Download 6. Appendix A RTF

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Foreword
To be completed.
Mike Tuffrey
Chair of the Economic and Social Development Committee
May 2004
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The Economic and Social Development Committee
The Economic and Social Development Committee was established by the London Assembly
on 10 April 2002.
Mike Tuffrey (Chair) – Liberal Democrat
Eric Ollerenshaw (Deputy Chair) – Conservative
Angie Bray – Conservative
Jennette Arnold – Labour
Nicky Gavron – Labour
Darren Johnson – Green
The Committee’s terms of reference are to examine and report on social and economic
development matters of importance to Londoners and the strategies, policies and actions of the
Mayor as they relate to social and economic development issues, the London Development
Agency and other Functional Bodies where appropriate. The Economic and Social
Development Committee is particularly required to examine and report to the Assembly on the
implementation and revision of the Economic Development Strategy.
Assembly Secretariat contacts:
Carmen Jack, Scrutiny Manager
[email protected]
020 7983 6542
Katy Shaw, Committee Co-ordinator
[email protected]
020 7983 4416
Denise Malcolm, Press Officer
[email protected]
020 7983 4090
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CONTENTS
Executive Summary
Chapter 1
Introduction
Chapter 2
International and national trends
Chapter 3
Inward investment in London
Appendices
Appendix 1
The Recommendations
Appendix 2
Public sessions and witnesses, written evidence and other written sources
Appendix 3
Principles of Assembly scrutiny
Appendix 4
Orders and translations
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Executive Summary
To be completed.
1.
Introduction
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1.1
The London Assembly’s Economic and Social Development Committee (the Committee)
is responsible for examining matters of importance to Greater London, particularly as
they relate to economic development/wealth creation and social development in
London.
1.2.
A strong and diverse economic growth is one of three interlocking themes that together
form the Mayor’s vision for London. Inward investment is a key element of sustaining
London’s economic strength and diversity.1 Not only does it help to underpin London’s
economic stability, but helps create an environment for technological advancement and
business growth, and jobs, for local people.
1.3
The Committee felt that it was important to focus on Inward Investment, because it is
clearly a topic which bears on both the economic and social well-being of London, and
incorporates the cross-cutting themes of promotion of opportunity and sustainable
development,
Focus on inward investment
1.4
There were three main aspects to the single scrutiny session the Committee held on 10
February 2004. First, the Committee was keen to understand the role that London
First Centre plays in promoting and sustaining inward investment services and how its
funding allocations reflected that. Second, the Committee sought to get a clear
perspective of the mechanisms in place to provide support services to business in
London (both established companies, and those seeking to set up business), and third,
the current mechanisms for managing competitiveness, from both intra-regional and
inter-regional perspectives.
1.5
This report brings together the key points from the scrutiny session, and written and
oral evidence received from stakeholders.
1
More information available at www.london.gov.uk
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2.
2.1
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International and national trends
This chapter provides an overview of recent trends and developments in Inward
Investment at international and national levels. The terms Inward Investment or
Foreign Direct Investment (FDI) are used throughout this and the following chapter,
and are taken to mean the investments that a company or business puts into a new
venture or an existing venture in a foreign country (in this case the United Kingdom),
in the expectation of profitable return.
Decline in Foreign Direct Investments
2.2
In June 2003, the Organisation for Economic Co-operation and Development, (OECD)
published a report2 which confirmed that FDI in the OECD area3 had cooled
considerably since the investment boom of the late 1990s. The OECD attributed the
slow down in FDI to the continued sluggishness of the global economy and weak equity
prices.
2.3
The report says that the uncertainty in the market was further exacerbated by the
unsettled international political and security environment that arose in early 2003.
Certain sectors, such as the airline and tourism industries have been directly hit as a
result of the international climate, and other services burdened with sizeable debt.
2.4
Foreign Direct Investment inflow to OECD countries fell by 20 per cent in 2002 and
this decline was wholly due to the sharp drop in investment into the United States (US)
and United Kingdom (UK).
