Chapter 5: Implications

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

Chapter 5: Implications

London’s position as an ‘HQ City’ is impressive. It is repeatedly ranked one of the most attractive cities for HQ investment in the world, and multinationals have overwhelmingly chosen London as their European HQ. That said, the nature of corporate HQs is changing, and so are the types of sectors interested in London. The ‘consolidated’ HQ model pursued by major international tech companies means that capturing an HQ brings a large number of high-skilled, well paid jobs to a city. But even the ‘slimlined’ head office, home to the bare minimum of decision-makers (and increasingly becoming the norm for modern HQs), still brings huge economic and agglomeration benefits, not to mention the symbolic value of a city’s competitiveness. Being an ‘HQ City’ continues to have huge value for a global city like London.

However, there are causes for concern. The loss of European regulators, such as the European Medicines Agency and European Banking Authority, represents the most visible and non-negotiable loss of some HQ activity brought about by the UK’s vote to leave the European Union. Beyond the direct loss of jobs in London, new HQs will likely attract some of the public affairs activities of financial service and pharmaceutical firms.

And regulatory uncertainty means that businesses – and not just in financial services – are cautious about committing their futures to London. Even if HQs are staying put, new strategic corporate functions may move elsewhere. However, it is hard to quantify the scale of opportunities and potential investments that are being missed.

Perceptions of the UK’s attractiveness as a destination for FDI have declined amongst investors, who expect a further decline over the coming years. 117 Whilst London appears to be managing to keep a global reputation separate from that of its nation state, there is a clear risk that the city’s outward-looking image is being damaged – and previous Centre for London research has highlighted the perils of London’s divergence from the rest of the UK. Alongside immigration rules, global reputation affects a city’s ability to attract talented people too: London’s agglomeration of businesses and services is dependent upon its ability to do this.

Warning signs

The outcome of the 2016 EU Referendum has not to date led to anything like the exodus of HQs, nor of jobs, predicted by some – although, of course, the United Kingdom is yet to leave the EU at the time of writing. And a sudden exodus of corporate HQs from London to a rival European city is extremely unlikely; corporate inertia plays a significant role in HQ location decisions, and global HQs move country extremely rarely. If London’s dominance of multinational corporation HQs were to decline, however, it would more likely be a much more gradual, subtle process, comprising a gradual loss of jobs and even some HQs, alongside the ‘missed opportunities’ of HQs and global strategic functions that never came to the UK in the first place.

Policymakers at a city and national level concerned with maintaining London’s HQ economy should monitor the city’s progress as closely as possible, in order to act in a timely and appropriate fashion should it become clear that the city’s offer is on the decline. If London’s position as an ‘HQ City’ were to start to weaken, what signs should policymakers be looking out for?

  • A decline in the opening of new HQs in London – whether in total number or the city’s share of European, EMEA or global HQs. This could happen because new and scaling company HQs increasingly pick other cities with a more attractive offer.
  • A decline in overall head office employment would be a warning sign that should be attributed higher priority, as whilst HQs have often been ‘hollowing out’, employment numbers have so far been rising in London. While the impact of HQs extends beyond job-creation, job numbers are a more significant indicator of the strength of an ‘HQ City’ than the location of a brass plaque – although the latter can
    of course play a role in facilitating the former.
  • A long-term decrease in the number of business visits to London would also be a useful signal for the weakening of the HQ economy.

Monitoring London’s position is also equally important in helping to avoid over reaction. HQ relocation stories are not only opaque, and fuelled by gossip and rumour, but can in some cases be actively used by businesses to try and leverage access to decision-makers, or gain favourable policy decisions. It is vital that local and national decision-makers are as well informed as possible, to ensure that London avoids both over-reaction and complacency.

Sustaining strength

The strategic priorities for maintaining London’s position can be summarised as:

  • Sustaining London’s open, welcoming and international reputation for business.
  • Matching this reputation with practical openness to immigration at all skill levels.
  • Dealing with London’s affordability pressures – and particularly in the area of housing.
  • Maintaining and improving London’s existing infrastructure (digital and physical), as well as its quality of life and cultural offer.
  • Improving skills provision for Londoners in the longer term.

These priorities are long-term and complex – but small steps can also be taken to sustain and signal London’s welcoming reputation to business. One example is extending the use of ePassport gates to a greater number of international visitors to the UK, announced in Autumn 2018. From summer 2019 nationals from the United States, Canada, Australia, New Zealand, Japan, Singapore and South Korea will have access to ePassport gates, until now reserved for UK, European Economic Area or Swiss nationals. The government expects that this change will reduce waiting times at the UK border and improve passenger experience for over 6 million international visitors coming into the UK. 118

Heathrow Airport’s CEO, John Holland-Kaye said:

We welcome the government’s announcement that passengers from more countries will be able to use ePassport gates at Heathrow. ePassport gates offer a world-class immigration process and demonstrate that Britain is open for business, whilst keeping Britain’s border secure.

Roles and responsibilities

Few of these objectives can be achieved overnight, or by one agency acting alone. As one management consultant put it, ‘a concerted effort between government, industry and regulators’ is needed to ensure that London retains its position as first choice for HQs, FDI and for business in general. “We need to act offensively, not just defensively… The whole package needs to get better every single year if we want to stay competitive.” 119

However there are three main areas for action that appeared to be particularly pressing during the course of this project.

