Worried bosses warn London’s competitiveness is under threat
18 Jun 08
Six out of 10 business leaders in London fear the city's competitiveness is under threat - double the number of a year ago – according to a survey by the CBI and KPMG
The poll of senior executives shows that just one in 12 believe the capital's competitiveness is improving, down from almost one in three a year ago.
The poorly-handled reforms to non-dom taxation have also badly damaged the UK as an attractive business location, the latest CBI/KPMG London Business Survey shows.
Eight out of 10 executives said the announcement of the £30,000 fee and the way the proposals were chopped and changed had tarnished the UK's reputation.
The credit crunch is also afflicting companies in the capital, with four in 10 respondents saying it has become harder to raise money - and many expect it will get more difficult.
Almost one third (31 per cent) of executives fear they will have trouble raising finance over the next six months, up from 9 per cent a year ago. And while the volume and value of business activity is still growing, it is doing so significantly more slowly than in the past, the survey shows.
As a result, the proportion of businessmen and women pessimistic about their firm's prospects over the next six months has jumped from 5 per cent in March 2007 to 28 per cent.
There are some positives though: despite fears over competitiveness, 90 per cent still view London as a favourable place to do business, though only 37 per cent of respondents describe it as “very good” compared to 46 per cent a year ago.
Away from tax and finance, the capital's creaking road and tube network is the biggest cause of concern for employers, shadowed by worries over skills levels and red tape.
A year ago 59 per cent described the transport system as “good” or “good in places”, but this has fallen to 38 per cent now, with another 37 per cent saying it was “poor’ or “getting worse”.
Overwhelmingly, the tube was cited as the top priority for transport investment. And nine out of 10 respondents said the poor state of public transport was affecting their business.
Two-thirds (64 per cent) also said London's roads are getting more congested, with roadworks and changes to traffic light phasings blamed as the main causes.
To tackle these problems, the business community wants Boris Johnson, the new mayor of London, to make sorting out the transport system his first priority.
Although business crime was not cited as a major concern, the mayor should also concentrate on making London a safer place to live and work, respondents said.
On skills, 72 per cent of executives complained that they are currently unable to fill some skilled job vacancies - but they are hopeful the new migrant points system will help.
And though the number of employers expecting skill shortages to cause them problems before the end of the year is lower than a year ago (81 per cent), 61 per cent still fear it will happen.
Richard Reid, chairman of KPMG London LLP, said: "This report clearly shows that businesses in London are feeling the impact of the downturn in the economy.
"Many of its findings should be setting off alarm bells for policy-makers that urgent action is needed to tackle the weaknesses that will compromise London's reputation and competitiveness.
"At the top of the list is turning the right transport improvements into reality. This means delivering on promises, prioritising and managing projects effectively.
"While huge investment is being made to modernise the tube, other programmes such as Crossrail require a definite timetable to become a reality, and further investment is required for surface rail. Transport is key to attracting and retaining staff and maintaining London’s world class status.
"Tackling skills shortages will be helped by education authorities equipping students with basic and employability skills that businesses need, not just paper qualifications.
"And, after so many promises to reduce damaging red tape, policy-makers have to realise that the burden of unnecessary paperwork is seriously hindering London’s success and its ability to just get on and do business in an increasingly competitive world.
"However, to be more positive, it is worth noting that as many of London businesses are optimistic as pessimistic about the next six months.”
Asked about the new £30,000 fee for non-doms who opt out of paying UK taxes on overseas income, 70 per cent of respondents said it would adversely affect London's attractiveness as an international business destination.
And 82 per cent of respondents said the Chancellor's handling of the tax reform had damaged Britain's reputation for tax stability and planning.
CBI director-general, Richard Lambert, said: "The message is clear - business is getting more difficult in London, partly because of the global economic slowdown but also the more particular problems of transport and skills.
"London must be able to compete for business alongside old rivals like New York and new ones like Shanghai and New Delhi.
"This means protecting its reputation as a welcoming and predictable place for business, having a pool of highly skilled employees, and always working on its weaknesses.
"It is important that politicians listen to the very real concerns of business and ensure that all sides pull together to tackle the issues they can influence and mitigate those they can't."
Mr Lambert added: "It is encouraging to see that firms are very aware of their carbon emissions and energy use and are taking steps to improve both, saving money at a time of rapidly rising oil and fuel prices as well as tackling climate change."
Other survey highlights include:
- 71 per cent of respondents expect to come under pressure to raise wages over the next six months; 75 per cent said their employee costs have increased since last year.
- 94 per cent of respondents said London is more expensive than other major international cities like New York, Tokyo or Paris.
- 46 per cent of firms have measured their carbon emissions and energy use. Half (53 per cent) have strategies in place to reduce them. A quarter (24 per cent) report publically on their emissions or energy use.
- 45 per cent said the new points-based migration system for UK entry will work better than the old system, 13 per cent say it will be worse. 54 per cent expect it will improve the UK's competitiveness, while 15 per cent think it will harm it.
- 37 per cent of respondents have moved some activities off-shore, an increase from 33 per cent a year ago. Four-fifths said the move has benefited their firm.
- 64 per cent said the London Olympics will help the capital, but only 44 per cent expect a direct benefit for their business, down from 58 per cent last December.