Why do businesses continue to cluster in London?

London! City of dreams! Image: Getty.

You don’t need to be an economist to know that businesses tend to cluster together in cities: 14th Century Ghent was famous for woollen cloth, 15th Century Florence for its fine arts and by the 16th Century Bordeaux was already a wine city. In the 17th Century, Delft was known for its pottery, while 18th Century Venice specialised in fun – opera, carnivals, fine food and ‘courtesans’ – and 19thcentury Manchester in cotton mills. In the 20th century, L.A. became the centre of the US film business, just as Detroit did for the car industry. 

As the understanding of the economics of urban agglomeration has spread, so city leaders and their economic advisers have come to see their job at least in part as preserving their city’s edge in one “cluster” or another or incubating new clusters.

This is a helpful way of thinking, but in the case of a global city like London it also has its limits. London is a teaming cluster of clusters. Yes, the city has particular strengths in creative industries, financial and business services, tourism and higher education, among other things. Each of these has its own particular set of opportunities and issues, and which demand particular attention from city leaders and policy makers.  But there are so many of these clusters in London, and they are so inter-connected, that it’s hard to make this a way of organising economic strategy.  

Last week Centre for London published a report that offers a different and perhaps more useful way of thinking about the capital’s economic specialism. The research looks at the role that headquarters play in the London economy. 

There are good reasons after all for any city to want to grow, attract and retain head offices. Headquarters create highly paid jobs and tax revenue and feed valuable professional and business service clusters. They attract a lot of business visitors. Bosses are less likely to move a headquarters to another city than they are a “second tier” function. Headquarters are “sticky”.  And headquarter functions, like strategy, governance, HR, comms and public affairs, are less vulnerable to automation than other business functions. 


Moreover, London’s headquarter economy has boomed. Between 2003 and 2018, London was the top ranked destination globally for foreign direct investment into head offices, measured by number of projects. The big multi-nationals have overwhelming chosen London as their European head offices. Employment in head office functions has grown faster than even fast growing and valuable sectors like accountancy and consultancy. Indeed, if London has a leading sector, it’s not financial, business or creative industries. It is headquarters. Headquarters are to London’s economy what steel-making was to Victorian Sheffield, or digital technology is to Silicon Valley. 

But the single most important factor in explaining the rise and rise of London as a headquarter city has been its ability to attract talent at every level of business – much of it from the EU.  In centuries past, businesses clustered together in cities because the goods needed in manufacture were cheaper in cities, and cities provided an accessible market for finished products. 

But the modern service industries in which London and other global cities specialise in don’t depend on raw goods or access to customers in the same way. They don’t rely heavily on raw goods and internet allows them to sell their services around the world.  What businesses are looking for in a head office destination is a good pool of highly skilled workers. As one property broker we spoke to put it, “Head office decisions are probably 90 per cent about people.” Finding a location that appeals to a modern skilled, and ultimately mobile workforce is therefore essential.  

Both the Conservative government and Jeremy Corbyn’s Labour party have prioritised preserving the free flow of goods in their approach to Brexit – in part because they are rightly worried about the damaging effect barriers to trade in goods would have in the UK’s poorer industrial heartlands.  But if we want to maintain London’s invaluable role as the world’s leading head office capital, we need to preserve the flow of talent as well.

Ben Rogers is director of the Centre for London.

 
 
 
 

Transport for London’s fare zones secretly go up to 15

Some of these stations are in zones 10 to 12. Ooooh. Image: TfL.

The British capital, as every true-blooded Londoner knows, is divided into six concentric zones, from zone 1 in the centre to zone 6 in the green belt-hugging outer suburbs.

These are officially fare zones, which Transport for London (TfL) uses to determine the cost of your tube or rail journey. Unofficially, though, they’ve sort of become more than that, and like postcodes double as a sort of status symbol, a marker of how London-y a district actually is.

If you’re the sort of Londoner who’s also interested in transport nerdery, or who has spent any time studying the tube map, you’ll probably know that there are three more zones on the fringes of the capital. These, numbered 7 to 9, are used to set and collect fares at non-London stations where the Oyster card still works. But they differ from the first six, in that they aren’t concentric rings, but random patches, reflecting not distance from London but pre-existing and faintly arbitrary fares. Thus it is that at some points (on the Overground to Cheshunt, say) trains leaving zone 6 will visit zone 7. But at others they jump to 8 (on the train to Dartford) or 9 (on TfL rail to Brentwood), or skip them altogether.

Anyway: it turns out that, although they’re keeping it fairly quiet, the zones don’t stop at 9 either. They go all the way up to 15.

So I learned this week from the hero who runs the South East Rail Group Twitter feed, when they (well, let’s be honest: he) tweeted me this:

The choice of numbers is quite odd in its way. Purfleet, a small Thames-side village in Essex, is not only barely a mile from the London border, it’s actually inside the M25. Yet it’s all the way out in the notional zone 10. What gives?

TfL’s Ticketing + Revenue Update is a surprisingly jazzy internal newsletter about, well, you can probably guess. The September/October 2018 edition, published on WhatDoTheyKnow.com following a freedom of information request, contains a helpful explanation of what’s going on. The expansion of the Oyster card system

“has seen [Pay As You Go fare] acceptance extended to Grays, Hertford East, Shenfield, Dartford and Swanley. These expansions have been identified by additional zones mainly for PAYG caping and charging purposes.

“Although these additional zones appear on our staff PAYG map, they are no generally advertised to customers, as there is the risk of potentially confusing users or leading them to think that these ones function in exactly the same way as Zones 1-6.”


Fair enough: maps should make life less, not more, confusing, so labelling Shenfield et al. as “special fares apply” rather than zone whatever makes some sense. But why don’t these outer zone fares work the same way as the proper London ones?

“One of the reasons that the fare structure becomes much more complicated when you travel to stations beyond the Zone 6 boundary is that the various Train Operating Companies (TOCs) are responsible for setting the fares to and from their stations outside London. This means that they do not have to follow the standard TfL zonal fares and can mean that stations that are notionally indicated as being in the same fare zone for capping purposes may actually have very different charges for journeys to/from London."

In other words, these fares have been designed to fit in with pre-existing TOC charges. Greater Anglia would get a bit miffed if TfL unilaterally decided that Shenfield was zone 8, thus costing the TOC a whole pile of revenue. So it gets a higher, largely notional fare zone to reflect fares. It’s a mess. No wonder TfL doesn't tell us about them.

These “ghost zones”, as the South East Rail Group terms them, will actually be extending yet further. Zone 15 is reserved for some of the western-most Elizabeth line stations out to Reading, when that finally joins the system. Although whether the residents of zone 12 will one day follow in the venerable London tradition of looking down on the residents of zones 13-15 remains to be seen.

Jonn Elledge was the founding editor of CityMetric. He is on Twitter as @jonnelledge and on Facebook as JonnElledgeWrites.