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.

 
 
 
 

Older people need better homes – but then, so does everybody else

Colne, Lancashire. Image: Getty.

Towards the end of last year, I started as an associate director at the Centre for Ageing Better, working particularly on our goal around safe and accessible homes. Before I arrived, Ageing Better had established some ambitious goals for this work: by 2030, we want the number of homes classed as decent to increase by a million, and by the same date to ensure that at least half of all new homes are built to be fully accessible.

We’ve all heard the statistics about the huge growth in the number of households headed by someone over 65, and the exponential growth in the number of households of people over 85. Frustratingly, this is often presented as a problem to be solved rather than a major success story of post war social and health policy. Older people, like everyone else, have ambitions for the future, opportunities to make a full contribution to their communities and to continue to work in fulfilling jobs.

It is also essential that older people, again like everyone else, should live in decent and accessible homes. In the last 50 years we have made real progress in improving the quality of our homes, but we still have a lot to do. Our new research shows that over 4 million homes across England fail to meet the government’s basic standards of decency. And a higher proportion of older people live in these homes than the population more generally, with over a million people over the age of 55 living in conditions that pose a risk to their health or safety.

It shouldn’t be too difficult to ensure all our homes meet a decent standard. A small number of homes require major and expensive remedial work, but the overwhelming majority need less than £3,000 to hit the mark. We know how to do it. We now need the political will to make it a priority. Apart from the benefits to the people living in the homes, investment of this kind is great for the economy, especially when so many of our skilled tradespeople are older. Imagine if they were part of training young people to learn these skills.


At a recent staff away day, we explored where we would ideally want to live in our later lives. This was not a stretch for me, although for some of our younger colleagues it is a long way into the future.

The point at which the conversation really took off for me was when we moved away from government definitions of decency and accessibility and began to explore the principles of what great homes for older people would be like. We agreed they needed light and space (by which we meant real space – our national obsession with number of bedrooms as opposed to space has led to us building the smallest new homes in Europe).

We agreed, too, that they needed to be as flexible as possible so that the space could be used differently as our needs change. We thought access to safe outdoor space was essential and that the homes should be digitally connected and in places that maximise the potential for social connection.

Of course, it took us just a few seconds to realise that this is true for virtually everyone. As a nation we have been dismal at moving away from three-bed boxes to thinking differently about what our homes should look like. In a world of technology and factory building, and as we build the new generation of homes we desperately need, we have a real chance to be bold.

Great, flexible homes with light and space, in the places where people want to live. Surely it’s not too much to ask?

David Orr is associate director – homes at the Centre for Ageing Better.