The changing nature of Foreign Direct Investments
2.5
Market uncertainty and the effect it has had on selected sectors, along with other
factors highlighted above have no doubt contributed to the current global shift in
inward investment. We heard evidence from London First Centre that there was a
global shift towards smaller projects; and that in the European context more and more
projects will be higher up the value chain and small in nature;4 the fallout from this
being that less jobs are likely to be created than were previously.
Investment trends in the UK
2.6
According to Ernst & Young’s European Investment Monitor 2003, the UK has the
largest share of inward investment into Europe, with 19% of the market, followed by
France with 13%. However when compared with the percentage share of the market
the UK held in 2001 – 26% one can see that overall there is a downward trend in the
share in inward investment into the UK.
2.7
We were told that there were three key reasons for the decline in investment over the
last couple of years. Firstly, the economic conditions post-September 11 and the
downturn in the global economy as a result. Secondly, the increased competition, in
terms of investment coming into Europe, with more investments going into non-EU
countries, particularly eastern Europe. Large-scale capital-intensive projects are
shifting eastwards with back office projects heading increasingly in the same direction.
Trends and Recent Development in Foreign Direct Investment, published June 2003
The OECD area consists of the following countries: Australia, Austria, Belgium, Canada, Czech Republic,
Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Irish Republic, Italy, Japan, Korea Republic,
Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Sweden, Switzerland Turkey, UK, USA
4 Economic and Social Development Committee Transcript, 10 February 2004
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Thirdly, we were told that the increase in ‘red tape’5, increasing cost, and poor transport
infrastructure have all contributed to eroding the UK’s competitive edge over the last
couple of years.6
2.8
Another critical factor is the overall ‘level of taxation’. We were told that European tax
rates, particularly for large businesses, have been decreasing. The headline rates in
some European countries are now lower than the UK’s 30% corporate tax rate. Thus
the competitive advantage the UK previously enjoyed, in respect of tax, no longer
applies.7
2.9
Nationally, UK Trade and Investment (UKTI) is the agency responsible for marketing
the UK abroad as an investment location and for co-ordinating advice and support to
potential investors. The advice and support that the UKTI provides ranges from
arranging visits to the UK, through to business an public sector contacts, guidance on
property, recruitment, work permits and immigration.
Investment trends in London
2.10
We heard that while inward investment into the UK as a whole has declined, London’s
share of the market has increased. During 2001 to 2002 London’s share of the market
dropped from eight per cent to five per cent, but during 2003 bounced back, remaining
at seven per cent.8
2.11
We were also told that anecdotal evidence shows that London compares favourably
with other UK and international cities. Initiatives developed by the London First
Centre during the early 1990s, through to the boom period of the US technology
investment in the late 1990s, put London ahead of other European capital cities in terms
of bringing together the public and private sectors.9 Having provided trend –setting
examples and lessons for other cities, the challenge now for London is to stay ahead of
the game.
Red tape is taken to mean excessive administrative and bureaucratic requirements.
London First Centre, Economic and Social Development Transcript, 10 February 2004
7 London First Centre, Economic and Social Development Transcript, 10 February 2004
8 London First Centre, Economic and Social Development Transcript, 10 February 2004
9 London First Centre, Economic and Social Development Transcript, 10 February 2004
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Inward Investment in London
3.1
On 24 March 2003, the London Development Agency renewed its contract with
London First Centre as the partner organisation to deliver the inward investment
service to London for 2003-2006. Under the new arrangements, London First Centre
receives approximately £1.6 million annually, from the LDA and approximately £1
million from the business community through the London First, and the Corporation of
London.
