in developing the international RMB market. There is a strong commitment amongst London’s global institutions to develop London’s RMB business, in turn facilitating the emergence of the yuan as one of the foremost currencies of the world alongside the US dollar and the euro.

Economic Development Research Programme Review of 2012 Key Areas International Markets Corporate and Investor Perspectives on London Renminbi Business June 2012 Special Interest Paper

As London develops as a centre for international renminbi (RMB) business, this report, prepared by Trusted Sources for the City of London Corporation and part of the City of London Renminbi Series, examines the views and experiences of European firms using renminbi (RMB) products and services.

Based on interviews with a selection of corporates and institutional investors, the study finds that those businesses with an interest in China, welcomed the opportunity to be able to make transactions in RMB in the London market. Those already using RMB in their businesses expected the usage to increase in the future, and those not using RMB were all actively looking at the possibility.

Published to support the City of London initiative on London as a centre for RMB business, conclusions from the series of indepth interviews include: On London being an international RMB business centre ■ Corporates more enthusiastic than investors about seizing the new possibilities; ■ Corporates placing the highest priority on the availability of basic corporate RMB accounts, spot FX transactions of CNH (global offshore RMB market) against dollars or sterling.

Attitudes towards offshore RMB investments ■ Some institutional investors were more positive about the development potential of the CNH market while some were deterred by concerns regarding current liquidity and market depth in London; ■ Spot and forward currency trades were identified as the most popular of the FX and RMB assets being offered by London-based financial institutions; ■ Most investors had traditionally invested in CNY (onshore pool) non-deliverable forwards but there has been a gradual shift towards investing in CNH forwards.

The challenges While both corporates and institutional investors expressed an appetite for RMB business, challenges highlighted included: ■ A financial structure with existing revenue and liabilities largely aligned in a single currency;

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■ Inertia to changing the invoicing and payment currency due to large organisational structure; ■ Perceiving the administrative procedures for approving cross-border fund transfer or exchange as cumbersome and inefficient.

The factors that constrain institutional investors’ participation in the CNH market included: ■ Specific investment needs of certain investors not involving offshore investments at present; ■ Perception of CNH as offering fewer windows of opportunity for making profits than other currencies; ■ Lack of a liquid secondary market in the RMB-denominated bond market (i.e. "Dim Sum" bonds).

The report concludes that to develop London into a sustainable international RMB business centre, the priority should be to replicate and scale up successes already achieved in attracting and servicing RMB users.

This can be achieved by: ■ Continuously marketing to potential clients, particularly corporates, and briefing them on the benefits and possibilities offered by using the RMB, so that an increasing number of firms can better understand the positive implications of adopting the RMB and start to do so; ■ Promptly improving services to accommodate new demands in the CNH market; ■ Promoting and growing bilateral trade with China by providing tailored and dedicated services to Small and Medium-sized Enterprises (SMEs) that are not used to international trade and/or not familiar with doing business with China.

London-based financial institutions have already displayed a strong commitment towards serving and further facilitating this increasing interest in the RMB. It is clear that London already has a strong starting point from which continued development will make a significant contribution to the RMB’s future emergence as a major international currency alongside the dollar and the euro.

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Economic Development Research Programme Review of 2012 Key Areas International Markets BRIC Currencies Trading in London December 2012 Special Interest Paper

Commissioned by the City of London Corporation and produced by the London School of Economics, this report explores the trading of BRIC (Brazil, Russia, India and China) currencies in the London foreign exchange (FX) market. With non-deliverable forwards (NDFs) accounting for the overwhelming majority of the forward volume in BRIC currencies, NDF volume in London for the BRIC currencies has increased by almost 70% between 2008 and 2012; dwarfing the 13% overall growth in FX volume in London during that period. Against this backdrop of growing opportunity, the report finds that London is well placed to continue its leading position in the NDF market, despite challenges such as upcoming regulatory changes.

London is currently the leading centre for FX trading in the world with a share of 40%. While NDFs (outright forward contracts in which counterparties settle the difference between the contracted NDF price and the contracted NDF fixing rate at an agree notional amount at maturity), make up only 2% of FX trading in London, they are prevalent in BRIC currencies where unrestricted trading is not possible due to the existence of strong controls imposed by the governing body. Given this context, trading in NDF contracts is expected to grow in line with the growth of the emerging BRIC economies.