1. Sustain London’s reputation for openness

The Mayor of London should continue to project an international image that welcomes overseas business investment and migration. London government should also continue to lobby for an immigration policy that supports London’s HQ economy alongside other sectors, and should seek more regional control of immigration policy if this cannot be achieved through national policy.

Another priority for London and national government will be to work together to spearhead improvements in skills provision and education for Londoners, particularly in the area of digital literacy. Universities also play a key role in talent attraction and retention.

National government should preserve the UK’s business climate, providing as stable and predictable a tax environment as possible; ensuring that visas are as easy as possible to obtain, at all skill levels (as low skilled jobs support London’s vibrancy and attractiveness as a place to live just as high skilled jobs fuel the HQ economy more directly); and maintaining the UK’s business friendly climate and labour laws, described by several interviewees as being a ‘halfway house’ between US and mainland Europe and a major asset to setting up an HQ in the UK.

2. Strengthen and coordinate the promotion of London as an HQ city, while raising ambitions for UK spinoffs

With a shift in perceptions of London’s attractiveness highly possible, depending upon the outcome of the Brexit negotiations, investment promotion agencies such as London & Partners will have an important role to play in ensuring the city’s reputation and attractiveness to businesses is maintained. To one interviewee, promoting London for investment is much harder work with Brexit: “We definitely get asked a lot more questions”. And competition is intense: there are many investment agencies active in London, working
on behalf of other countries or foreign cities.

Promotion and partnership

As implied by London & Partners’ name, investment promotion needs high-level political and corporate leadership. Together, London’s champions should continue to promote London’s offer to businesses of all sizes: “It needs to be shouted about, and shouted about by the right people.” 120

London & Partners should also seek to work better with private sector partners. The real estate agents, developers, and providers of professional services we interviewed for this report tend to be contacted first by corporations, before they talk to London & Partners. One interviewee told us:

Every investor needs an accountant, lawyer, bank and maybe a recruitment firm. There is still a lot of mistrust between the sides, ie the private sector does not see the value of involving an investment promotion agency if they can help it. The public sector needs to be easier to work with. 121

And developers have an interest in filling their developments with the world’s best companies.

Businesses should work more closely with city government to ensure that the HQ economy’s needs are understood; as well as London’s relative strengths and weaknesses for small and scaling companies. This would include proactively guiding the public sector as to their future skills, space and business climate needs.

London & Partners should continue to provide support to businesses that consider setting up strategic teams in London. They may also have to grow their teams dedicated to helping retain talent, on issues such as visas and extensions.

London-UK coordination

London’s status as a thriving ‘HQ City’ benefits the entire country. London competes for regional head offices with Paris, Amsterdam, Dublin and Frankfurt – not Preston, Aberdeen, Derby and Felixstowe. London- headquartered businesses are responsible for 1.9 million UK jobs outside of the capital, or 5.8 per cent of non-London jobs in Britain. 122

The government should help to promote its capital to the rest of the world, working with London & Partners to champion London’s ‘HQ City’ role as a strategic asset;
More must be done to promote and retain UK regional ‘spin-off’ investment from companies that have invested for companies that have invested in London HQ. The government should work to increase investment in the rest of the country by businesses headquartered in London. Ensuring that the opportunities for further inward investment and growth generated by HQs are captured by other UK regions, rather than abroad; should be made a government objective.

London & Partners is well placed to lead the promotion of London. However, comparative research by London First and Deloitte in 2014 found that London and Partners, was ‘at the lower end of the funding spectrum’, as well as lacking access to softer assets such as advertising or event space that they could offer to clients, which put it at a disadvantage when compared to other cities. This, in turn, made it more difficult for London & Partners to raise private finance to supplement its relatively low public funding. 123 This may need reviewing if London’s position begins to weaken.

3. Act decisively on housing and transport investment

Cost of living and the quality of infrastructure are not only major issues for Londoners; they also underpin HQ decision-making, and are both areas where London’s reputation is at risk. Local government and the Mayor of London should continue to lobby national government for investment in public transport and housing. National government should maintain and enhance international transport infrastructure.

Businesses should also improve efforts to ‘give back’ to the cities in which they settle, from charitable giving to supporting local employment and businesses. This would include advocating for, supporting and co-financing solutions to address the issues that constrain London’s growth. Businesses could consider new ways to increase the provision of affordable housing for their workers, particularly at entry level – potentially including directly constructing such homes.

London has had considerable success as a hub for headquarters in recent decades, and is set to continue to do so as HQs change. But it is important for London and the UK to work to retain this success. The overwhelming factor in London’s favour has been its ability to attract and retain talented people. While Brexit hasn’t led to an exodus of businesses for regulatory reasons, London needs to ensure that it can sustain its international reputation as an open city, to lobby for an immigration regime that supports this, and to tackle the chronic problems of housing and infrastructure that risk damaging quality of life in the capital.

  • 117 EY, In Transition: EY’s Attractiveness Survey, June 2018.
  • 118 (2018, October 30). Press release: ePassport gates to ease travel for passengers from more countries. Retrieved from:
  • 119 Interview, management consultant
  • 120 Interview, industry representative
  • 121 Interview, senior consultant, management consultancy
  • 122 Centre for Cities, ‘London Links: The geography of financial services in the capital and beyond’, 2018, http://www.
  • 123 Deloitte/London First, Benchmarking the effectiveness of London’s promotional system, 2014