3.2
In this chapter we consider the implications of the national and international trends we
explored earlier, the current arrangements for inward investment in London, and the
issues that will need to be addressed if London is to remain on its “…toes and strive to
maintain and increase (its) competitiveness.”10
The implications for London
3.3
The decline in the UK share of the market and intensified competition globally has
significant implications for London. We consider the four main points that were
highlighted in the written and oral evidence we received. The need:
 for a clear strategic approach with sufficient flexibility to adapt to the changing
needs of the market
 to identify and concentrate on London’s strengths,
 to diversify London’s offer, ensuring that the benefits of the whole of London, and
not just the City are promulgated.11
 for aggressive marketing of the benefits London has to offer,
Strategic focus
3.4
We heard evidence that with an economic development policy framework in place, the
opportunity exists to provide a comprehensive and competitive inward investment
service which delivers real additionality across London.12
3.5
Prior to the GLA and LDA, London First Centre operated an inward investment
agenda in line with the one set out by UKTI. The emphasis then was very much on
promoting London as the gateway to the UK and Europe, and on attracting knowledgebased investment as set out in the 1998 Competitiveness White Paper.13
3.6
The focus now is on ensuring synergy between London’s inward investment strategy
and the agenda for economic development.
Written evidence, Confederation of British Industry
London First Centre, Economic and Social Development Transcript, 10 February 2004
12 Written evidence, London Development Agency/London First Centre
13 Written evidence, London Development Agency/London First Centre
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Marketing London
3.7
We heard that London is a premium product and unable to compete on costs. It
therefore needs to look to alternative, albeit more aggressive means to marketing
London and the benefits it has to offer.14
3.8
We were told that marketing needs to be ‘more upfront, more assertive, even
aggressive’ in branding London as a city to be in. We heard that taking a ‘Team
London’ approach in which all the various different agencies are brought together, and
renaming the London First Centre with a ‘more punchy’ title that reflects London’s
unique offer, should be considered as one way forward.15 We understand that London
First Centre is reviewing its position and would urge that it consider its options. We
would therefore recommend that London First Centre consider working with other
promotional agencies in line with the ‘Team London’ approach, with a view to
developing a brand consistent with that of its partner agencies and which fully reflects
the benefits of London in the market-place.
Recommendation 1
We recommend that London First Centre consider working with other
promotional agencies in line with the ‘Team London’ approach, with a
view to developing a brand consistent with that of its partner agencies
and which fully reflects the benefits of London in the market-place.
3.9
London is a huge marketplace in its own right, with access to other markets, both
within the UK and Europe. It has world class financial and business services sectors,
access to the largest and one of the most highly skilled labour forces in Europe, and a
highly esteemed education and research centre. However it was clear from the evidence
that we both heard and received that these unique selling points are yet to be fully
capitalised on.
3.10
While the need to concentrate on key sectors where London has particular areas of
expertise, such as the financial and business services was recognised, there was little
mention about the scope for developing and exploiting the linkages of higher education
institutes and universities with the inward investor.
3.11
The evidence we received from the Confederation for British Industry confirmed that
whilst the UK has a global reputation for invention its reputation is less impressive
when it comes to developing products and taking innovative goods to the market; both
are key factors in attracting further investment and consequently more jobs into
London. We would recommend that London First Centre jointly with the LDA,
commission research on the scope for developing the linkages of higher education
institutes and universities with potential and established inward investors particularly
with a view to enhancing product development and taking innovative goods to the
market.
14
15
London First Centre, Economic and Social Development Transcript, 10 February 2004
South London Business, Economic and Social Development Transcript, 10 February 2004
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Recommendation 2
We recommend that London First Centre jointly with the LDA,
commission research on the scope for developing the linkages of
higher education institutes and universities with potential and
established inward investors, particularly with a view to enhancing
product development and taking innovative goods to the market.
Sub-regional working
3.12
Sub-regional partnerships operate with London boroughs at a local level to determine
the investment requirements for that sub-region, and provide support and advice to
prospective investors. There are also a range of other agencies and services that get
involved at the sub-regional and local levels, including Business Link for London, and
the Department of Trade and Industry Small Business Service.
3.13
Theoretically the structural set-up is ideal, allowing for a two-way flow of information,
from pan-London level through to local level and vice versa. We were told that this
arrangement may not have worked terribly well in the past, but the changes over the
last couple of years have resulted in improvements for some sub-regions16, but there is
still further work to be done.
