The UK’s regions suffered a collective crisis of confidence in the decades following the Second World

Northern lights: Leeds is proving a popular alternative to London for investors, according to Financial Leeds chief Howard Kew

Leeds is proving a popular alternative to London

Advertisement

War. The slow death of the nation’s industrial and manufacturing heart left cities across the country with high unemployment, social unrest and a lack of purpose. It was only in the 1980s and 1990s that the process of reinvention and revitalisation began to take shape. Today, despite London remaining by far and away the leading destination for inward investment, the UK’s regions are thriving.

The economic downturn checked that growth, but it is a case of progress being slowed down rather than snuffed out. There remains, however, a perception from many international investors that the UK equals London. A tour of the regions proves otherwise. It reveals towns and cities which have world-class infrastructure, a deep skills base across the finance, professional and manufacturing sectors, a highly productive cohesion between civic government and business leaders, and a newfound confidence in the ability to attract and retain global enterprises.

There is no escaping the fact that London will continue to be the UK’s number one centre for inward investment. Its international transport links, skills pool and reputation as the centre of the world’s financial and professional services industries means that this is very unlikely to change. However, the UK’s regions have decided that rather than compete directly with London, they will instead redirect some of the sunlight towards themselves. It is worth remembering that 50% of those employed in financial and professional services in the UK are employed outside London.

The UK’s regional financial centres have adopted strategies that include creating niche specialities, such as the high-tech industry and financial and professional support services, as well as trading on the very fact that they are not London. They are able to boast a higher quality of life, a lower cost of doing business, and transport links to and from both London and the rest of the world that are speedier and more efficient than they ever have been. The next step for the regions is to get this message across to investors from around the world.

United in Leeds

The city of Leeds in West Yorkshire is a case in point. Andrew Walker, a partner at DWF Solicitors, one of 150 law firms now located in Leeds, says that the region has “finally convinced” UK plcs to locate in Leeds, but adds that this is not necessarily the case with international firms. “We need to keep banging the message home,” he says. “We’ve conquered the UK but the next challenge is the international market.” Leeds’ approach is to see itself not as a city, but as a region. It markets itself as the Leeds City Region (LCR), which encompasses large outlying cities such as York and Bradford and has a total population of 2.9 million people. This compares to a Leeds metropolitan population of just over 750,000. “When you’re talking about a region of nearly 3 million people and a GVA [gross value added] of £50bn [$74bn] a year, then you’re punching in a different weight,” says Howard Kew, chief executive of the LCR inward investment agency, Financial Leeds.

Dealing with the downturn

The economic downturn hit the UK’s regions hard. Unemployment, particularly in the north of England, soared and productivity slumped. Whereas in the past this could have condemned many towns and cities to the prospect of years of economic malaise, attempts at diversifying local economies have proved invaluable in staving off the worst effects of the recession.

The biggest thing [the UK] government could do to encourage regional development is to get Whitehall out of London

The financial crisis of late 2008 was a baptism of fire for Financial Leeds’ Mr Kew. He started in the job as chief executive just days after the collapse of Lehman Brothers. He is not afraid to admit his “huge concern” at the time for the future of the city. Leeds, like other financial centres across the nation, is heavily reliant on the financial services sector and could arguably be a contender for the title of mortgage capital of the UK. The forced merger between Lloyds and HBOS and the deconstruction of mortgage provider Bradford & Bingley sent shockwaves through the region. “We’re talking about the potential death of the town of Halifax,” he says. “It was every bit as dramatic as the [coal] pit closures in South Yorkshire of the 1980s.”

However, like many northern cities, Leeds has become used to turning adversity into opportunity. The death of heavy industry and manufacturing forced areas such as Leeds to reinvent themselves and a survival instinct has been bred into its city leaders. Despite the postponement of several flagship property developments, including a large shopping centre and the cancellation of the so-called ‘Kissing Towers’ residential project in the heart of the city, Leeds has weathered the storm. “We formed a regional taskforce that combined the public and private sectors,” says Mr Kew. As a result of the council’s efforts, joblessness in the financial services sector was capped to between 8000 and 15,000 people, considerably fewer than the potential 28,000 job losses in the sector out of 110,000 employees, forecast by a 2008 Deloitte report. “Losses were significant, but it was by no means an implosion,” says Mr Kew.

He adds that West Yorkshire’s reputation as the heartland of the mortgage industry remains intact because, unlike many of its peers, the region’s building societies resisted the temptation to demutualise during the liberalisation of the sector in the 1980s and 1990s. “They’re now seen as a safe haven by the FSA [Financial Services Authority],” says Mr Kew.

Devolution is evolution

Looking ahead, the biggest challenge facing the UK’s financial centres will lie in their relationship with central government. Scotland, Northern Ireland and Wales are at a distinct advantage over their peers in the rest of the UK because of their devolved government status. Control over tax and tax-raising powers are critical elements to the establishment of a region as a global financial centre.

Meanwhile, with the prospect of savage cuts from the UK’s new Conservative-Liberal coalition government, the future could look bleak for the development and upgrading of much critical infrastructure in the regions.

An alternative way of funding such development is through tax increment financing. It is a financing technique developed in the US that allows local authorities to borrow against anticipated future increases in business rates, to fund the improvements that are expected to generate those gains. The strategy would be to encourage central government to allow regional centres to keep money earned through business rates, which currently go to the Treasury in London, in order to pay off loans used to redevelop towns and cities.

 Another way in which central government can help the regions is by the continued movement of public services out of Whitehall and into the regions. Given the cost of operating in London, this would seem an ideal way to cut spending in the public sector by taking advantage of the cheaper rates and cheaper employment costs offered outside the capital.

 Another way in which central government can help the regions is by the continued movement of public services out of Whitehall and into the regions. Given the cost of operating in London, this would seem an ideal way to cut spending in the public sector by taking advantage of the cheaper rates and cheaper employment costs offered outside the capital.

However, such setbacks are but minor obstacles to the many once-dilapidated UK cities that have managed to transform themselves as global forces in the finance and manufacturing industries over the past 30 years. Their rise from the ashes means that London is no longer the automatic choice for many businesses looking to establish themselves in the UK. In fact, it would be foolish for any business to dismiss the UK’s regional financial centres as potential centres of operations.