Written evidence from the City of London Corporation (TDE 96)

Introduction

1. As a global hub for international finance and business services, the City depends on the provision of high quality digital infrastructure. More widely, the business activity in the City provides the market drivers for many of the firms which have chosen to locate in ‘TechCity’, which touches the edge of the Square Mile. It is vital therefore, that the digital infrastructure which supports these services in the Square Mile is world class and future-proofed.  

2. The following paragraphs set out the main challenges to growth of the digital economy, as the City Corporation sees them. This memorandum complements a separate submission made by the City of London Police which focuses specifically on the threat of intellectual property crime.

Broadband and Connectivity

3. The City is home to many businesses that rely heavily on technology, from large corporates with trading operations, to small technology companies developing cutting-edge systems and products, used by the financial sector and others. Access to affordable, reliable, high-speed broadband is therefore essential. Significant gaps in digital infrastructure in the City remain, however, putting some businesses at a serious disadvantage.

4. There is deep concern that the attractiveness of the City is increasingly disadvantaged by the lack of fast broadband connectivity at an affordable level.  Leased lines are prohibitively expensive for many small companies, leaving them struggling on copper ADSL lines with slow speeds and unreliable connectivity (over 9,000 businesses run on relatively slow ADSL copper broadband). There are as yet no firm plans to roll out the infrastructure necessary for providing SMEs or residents with affordable superfast broadband.  City Corporation officials have held meetings with providers at senior levels over the past few months but only limited progress has been made.  This stance has an immediate, deleterious effect on high tech SMEs which operate in and around the Square Mile and in the long run could damage the offer that London’s position as a leading edge global city. 

5. Over the next few years, a greater number of operations will be transferred to ‘the cloud’ (voice, data, TV broadcasting). Both wired and wireless infrastructure is, therefore, crucial. The poor speeds in the City mean that SMEs that already rely on the cloud have encountered difficulties in gaining the level of access required for business operations. The City Corporation is trying to bring about easier and quicker access to buildings to accommodate 4G and eventually 5G antennae, in line with the Mayor’s plans for 5G in London by 2020. Although the pace of this is fairly rapid, and probably on a par with that of other global centres, if this is not done properly, there could be further negative impacts to connectivity in the City.

FinTech

6. FinTech is a hugely exciting opportunity for the UK economy, bringing together as it does the UK’s existing strengths in financial services and burgeoning tech expertise. A significant number of FinTech businesses are based in the City or close by.  Those businesses not only include start-ups but also a number of large financial services institutions also based across the UK.  The ‘traditional’ financial services businesses now recognise that their future development and strategies are dependent on supporting start-ups, entrepreneurs and graduates with bright ideas. London employs over 44,000 people in the sector - more than Silicon Valley (11,000) or New York (43,000).  London is also a major employment hub for “big data”. There are an estimated 54,000 big data workers within 25 miles of London, compared to 57,000 for New York City and 98,000 for San Francisco-Silicon Valley[1].

7. It is estimated that the FinTech market was worth £20bn in annual revenue in 2014, a figure expected to be exceeded this year.  The majority of this figure is generated by ‘traditional FinTech’ as ‘facilitators’ (larger incumbent technology firms supporting the financial services sector) and 18% by ‘emergent Fintech’ as ‘disruptors’ (small, innovative firms disintermediating incumbent financial services firms with new technology). The UK is poorly represented in traditional Fintech (four out of the top 100 globally), but is strong in emergent Fintech (providing approximately one half of promising fintech start-ups in Europe)[2].