The study’s key conclusions include: ■ Increased trading volume in BRIC currencies Trading volume in BRIC currencies has increased dramatically since 2008. The daily global volume for NDFs in the Brazilian real, the Indian rupee and the Chinese renminbi is more than USD 40bn, compared to global spot transactions of USD 30bn in 2010; ■ BRIC currencies in London NDF volume in BRICs has increased by almost 70% between April 2008 and April 2012, thus dwarfing the overall growth in FX volume in London of 13% during the same period;

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■ Regulation and NDFs NDFs are OTC (over the counter) products and subject to minimal regulation. This is expected to change given the fallout from the financial crisis and a general trend towards more oversight. The main change that is expected to be implemented before the end of 2013 concerns central clearing and additional reporting requirements. While asset managers and hedge funds will be subject to the additional regulation, corporate clients which use FX instruments for commercial hedging purposes will be exempt. This will undoubtedly result in an increase in operational and trading costs for banks and clients; ■ Rising costs Costs are also expected to rise because of new capital standards outlined in Basel III. The extent of the additional costs will most likely turn out to be the main determinant of how the NDF market will evolve as clients may seek out more cost efficient alternatives. In addition, market liquidity may suffer, as new clearing and reporting requirements will limit the willingness of dealers to provide competitive prices for less liquid products.

London and the future of the NDF market The report concludes that there is wide consensus among the surveyed banks that London is well prepared to tackle the challenges that lie ahead in the NDF market and specifically in relation to the BRIC currencies. The working day in London overlaps with all BRIC countries. In addition, London boasts a prime position as an international financial centre with a reliable legal system and access to highly qualified talent. It is therefore expected that London will maintain or even extend its lead in the FX market in general and the NDF market in particular. Moreover, even if the BRIC currencies are eventually moving to a more flexible regime, London is not expected to lose business as it will be the natural market for trading in deliverable FX forwards.

Economic Development Research Programme Review of 2012 Key Areas

Corporate Responsibility and Community

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Economic Development Research Programme Review of 2012 Key Areas Corporate Responsibility and Community The Public Health and Primary Healthcare Needs of City Workers May 2012 Research Report

This report, commissioned by the City of London Corporation in conjunction with NHS North East London and the City, and produced by the Public Health Action Support Team CIC (PHAST), looks at the current and future public health and primary healthcare needs of City workers, with a view to informing the future provision of healthcare in the City. Based on research undertaken between January and March 2012, the findings show there is an unmet demand for healthcare services in the City, particularly in the areas of NHS GP services and NHS walk-in services.

The study involved interviewing over 2,500 non-resident City of London workers, together with key stakeholders such as current NHS and private health providers, pharmacies and employers, with a focus on those responsible for occupational health. The research focused on three key issues: ■ The implications of proposals to change GP boundaries; ■ The principle that NHS funding for key health services is generally based on where individuals live rather than where they work; ■ The lack of any existing data around the health status of the City’s working population.

City workers have limited capacity to visit any health care provider While NHS services for the City of London are suited to a resident population of 11,700, the daytime working population of 359,600 means the City has the highest daytime population density of any London borough.

The key findings include: ■ Many City workers have very limited capacity to visit any healthcare provider unless they take time off work, given their long working hours and limited NHS service options near to work (particularly primary care);

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■ The private sector (using private care services) has partially filled the gap in NHS services located close to work in the City; ■ The greatest demand from both the City workers and the stakeholders interviewed was for more GP services, NHS dentists, walk-in centres and minor injuries units; ■ The greatest demand for additional services, which address more sensitive health issues, was for support with stress, anxiety and depression. The latter finding is consistent with the business stakeholder interviews which reported stress as a major reason for absence from work; ■ The survey finds that 18.5% of all workers report stress for several months of the year, 14.2% smoke regularly and 27.9% “binge drink” (i.e. drink more than twice the recommended levels of alcohol on a single occasion); ■ One third of survey respondents would choose to register near to work rather than near to home, and 82% would choose dual registration (with GPs close to both work and home) if this option was to become available; ■ Many respondents said they did not use the available NHS facilities within the City of London because there was no information on their availability. Those that did (for example, users of the Minor Injuries Unit at Barts) reported high satisfaction levels.

The paper concludes that healthcare services should be designed to address the main needs identified by this research. In addition, the findings suggest that any new services would need to be well signposted; be geographically flexible, for example located close to major transport hubs; have opening hours that include early mornings, lunchtimes and evenings; and have short waiting times or robust appointment systems.

Economic Development Research Programme Review of 2012

Research Events Utilities Regulation and Urban Development, Roundtable A breakfast roundtable was held on 17th January 2012 to discuss the draft findings of research looking at the experience of developers in securing an electricity connection for new developments in central London. The research, Delivering Power: The Future of Electricity Regulation in London's Central Business District, was published in March 2012 and carried out by Stephen Jones Associates and South East Economics on behalf of the City of London Corporation, London First and the City Property Association.

Annual Research Reception On 16th April 2012, our Chairman of Policy and Resources welcomed our research associates, suppliers and partner organisations to this annual networking reception for the research community, which offers an opportunity to thank our colleagues and working partners and to discuss areas of mutual interest.

