Chapter 2: How do headquarters affect cities?

Head Office: London’s rise and future as a corporate centre

Chapter 2: How do headquarters affect cities?

Head office functions are rarely singled out when firms think about their local economic impact – partly because the functions vary greatly from one business to another, so are not easily distinguished from other areas of activity. However, as this chapter outlines, HQ functions have significant and particular impacts – not all positive – on cities.

The perceived value of HQ investments is reflected in US cities’ willingness to subsidise multinational companies to attract head offices within their jurisdiction. One notable example was Amazon’s HQ2 competition, a rare public bidding process that revealed the vast incentives (worth up to $7.5 billion) urban governments across the US were willing to offer Amazon in order to host its second HQ. Of course, the sheer growth of Amazon and the related functions that come with its head office make this an exceptional case. But the case study is interesting in the light it shone on competing offers; in raising the question of whether the economic and social returns of attracting corporate headquarters were worth the subsidy; and in prompting debate about how negative impacts should be mitigated.

This chapter summarises evidence on the impacts of corporate headquarters on city economies like London.

Foreign direct investment

Head office functions and professional services have been a major source of inward investment for London. 10 per cent of foreign direct investment (FDI) projects in London between 2003 and early 2019 were for headquarters projects, and a further 30 per cent were for “business services”, most of which serve or are related to HQ functions. We do not yet fully understand how these investments create economic benefits for other parts of the country, but London & Partners have found that 12 per cent of FDI projects (not HQ-specific) in the rest of the UK were made after a first investment was made in London. 71

Job creators

Headquarter employment can create lots of non-HQ related jobs. US cities vying for HQ investments argue that HQ jobs are “multiplier” jobs for city economies. This is often the case within firms: however small strategic decision-making teams are, they will usually work closely with support staff and are likely to locate with them. It is also the case outside the company, as highly paid employees indirectly stimulate job creation in other sectors through their consumption – for instance, it is often said that London’s restaurant boom owes much to the increase in the number of high earning Londoners. Amazon’s own estimates say they created 1.3 jobs indirectly in Seattle for each direct Amazon hire (see Appendix 1), and Economist Enrico Moretti cites multipliers of between two and four indirect jobs per HQ job created, depending on the sector and local unemployment rates. 72

The value of agglomeration

Headcount is not the whole story. HQ-related jobs are also “good jobs” for city economies: because other companies seek to interact with decision makers in the HQ, but also because HQ jobs are often highly paid, high-value-added activities, which raise productivity and attract people to the city who at some point will move on to another firm or create their own. So having a pool of “strategic” and “entrepreneurial” talent in London ultimately supports and fosters a whole ecosystem of businesses – with firms able to hire more easily, and also benefiting from less tangible “spillover” benefits. Whether multinationals incentivise or stifle innovation in their sector is a hotly debated issue and varies across sectors, but at a minimum HQs “anchor” business by creating demand throughout their value chains, and investment in related sectors. It is often said that London’s dominance in financial services (including asset management) means that there is venture capital available to startups and scaleups, making London a great place to launch a new business. Venture capital investment figures confirm this. 73

Charitable giving

Corporate headquarters are also drivers of charitable donations. Enrico Moretti and colleagues from the University of California, Berkeley studied the relationship between HQ implantation and giving over a 15 year period in 147 US cities. Their analysis suggests that “attracting or retaining the headquarters of an average firm yields approximately $10 million per year in contributions to local non-profits, while the headquarters of a larger firm (one ranked among the top 1000 in total market value) yields about $25 million per year.” They also found that charitable giving increased when firms headquartered in a city gained market value: “Each $1000 increase in the market value of the firms headquartered in a city yields 70 cents or more to local non-profits.” Interestingly, most of the increase in charitable giving arose from individuals rather than corporate giving: this suggests that successful companies didn’t necessarily give more generously to the city where they were headquartered, but their employees tended to do so.

Visitor economy

While headquarters may be slimmer today in terms of staff numbers, they continue to draw visitors in great numbers. Strategic functions thrive on face-to-face contact, and headquarters are the natural place of convening: they host client, board and team meetings, as well as internal and public-facing events. Each attracts business visits, often from overseas. The head of a large investment bank told us:

The extra value of an HQ is the visitor economy. It is a massive multiplier on the headcount. I’d be surprised if on a quiet day we have less than 30 visitors a day travelling in from abroad. Some days, it’s several hundreds.

Director, large investment bank

Corporate influence and soft power

Multinationals play an outsized role in the world economy. They account for only two per cent of the world’s jobs – but they own or orchestrate supply chains that account for over 50 per cent of world trade, make up 40 per cent of the value of the West’s stock markets, and own most of the world’s intellectual property. 74 Again, the impact of an HQ on a local economy does not merely derive from the headcount as such, but rather having the strategic decision makers located there – contributing to the city’s reputation and making it a key marketplace for service providers and competitors.