8. The City Corporation continues to work with a number of tech organisations and partnerships to support the growth of the digital economy including the Tech London Advocates (for whom the Corporation is also lead sponsor), Tech City UK, Tech UK, and Digital Shoreditch. The benefits for potential job creation opportunities that supporting an innovative and dynamic sector such as fintech means for all our communities is also recognised.  The City Corporation’s lead sponsorship of Innovate Finance, along with Canary Wharf Group, is part of its contribution to this agenda. Innovate Finance is the new industry-led not for profit membership organisation aiming to accelerate the UK's leading position in global financial services by supporting technology-led financial services innovators – whether they are early-stage start-ups or established industry players. Innovate Finance members have raised over $500 million of funding to date in 2015. The City Corporation is also working with a variety of stakeholders on the development of this key sector and on new issues as they emerge such as, for example, on regulatory technology, or ‘RegTech’.

Office Accommodation

9. Many start-ups and businesses with high growth potential find it difficult to sign up to long-term leases for facilities such as serviced offices. One flexible solution, at the early stages, is co-working spaces, such as the Innovation Warehouse at Smithfield, which the City Corporation helped found. A recent study conducted for the London Enterprise Panel of co-working spaces in London also points to the wider benefits of developing such spaces for knowledge-intensive businesses.

Access to Finance

10. Access to finance – especially at the growth stage – is a major issue in the UK. Government incentives for angel investors such as the Seed Enterprise Investment Scheme and Capital Gains Tax Relief are helpful but encouraging more individuals to invest is important. There are signs that early-stage growth finance is becoming more plentiful (through channels such as business angel investors, an area the City Corporation supports and champions through its Angels in the City initiative). Notwithstanding the increased efforts of the British Business Bank and the founding of the High Growth Segment of the London Stock Exchange, there remains a dearth of follow-on funding. Indeed, there is anecdotal evidence of growing businesses securing so-called ‘Series A’ funding (the first injection of venture capital) elsewhere, typically in the US.

Skills

11. There is concern amongst City firms over the lack of digital skills of prospective workers with estimates of a minimum 745,000 additional workers with digital skills needed over the 2013-2017 period[3]. Businesses need assurance that the skills system – including apprenticeships – will provide the skills to meet this gap. Strengthening education and business links is one way of facilitating closer involvement of businesses in the delivery of the curriculum. For example, the City Corporation is involved in the Tower Hamlets Education Business Partnership and Inspire! – the Education Business Partnership for Hackney, helping to set up the latter alongside UBS and other City businesses. Both enjoy good relationships with businesses and schools.

12. The City Corporation is lead sponsor of Tech London Advocates, an 800-strong network of individuals in London’s tech sector. Through a working group on education, they are able to establish what tech businesses can offer and, through existing intermediaries such as education business partnerships or organisations such as Founders for Schools, they can then help teachers to enable students to develop relevant skills.

13. By also working with higher education institutions, businesses can help their workforces keep skills up to date. Innovate Finance, for example, is developing a partnership with the Open University to deliver training specific to the needs of the FinTech sector.

14. There is potential for more to be done to link businesses, and their close understanding of current and future skills needs, to schools and other education and training providers. The City Corporation already supports a number of initiatives in doing this:

• ‘TeenTech’ brings together more than 500 young people in a focused, interactive event showcasing careers using STEM subjects (science, technology, engineering and maths).

• The Centre for London’s ‘Connecting Tech City’ programme, which is building an online platform to link young people in London’s core ‘TechCity’ area on the City’s fringes with businesses keen to engage with them in some way through e.g. supporting the curriculum, hosting work placements, or talking to groups of students.

• Hosting a STEM-focused careers fair, giving some 500 young people the opportunity to interact with businesses requiring STEM skills and exposing them to volunteers representing more than 100 career opportunities in these areas.

15. While, in the longer term, the new computing curriculum should help to ensure programming and coding assume a central position in education, there are already a number of initiatives which usefully introduce young people to coding. One such initiative, focused on young women, is ‘Code First: Girls’, delivered by graduate accelerator programme ‘Entrepreneur First’ (of which the City Corporation is a core sponsor) to help young women from non-technical backgrounds develop the coding skills needed to compete more effectively for a place on the main Entrepreneur First programme.

Office of the City Remembrancer

November 2015