Capacity Trading, Roundtable A roundtable discussion on 25th June 2012 was hosted by our Director of Economic Development to explore development in capacity trading, building on the discussions around our report Capacity, Trade and Credit: Emerging Architectures for Commerce and Money published in December 2011.

Institutional Investment in London’s Market Rented Housing, Roundtable On 1st November 2012, our Chairman of Policy and Resources chaired a roundtable discussion in conjunction with Centre for London, looking at institutional investment in the market rented housing sector in London. Invitees included housing associations, developers, institutional investors, academics and local authorities.

Standardisation of the Capacity Trading Industry, Roundtable On 21st November 2012, BSI, in conjunction with the City of London Corporation, hosted a workshop to discuss the potential of standardising the capacity trading industry. It followed the publication in December 2011 of the report, Capacity, Trade and Credit: Emerging Architectures for Commerce and Money and a subsequent capacity trading roundtable in June 2012 where the feasibility for standardisation was discussed and at which BSI was present.

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Economic Development Research Programme Review of 2012

City of London Statistics London’s economy continues to show signs of a slow but stable recovery, with output estimated to have risen by 2.2% in 2011. A modest rise in output of 0.2% is expected by the end of 2012, as uncertainty around the Eurozone crisis has restricted both private sector investment and consumer spending, with an increase in growth projected for 2013.

Recovery has been particularly evident in London’s labour market, with employment forecasted to expand by 2.6% by the end of 2012 and remain stable throughout 2013, meaning that London’s total employment is likely to have returned to pre-recession levels.

Table 1: Gross value added (GVA) and employment growth in London, 2008-2013

2008 2009 2010 2011 2012 2013

GVA (basic prices, %/year) 0.8 -3.0 0.9 2.2 0.2 1.5

Employment (%/year) 2.3 -2.7 0.4 2.3 2.6 0.0

At the sectoral level, London’s growth in 2011 has been driven by the expansion of business services, in particular professional, scientific and technical activities, and administrative and support service activities, with growth of 3% and 2.2% in GVA respectively. Financial and business services are forecasted to contract slightly in 2012; however these sectors should return to modest growth in 2013 as international trade and investment, particularly within the Eurozone, drive global economic recovery, playing to London’s strengths as a financial and professional services centre.

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Source: Source: ONS, Oxford Economics, 2012

Economic Development Research Programme Review of 2012 City of London Statistics

Continued expansion is projected for London’s accommodation and food service activities, and information and communication sectors throughout 2011-13, providing the services necessary to support an international business centre.

Table 2: London’s GVA growth by sector (%/year), 2011-13

Financial and business services Financial and insurance activities Real estate activities Professional, scientific and technical activities Administrative and support service activities Public services Wholesale and retail trade Accommodation and food service activities Information and communication Other service activities Manufacturing Construction Total

2011 0.9 0.0 -1.2 3.0 2.2 3.4 3.4 3.3 2.7 2.7 4.5 5.9 2.2

2012 -0.3 -1.3 0.7 -0.3 2.4 0.8 -0.1 2.6 2.5 0.7 -1.8 -1.7 0.2

2013 2.4 1.2 2.8 3.2 4.3 -0.5 -0.3 0.1 2.2 2.0 0.3 1.5 1.5

Source: ONS, Oxford Economics, 2012

The changing composition of London’s economy is further reflected in the employment market, with business services accounting for almost half of newly created jobs in 2012 and sizeable gains in the construction and trade and hospitality industries. In 2013, employment growth is set to slowdown; however continued growth in business services is projected to offset stagnation in other sectors, such as financial services, trade and public administration.

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Economic Development Research Programme Review of 2012 City of London Statistics

Table 3: Change in London’s employment by sector, 2011-13

Sector Primary industries Manufacturing Construction Wholesale and retail trade Transportation and storage Accommodation and food services Information and communication Financial and insurance activities Real estate activities Professional, scientific & technical activities Administrative and support services Public administration and defence Health and education Other services Total employment

Change 2011-12 No. % 100 2.3 1,200 0.9 12,000 4.2 9,800 1.7 7,800 3.0 21,500 6.3 13,600 3.7 6,100 1.7 4,200 4.8 36,800 6.3 18,300 3.8 -4,500 -1.9 -9,300 -1.1 8,500 2.4 126,200 2.6

Change 2012-13 No. % -200 -4.5 -2,100 -1.5 4,600 1.6 -9,900 -1.7 1,700 0.6 -4,400 -1.2 3,700 1.0 0 0.0 1,400 1.5 10,400 1.7 7,800 1.6 -6,200 -2.7 -3,400 -0.4 -1,300 -0.4 2,000 0.0

Source: ONS, Oxford Economics, 2012

Location quotient analysis on London’s employment reveals that when comparing the ‘City’ (defined here as the City of London, Tower Hamlets and Westminster) to ‘Central London’ (Camden, Hackney, Islington, Kensington and Chelsea, Lambeth and Southwark), the City has retained its traditionally high concentration of professional and financial services activity, such as legal, accounting, management and head office activities. By contrast, ‘creative’ industries have a strong presence in Central London, in particular market research, design, design and architecture, suggesting business services sectors cluster together to benefit from network effects.