Tax revenue

Headquarters generate tax revenue for city and national government, including property taxes, income tax, and taxes on other sales, assets and profits. Those taxes that are tied to a location are easily measured – those that aren’t are much more complex to estimate, especially given that multinationals often have hundreds of legal entities, some based in tax havens. Some of this tax revenue is indirect, as workers are also consumers of taxed goods and services.

The “other side of the coin”

It is tempting to think that the cities and countries where multinational companies are headquartered have it all – the “good jobs”, the agglomeration benefits, the boost to corporate giving, and all the derived benefits highlighted above. But there is a growing perception that the HQ economy can be a mixed blessing – or even a curse.

The more longstanding criticism is overtax avoidance – that global companies don’t pay enough taxes on foreign profits. US estimates suggest multinational companies pay a tax rate of about 10 per cent on foreign profits, 75 though the EU is cracking down on member states that have struck bespoke tax deals with multinationals.

A second concern is the additional pressure on the cost of living. One of the campaigners’ rallying arguments against the proposed Amazon HQ in the Queens area of New York City was that it would result in an “onslaught” of high earners able to outbid residents with average incomes in the housing market. A study by US real estate website Zillow added some evidence to those fears: it forecast that some cities (Los Angeles, Denver) would see median rents rise twice as fast in the coming decade if Amazon were to pick them for their second HQ.7 76 That said, Zillow’s model suggested that the capacity of cities to accommodate a growth in headquarters employment varied greatly depending on their capacity to increase housing stock to respond to additional demand.

This argument against headquarters has mostly taken root in US cities so far, where it is strengthened by specific issues about public budgets being used to subsidise large private corporations rather than mitigate the costs associated with their growth, from congestion to inflation, especially in cities under-prepared to host. But it is not a feeling that London is immune to.

A third concern is about rising inequality. Pay growth has been greater at the top of the income scale – in 2014, Economist Thomas Piketty and colleagues found that the share of UK income going to the top one per cent and 0.1 per cent of taxpayers in the UK has increased since 1990, respectively from eight per cent to 10 per cent and from two per cent to four per cent. 77 Strategic corporate roles tend to be performed by senior executives, and in as much as HQs house a lot of employees on high incomes, they may be exacerbating this trend. Some argue that high income inequality can be detrimental to economic growth and to society if it is not properly managed. The OECD has published a short briefing on this issue. 78

Finally, HQs and related functions can have negative effects on local firms’ ability to recruit. In sectors where multinationals have enough market power to suck in local talent, the arrival of a “consolidated HQ” may create a skills deficit, if multinational corporations are able to outprice local firms on the labour market, starving them of the best talent. 79 This becomes a particular issue when skills provision or immigration policy is not responsive to sudden increases in the demand for specific skills.

Headquarters create investment and well-compensated jobs, but a lot more besides – visitors, tax revenue, donations, reputation. Agglomeration boosts the impact of HQs, as related industries coalesce and attract talent. Slimmer headquarters housing more high earners concentrate the impact of the HQ economy, meaning that attracting headquarters has become an even higher stakes game. This is certainly the case for technology multinationals, some of which have seen huge growth in sales and profits recently. 75 Of course, city scale matters here – a headquarters that would be a major “anchor” business in a mid-size city may be only one of many players in the London or New York economy. But policymakers should also be aware of the downsides of HQ investments, and the costs that may need to be mitigated – which in turn may call into question the value of using public funds to subsidise HQ investments.

  • 71 Not HQ specific. See London & Partners (2017). Understanding London+ FDI. Retrieved from:
  • 72 Moretti, E. (2012). The New Geography of Jobs. Boston: Houghton Mifflin Harcourt.
  • 73 Florida, R., & Citylab (2016, January 26). The Global Cities Where Tech Venture Capital Is Concentrated. The Atlantic. Retrieved from:
  • 74 The Economist (2017, January 28). The retreat of the global company. Retrieved from:
  • 75 The Economist, ibid.
  • 76 Casselman, B. (2018, April 25). What Amazon’s New Headquarters Could Mean for Rents. The New York Times. Retrieved from:
  • 77 McGuiness, F., & Harari, D. (2019). House of Commons Briefing Paper no.7484. Retrieved from:
  • 78 Keeley, B. (2015). How does income inequality affect our lives? in Income Inequality: The Gap between Rich and Poor. Paris: OECD Publishing.
  • 79 Interview, investment promotion agency account manager
  • 80 The Economist, ibid.