3.14
We heard that in South London the co-ordination of information to bring the various
services – London First Centre, the LDA, the Business Link and DTI Small Business
Service - to a single delivery point is working well.17 We also heard that similar
improvements are evident in the Thames Gateway region, but that more resources are
needed if there are to be further improvements.18
3.15
While it is pleasing to hear of these developments, we were not convinced that this is
true reflection of what is happening across other sub-regions in London. Clearly the
needs and requirements differ from sub-region to sub-region and each will need to be
individually explored. We would therefore recommend that the LDA seek to further
develop and strengthen partnership links with other sub-regions of London.
Recommendation 3
We recommend that the LDA and London First Centre seek to further
develop and strengthen partnership links with other sub-regions of
London.
3.16
We also consider that further efforts are needed to bring the activities of individual subregions together to help present a coherent inward investment picture for London as a
whole. This level of co-ordination is vital if the benefits of inward investment are to be
spread across London as opposed to being concentrated in individual sub-regions.
Engagement at local level
3.17
Local authorities have potentially an important role to play in identifying local
requirements for inward investment and we would advocate sub-regional partnerships
South London Business, Economic and Social Development Transcript, 10 February 2004
South London Business, Economic and Social Development Transcript, 10 February 2004
18 Gateway to London, Economic and Social Development Transcript, 10 February 2004
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working closely with them. They are best placed to understand the local market needs
and the implications locally.
3.18
We heard that the level of input by Local authorities is variable, in terms of personnel
and financial resources. While some authorities have dedicated Economic Development
Departments, others have little or no such resource.19 We also heard that the LDA has
recently run a series of workshops with the aim of informing local authorities about the
merits of inward investment and business retention. The take up for the workshops was
light; the reasons for this are not clear, but it was suggested that lack of political
appetite or resources were a possibility. We are concerned that not enough emphasis is
being placed on the importance of attracting and sustaining business at a local level and
would recommend that the LDA/London First Centre explore with the Association of
London Government, ways of securing greater engagement of the London boroughs in
the inward investment agenda.
3.19
Resources at local level are necessary to help develop relationships with local private
sector companies. Communication with the private sector and their involvement in the
inward investment agenda is readily visible and clearly working well. However, we
heard anecdotal evidence that things are not working so well at a local level. We were
told that in many boroughs private sector companies find it difficult to progress
business proposals into actual projects, because of the poor communication links that
exist between the private and public sectors. Developing communication links and
involving the private sector locally will ensure that the services provided for them are
more attune to their needs. We recommend that the sub-regional partnerships work
closely with London Boroughs in developing constructive relationships with local
private sector partners with a view to enhancing the potential for, and capacity to
handle inward investment within the respective regions.
Recommendation 4
We recommend that the LDA/London First Centre explore with the
Association of London Government, ways of securing greater
engagement of the London Boroughs in the inward investment agenda.
Recommendation 5
We recommend that the sub-regional partnerships work closely with
London Boroughs in developing constructive relationships with local
private sector partners with a view to enhancing the potential for, and
capacity to handle inward investment within the respective regions.
Balancing investment with business retention
3.20
19
Prior to the LDA’s existence, London First Centre had some capacity for business
retention. However, following a strategic review in 2003, the LDA took the view that
there was a need for a business retention service to meet the needs of both indigenous
companies, and companies seeking to establish business London. It was at this point
that the decision was made to separate the two services, with the LDA leading on
South London Business, Economic and Social Development Transcript, 10 February 2004
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business retention and London First Centre taking responsibility for promoting London
for new FDI.20
3.21
The underlying thought process was explained to us in terms of the clients needs. We
were told that the role of the London First Centre is to imbed new companies into
London, particularly the smaller ones, ensuring that they are appropriately
accommodated and are able to access the right type of support. Once imbedded these
companies develop a new set of support needs which may relate to expansion and
planning issues, for which the LDA is responsible for taking forward.21
3.22
While we recognise that needs may differ there is clearly an overlap. It is our concern
is that the split created between the two, does not further complicate the overall picture
of inward investment in London and that the wide and varied cocktail of services, skills, the Department of Trade and Industry Small Business Service, sub-regional
partnerships and business links, etc - available to companies are clearly coherent, visible
and readily accessible. We therefore recommend that the LDA/London First work
with key regional, sub-regional and local partners to develop effective signposts of the
services and support available to both indigenous companies, and companies seeking to
establish business London.