Figure 1: Location quotient analysis of London’s employment by sector (base =100), 2011 Market research and polling Specialised design activities Research and development Architectual and engineering Advertising Other professional activities Accounting, auditing and tax Management and consultancy Legal activities Activities of head offices 0 28

50

100

150

200

250

Source: ONS, Oxford Economics, 2012

Economic Development Research Programme Review of 2012 City of London Statistics

Looking ahead to 2015, London’s economy and workforce is projected to become more focused on business services, with strong employment growth in information and communications, professional services and administrative services. Government spending cuts mean that public administration, and health and education will no longer be sources of employment growth. Job creation in construction is likely to be weaker in light of tighter access to finance, as well as restricted availability of land, however the sustained projected growth in this sector is indicative of economic recovery in London.

Figure 2: Change in employment by sector, 2012-15 Public administration and defence Health and education Manufacturing Primary industries Financial and insurance activities Wholesale and retail trade Real estate activities Accommodation and food services Other services Transport and storage Construction Information and communication Administrative and support services Professional, scientific and technical services -20,000-10,000

0

10,000 20,000 30,000 40,000

Source: ONS, Oxford Economics, 2012

While job creation in financial services is projected to slow down over the period to 2015, the financial services industry remains a key value generator for the City’s economy, generating 63.7% of the City of London’s gross value added (GVA) in 2011 and 40% of jobs. The sector remains important for the wider UK economy, generating 8.9% of the UK’s GVA in 2011 and employing approximately 1.1m people or 3.8% of the UK’s total workforce.

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Economic Development Research Programme Review of 2012

Research Periodicals City News Monitor This weekly service provides information, and electronic links to information and news relating to the City economy and economic development research. Information provided as part of this service includes summaries of information in the public domain and electronic links to publications produced by the City of London, and/or third parties.

To sign up to receive City News Monitor please email economic.research@cityoflondon.gov.uk

The Economic Outlook for London Produced biannually by Oxford Economics, this publication looks at the forecasts for London’s GDP growth, labour market and housing market. The latest edition shows a return to stability for London’s economy, with output estimated to have grown by 2.2% in 2011, followed by a slowdown in growth in 2012 to 0.2%, as investors and households remain cautious and limit spending. London’s employment market reflects the forecasted trends in output, with employment returning to pre-recession level by 2012 after strong labour market growth in 2011 and 2012, and expected to remain flat in 2013. Relative stability in employment, together with the continued interest of foreign buyers in London’s prime real estate, has prevented London’s property market suffering a double dip in 2011, and prices are expected to have grown by 2% in 2012. Reflecting slowdown in growth and employment, house prices are projected to fall in 2013 and 2014, but pick up in the longer term.

At the sectoral level, London’s growth in output has been driven by professional and technical activities, construction, and information and communications.

Expansion of these industries has also been reflected in London’s labour market, with business services accounting for over half of newly created jobs in 2012.

The latest edition of The Economic Outlook features an article comparing employment and productivity levels of different geographical areas within London, and analyses the sectoral make-up of these areas. With a high concentration of fast-growing business services and financial services, London City (the City of London, Tower Hamlets and Westminster) has lower unemployment and higher productivity than the rest of London. The ‘creative’ industries, such as architecture, advertising and design tend to cluster in Central London (Camden, Hackney, Islington, Kensington and Chelsea, Lambeth and Southwark) while Greater London has a more diverse economy, with trade, transportation, and primary and secondary sectors making a larger economic contribution.

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Economic Development Research Programme Review of 2012

Contact Us The Research Team Laura Davison Head of Research +44 (0) 20 7332 3610 Fiona Morrill Economic Research Officer +44 (0) 20 332 3611 Amy Nash Research Officer +44 (0) 20 7332 3321 Sabrina Basran Research Officer +44 (0) 20 7332 3626 Isabelle Almeida Marketing & Communications Manager +44 (0) 20 7332 3614 Sahsine Suleyman Marketing & Research Assistant +44 (0) 20 7332 3587

Email economic.research@cityoflondon.gov.uk

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Economic Development Research Programme Review of 2012

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City of London Economic Development Research Programme Review of 2012

City of London Economic Development Research Programme Review of 2012

Independent in-depth research Accurate, timely and well-focused Informing evidence-based policy making Understanding the City economy

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