Twelve months after the referendum in which the UK voted to leave the European Union, it is still too early to predict with any degree of certainty what the impact will be for London, especially since the June 2017 general election appears to have re-opened debates about negotiating remit and red lines.
In some respects, the capital’s highly-globalised economy is less exposed to the risks of Brexit than the rest of the UK, and more ready to grasp the opportunities that might arise: London operates in an economic domain that includes New York, Hong Kong and Kuala Lumpur, as well as Paris, Vienna and Madrid.
From other perspectives, London is far more exposed: our universities, hotels, restaurants, offices and building sites are powered by students and workers from across the EU – to a far greater extent than the rest of the country. And our global city service sectors need urgent clarity on how access to the Single Market will be regulated.
The risks to London’s economy, from the loss of these workers and students, and access to the European Single Market, are considerable. 70,000 jobs could be lost in financial and related services alone. This would be a significant blow for financial services, but not a mortal one – highly-specialised clusters like financial services and other world city functions are ‘sticky’, and London would still retain the critical mass to be one of the major global centres for financial services. Furthermore, the issues of access to high-skilled workers and regulatory access to the Single Market are clearly issues that are high up the UK Government’s agenda as it prepares to begin Brexit negotiations in earnest.
But global city status is about more than highly specialised business services. London’s pre-eminence is not just a product of legal frameworks, access to markets and ease of business operation. It is founded on the city’s strength as a cultural hub, as a centre for education, as a beacon to young people from across the world. Some of the international students who come to London today will be the global decision-makers of 2040; the young musicians and artists who make ends meet working in restaurants and hotels may be the superstars of the future. These people are the foundations of future success, alongside the thousands of EU nationals who work as delivery drivers, chefs, construction workers and care assistants. London’s success rests on their work as well as on the highly-prized global talent that fills boardrooms, design studios and trading floors.
London faces both short- and long-term risks. Falling out of the Single Market without a comprehensive trade deal or adequate transitional arrangements would be catastrophic for many London businesses, as would the sudden loss of EU workers. But the longer-term risk is more subtle but no less serious – the erosion of the creative edge, liveability and variety that distinguishes London from so many other cities that can offer well-equipped offices and international airports.
London needs to remain open, and also needs to become more affordable and liveable. It needs to continue to attract students from across the world, and to speak out against attempts to hit arbitrary immigration targets by cutting their numbers: beyond their financial contribution, many overseas students become life-long ambassadors for London. And it needs to balance a renewed effort to alleviate poverty and unemployment, with an understanding of the scale of labour demanded by sectors like construction, hotels and catering.
Many of the keys to continuing success are in London’s hands. The Mayor and boroughs may not be able to conclude trade agreements or set regulatory frameworks, but they can make London more open and affordable to live and travel in, and can augment the soft power that is rooted in education and culture. The Mayor has clearly identified affordability of housing and transport, and the importance of the cultural sector, as priorities.
As the new government plunges into Brexit negotiations, the Mayor should take a more prominent role pressing London’s case. He should do so in alliance with newly-elected metro mayors and other city leaders, who have a common interest in openness to trade and migration, large student populations, and growing strength in knowledge-based service sectors. In particular – each of the main cities in the UK alongside London, from Manchester and Glasgow, to Bristol and Newcastle, has an airport that is vital for regional trade and tourism. Securing continued membership of the European Common Aviation Area should be an early priority for the city leaders in the Brexit negotiations.
London is a powerful global city, with acknowledged strengths in higher education, finance, business services, architecture and other service sectors, and should speak with a powerful voice. The continuing economic success of these sectors is not just important to the capital, but to the nation as a whole: London contributes almost a third of economic taxes in the UK. It may be that resentment of ‘London’ was a factor in the EU referendum, but the neither capital nor country can afford for London to decline economically or to retreat from international engagement.
The Mayor should build on the ‘London is Open’ campaign to maintain London’s global presence, while at the same time pushing for the devolution of tax-raising and service delivery powers that will enable the capital and its people to thrive, alongside the other conurbations that have just elected their own mayors. Our report argues that the urgency of Brexit strengthens the case for a substantial package of devolution, which acknowledges that London’s needs are different from the rest of the UK’s, and that systems that try to work for every region tend to work well for none.
We have argued that London needs to be able to ensure that it can access the talent it needs, through a regionally managed migration integrated with devolved funding and responsibility for post-school training, and employment programmes. We have also argued that London needs to take control of its own property tax regime, to help damp down the irrational exuberance of the London property market, to generate funding for housing and infrastructure, and to create incentives for more efficient use of land and buildings.
Summary of recommendations
- The Mayor of London should join with the mayors and leaders of the UK’s major cities and combined authorities to form a Convention of City Leaders on Brexit, and the next Government should actively engage with these cities, to ensure that their needs are properly addressed in negotiations and further devolution.
- The Government should commit to devolving responsibility for early years education and childcare to London and other cities, and give them greater control over apprenticeships and other skills funding.
- The Government should introduce a regionally-managed migration system, with different regions able to define their skills needs and to agree work permit quotas with Government.
- In London’s case, one-year ‘City Maker Visas’ would allow European citizens to visit the city to look for employment or start-up opportunities, with fast-track work permits for those who are successful.
- The Government should also extend working holiday visas to the EU, allowing easy access for young people for two years, with fast tracked work permit applications permitted at the end of that period.
- Open access to higher education across the EU should be maintained, with student numbers removed from net migration targets, and a new post-study visa should be introduced in London to enable graduates to stay on to work.
- The Government should confirm that regulatory frameworks for services will be prioritised in discussions of future trade relationships with the EU.
- The Government should work with the EU to clarify transitional trade arrangements as soon as possible after the election, with EFTA membership representing one ‘ready-packaged’ option.
- The next Government should devolve property taxes to the Mayor of London, and enable him to experiment with reforms, from updating council tax ratios to exploring the impact of land value taxation in London.
Centre for London will continue to explore these issues, and plans to undertake further work on London’s role as a headquarters city, on export promotion, regional work permits and skills, on building more homes in London, and on the scope for radical reform to London’s local taxes.
London has been pursuing an upwards trajectory since the early 1990s, but its growth has not been painless. Brexit offers many threats, and perhaps some less clearly visible opportunities; London’s resilience and ingenuity will help it to address the former and take advantage of the latter. But the city needs to be open, liveable and affordable to do so. The Mayor of London, London’s boroughs and businesses should argue strongly for the powers and resources that will sustain London’s place in the world.
 McGough L and Piazza G, 10 years of tax: how cities contributed to the national exchequer from 2004/05 to 2014/15. Centre for Cities, 2016.