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21 October 2017

The City of London

Tag(s): History, Business
There are two cities in London, Westminster and the City of London. The City of London is by every known measure the leading financial centre in the world.[i] It has gained that position over centuries helped by many factors.  Londinium was a Roman settlement established on the current site of the City of London around AD 43. The Romans were attracted to the Thames as a tidal river and built a bridge turning the city into a road nexus and major port. Initially the Romans were headquartered at Colchester but after Boudicca sacked Londinium in 60 or 61 AD they regained it after defeating her tribe, the Iceni, at the Battle of Watling Street and rebuilt it as a planned Roman town. It recovered within a decade becoming Britain’s largest city with 60,000 people.

By the second century Londinium was at its height. Its market was the largest in Northern Europe. There was then a major fire and though it was again rebuilt and was now the provincial capital no further major development took place during the Roman occupation. But it remained comparatively prosperous and the building of the Roman wall, some of which still stands and which roughly marks the boundary of the ‘Square Mile’, meant that trading could safely take place inside the walls.

This also meant that William the Conqueror never conquered the City of London. Its burghers accepted him as the King of England in return for the protection of their ancient privileges. These were further reinforced by their inclusion in the various versions of Magna Carta in the 13th century. The City’s Liverymen also gained the right to elect their own Lord Mayor, who was originally a royal appointment. We still hold that right today and his role is much more than ceremonial. He travels abroad extensively during his year of office and bears cabinet rank while representing the whole of the UK’s Financial and Related Services Industries. He is received by Heads of State and of Government.

As well as these historical advantages of its own, London has benefitted from historical developments elsewhere. England has only had two interruptions to constitutional government since the Norman Conquest, both in the 17th century, whereas its continental rivals have had much more chequered pasts, even recently.  Continental Europe has been beset by war for much of its history.

France has had numerous interruptions to constitutional government since its violent revolution in 1789. It is now on its fifth republic in only two centuries but also saw Imperial Government under Napoleon and the restoration of the monarchy under Louis XVIII. Germany and Italy only became unified nations in the late 19th century and Germany caused three major wars.

The City also benefitted from the development of the USA as a major power. While this means that New York City is the second most significant financial centre and so its nearest rival, the two benefit from a common language. English has become the Lingua Franca of global commerce[ii].

English law is also the preferred legal system. The Rule of Law has been long established in England and the judiciary has a global reputation for independence and fairness. Most contractual disputes between parties from different countries are arbitrated or decided judicially in London.

With the development of Canary Wharf London has gained significantly in the recent past but even the numbers for the traditional City of London alone are staggering. There are 450,000 workers in the City of London, or 9% of London’s total workforce. 1 in 75 UK workers are employed in the City. Of this total 340,000 are employed in financial, professional and associated business services. They provide not only the most jobs but also generally a faster rate of growth, though from a relatively low base the communications sector has grown by 55% over five years versus 28% for the City as a whole.

While UK productivity is generally sluggish City output has grown by 3% on average over the ten years to 2015. The City contributes around £48 billion in Gross Value Added to the UK’s national income; around 3% of the UK’s and 13% of London’s output. In other words the average worker in the City produces over twice as much as the average UK worker.

The City is a dynamic environment for firms. There are 18,000 businesses with nearly 99% of those SMEs, but the large firms are very large. 235 firms classified as large with over 250 employees account for over 50% of the City’s jobs. There are around 1,000 new start-ups each year in the City; more than half of these are in professional services. An average of 1,200 firms move into the City each year, a net gain of 375 firms. And bordering the City between Old St and Shoreditch is the largest technology cluster in the world after San Francisco and New York City.

The City of London’s workforce is typically young, skilled and highly international. 61% are aged between 22 and 39, compared with 40% of workers across England and Wales. 66% are educated to degree level compared with 49% across London and 35% in England and Wales. In 2011 39% of the City’s workforce were women and 21% of black, Asian or other minority ethnic origin. 32% were born outside the UK, with 12% from Europe, excluding the UK, 8% from the Middle East and Asia, 5% from Africa, 4% from the Americas and Caribbean and 3% from Oceania.

The UK’s Financial Services industry paid £71.4bn in tax in 2016, 11.5% of the total tax contribution, almost enough to pay for all public spending on education. In 2016 the UK exported £72.6bn in financial services and insurance, generating a trade surplus of £60.7bn.

So far I have presented the City of London in an entirely positive way demonstrating its unique record of success and its vital contribution to the economy and to the tax take. But as everyone knows not all of this has been achieved without a cost, not just in financial terms but in the way that rules and ethical standards have been treated in a roughshod way or even ignored.

Numerous banks have paid vast sums in compensation and fines and there seems almost no end to this continuing. Of the big increases in jobs I have cited quite a significant proportion are in large numbers of new compliance officers.  In just a few months in 2013 HSBC added 1,600 people to ensure compliance with proliferating regulation. JP Morgan added 4,000 people in the US and the UK, increasing spending in this area by $1bn. Standard Chartered added 2,000 compliance staff over the three year period 2011-2013, even as its total headcount fell.

Charles Bowman, the Lord Mayor elect who will take office on the 10th November has taken as his theme for the year the issue of rebuilding trust. Charles has been speaking on this subject for some time. Here is a brief extract from one of his blogs on the subject:

“The global financial crisis and the events that followed shook people’s trust in organisations – and in light of this last summer’s Brexit vote, it is clear that trust is more important than ever. There is much to be done to restore trust – creating better businesses that are trusted by society.

The recently published Edelman Trust barometer reports the largest ever decline in trust across institutions of government, media, NGOs and business. The report concludes that:

‘Business finds itself on the brink of distrust, …and perhaps, most concerning for business is the perceived role the public sees business playing in stoking their fears.’

And, so why is trust so important?

Because we live in a world of increased connectivity and public scrutiny and in this new world, trust is the glue and the lifeblood of any organisation…the critical asset in ensuring any institution’s long term, survival and success.

And, why is trust so important to the City of London specifically?

Because if London is to remain pre-eminent as the global financial services and banking hub, (1) we must demonstrate, internationally, that London continues to be the trusted cluster of choice and (2) at a national level, we have a responsibility to better communicate our story and our value to the society that we are here to serve.

There is no single silver bullet, trust can neither be demanded nor built, it must be earned – and that takes time. As the old Dutch proverb says, trust arrives walking and leaves on a galloping horse.

The  re-earning of trust in Banking and financial services will therefore take time. But it must be done and it is this agenda that I intend to focus on over the next year.”

I have got to know Charles well over the past few years and believe he will make an outstanding Lord Mayor. All of us in the Livery will support him in this endeavour and hope that he can succeed. The stakes are high.


[i] 22nd edition of the Global Financial Centres Index (GFCI 22) September 2017
[ii] Ironic, because “lingua franca” is Italian for the Frankish language.

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