Recommendation 6
We recommend that the LDA/London First work with key regional,
sub-regional and local partners to develop effective signposts of the
services and support available to both indigenous companies, and
companies seeking to establish business London.
London and its adjoining regions
3.23
The written evidence we received from London First Centre showed that much of their
output is concentrated in Central and West London; feasibly so, given the concentration
on the ICT, financial services and business services sectors. However, if an inward
investment profile is to be developed which benefits the whole of London, rather than
specific sub-regions, then fundamental infrastructure issues need to be addressed and
further consideration needs to be given to developing better coordination between
London and its adjoining regions.
3.24
The developments in the Thames Gateway region were cited as an illustration of the
above points. We were told that Thames Gateway will probably have to double its
priority in terms of regeneration over the next 10 – 15 years, with the possible
provision of 100,000 homes and the creation of 250,000 new jobs. The Thames
Gateway’s main difficulties are lack of transport infrastructure and skill shortage.
Without these key elements, particularly transport infrastructure larger companies are
unlikely to be attracted to investing in the area.22
3.25
We also heard of the tensions caused when managing an area spanning several
administrative boundaries and funding regimes.23
3.26
Gateway to London is a business support agency, providing support and advice to
investors in London Thames Gateway region. London Thames Gateway covers a
geographical area extending from the City of London eastwards to Thurrock and
London Development Agency, Economic and Social Development Transcript, 10 February 2004
London First Centre, Economic and Social Development Transcript, 10 February 2004
22 Gateway to London, Economic and Social Development Transcript,10 February 2004
23 Gateway to London, Economic and Social Development Transcript,10 February 2004
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Bexley. Gateway to London is part-funded by the LDA and the European Regional
Development Fund (ERDF). Moneys received from the LDA must be spent in the
‘London section’ of London Thames Gateway, and the ERDF moneys in the remaining
sections. This causes difficulties in practice. Businesses do not neatly fall into the
boundaries set by funding or administrative requirements. We would therefore
recommend that London First Centre/LDA, in consultation with the various subregions, examine ways in which to develop better co-ordination between London and its
adjoining regions.
Recommendation 7
We recommend that the London First Centre seek to develop a
coherent picture for inward investment across London, to enable the
benefits of to be spread cross London.
Recommendation 8
We recommend that London First Centre/LDA, in consultation with
the various sub-regions examine ways in which to develop better
coordination between London and its adjoining regions.
Inter-regional competition
3.27
We heard evidence that there are national mechanisms in place to manage interregional competition. Nationally, UK Trade and Investment (UKTI) acts as coordination point for advising and supporting potential investors, and for directing them
to the region that best fits their requirements.24 Similar mechanisms also exist at a
regional level. We heard that where it makes economic sense to do so, enquiries are
passed on to neighbouring agencies, and in some instances joint marketing initiatives
are carried out.25
3.28
In their written evidence to us, UK Trade and Investment asserts that competition for
inward investment can be positive, in that it can encourage higher levels of
professionalism, but that it needs to be managed.
3.29
The Committee on Overseas Promotion (COP) was set up in 1980, to manage the
tensions that can arise from competition in the UK, and to coordinate UK promotion
inward investment to avoid unnecessary duplication of effort by public funded
promotional bodies. COP is also there to encourage benchmarking and mutual
cooperation, by drawing up common guidelines and performance measures. It is the
only forum that brings together National Development Agencies, the LDA and other
Regional Development Agencies, and London First Centre to discuss inward
investment promotion.
3.30
We were told that most regions subscribe to COP’s guidelines. However there are a
minority of regions who blatantly flout the guidelines, particularly when there is a slow
down in the FDI market. An example was given of advertising campaigns designed to
‘poach’ business interests from another region. We heard that London is particularly
susceptible to such forms of ‘poaching’.”26 It goes beyond the scope and resources of this
UK Trade and Investment written evidence
London First Centre, Economic and Social Development Transcript, 10 February 2004
26 London Development Agency, Economic and Social Development Transcript, 10 February 2004
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study to examine the potential damaging effects on London, but we would urge the
government to keep this issue under review.
Concluding thought
3.31
While London’s approach to inward investment has improved significantly, there is
room for improvement. This report highlights just a few of the areas in which London’s
inward investment partners can work together to help bring greater focus, coherence
and delivery of inward investment services in London.
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Appendix 1 Recommendations
1. We recommend that London First Centre consider working with other promotional
agencies in line with the ‘Team London’ approach, with a view to developing a brand
consistent with that of its partner agencies and which fully reflects the benefits of London
in the market-place.
2. We recommend that London First Centre jointly with the LDA, commission research on
the scope for developing the linkages of higher education institutes and universities with
potential and established inward investors, particularly with a view to enhancing product
development and taking innovative goods to the market.
3. We recommend that the LDA and London First Centre seek to further develop and
strengthen partnership links with other sub-regions of London.
4. We recommend that the LDA/London First Centre explore with the Association of
London Government, ways of securing greater engagement of the London Boroughs in the
inward investment agenda.
5. We recommend that the sub-regional partnerships work closely with London Boroughs in
developing constructive relationships with local private sector partners with a view to
enhancing the potential for, and capacity to handle inward investment within the respective
regions.
6. We recommend that the LDA/London First work with key regional, sub-regional and local
partners to develop effective signposts of the services and support available to both
indigenous companies, and companies seeking to establish business London.
7. We recommend that the London First Centre seek to develop a coherent picture for inward
investment across London, to enable the benefits of to be spread cross London.
8. We recommend that London First Centre/LDA, in consultation with the various subregions examine ways in which to develop better coordination between London and its
adjoining regions.
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Appendix 2 Witnesses, written evidence and other
written sources
Witnesses
Scrutiny session
10 February 2004
Aman Dalvi, Chief Executive, Gateway to London
Andrew Cooke, Director of Strategy Marketing, London First Centre
David Main, Chief Executive, South London Business
Rob Lewtas, Business Retention Manager, London Development Agency
Robert Rothenburg, Senior Partner, Blick Rothenburg/London First Centre Board Member
Written evidence
Confederation of British Industry
London Development Agency
London First Centre
South London Business
UK Trade and Investment
Other written sources
Trends and Recent Developments in Foreign Direct Investment
Organisation for Economic Co-operation and Development, June 2003. Available at
www.oecd.org
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Appendix 3
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Principles of Assembly scrutiny
The powers of the London Assembly include power to investigate and report on decisions and
actions of the Mayor, or on matters relating to the principal purposes of the Greater London
Authority, and on any other matters which the Assembly considers to be of importance to
Londoners. In the conduct of scrutiny and investigation the Assembly abides by a number of
principles.
Scrutinies:

aim to recommend action to achieve improvements;

are conducted with objectivity and independence;

examine all aspects of the Mayor’s strategies;

consult widely, having regard to issues of timeliness and cost;

are conducted in a constructive and positive manner; and

are conducted with an awareness of the need to spend taxpayers money wisely and well.
More information about scrutiny work of the London Assembly, including published reports,
details of committee meetings and contact information, can be found on the London Assembly
web page at www.london.gov.uk/assembly.
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Appendix 4
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Orders and translations
For further information on this report or to order a bound copy, please contact:
Carmen Jack, Scrutiny Manager
Assembly Secretariat,
Greater London Authority,
City Hall, The Queen’s Walk, London SE1 2AA.
[email protected]
Tel: 020 7983 6542
If you, or someone you know, needs a copy of this report in large print or Braille, or a copy of
the summary and main findings in another language, then please call us on 020 7983 4100.
You can also view a copy of the report on the GLA website:
www.london.gov.uk/assembly/reports/index.htm.
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