Written evidence from the City of London
Corporation
Submitted by the Office of the City Remembrancer
INTRODUCTION
1. This memorandum is submitted on behalf
of the City Corporation in the context of its role in promoting
and reinforcing the competitiveness of the UK-based international
financial services sector. The City Corporation has extensive
engagement with the Foreign and Commonwealth Office and UK Trade
and Investment, as part of this promotional work, both to support
UK based financial and professional services firms to develop
business in overseas markets, and to attract enhanced levels of
inward investment into the Square Mile, London and the UK as a
whole.
2. The City Corporation is not in a position
to respond fully to all the questions posed in the Committee's
Call for Evidence but the following paragraphs reflect the City
Corporation's views on trade promotion, inward investment and
SME financing which are all of particular interest to the City's
activities.
TRADE PROMOTION
3. Lord Mayor currently spends approximately
90 days a year overseas promoting the markets and services of
the UK based financial community. The focus of these visits has
evolved and a substantial business delegation drawn from financial
and business services companies now usually accompanies the mayoral
party. The planning of the Lord Mayor's visits now involves UK-based
financial service firms, institutions and trade associations at
an early stage in order to understand which countries are important
for them, and how a visit by the Lord Mayor could help. The results
are analysed jointly with UKTI, and then FCO diplomatic posts
are invited to bid for visits according to the priorities that
have come out of the consultation exercise. Bids are assessed
by a City of London Corporation committee, which includes members
from UKTI and FCO amongst others. Selection of successful bids
is made on the basis of the potential value to the financial and
related business services industry.
4. Each visit programme is delivered in
market by UKTI staff based in the Embassy and Consulate network,
with the aim to increase the profile of the UK based financial
services industry in overseas markets (predominately high growth
markets), promoting business development opportunities for UK
based firms and influence senior interlocutors to increase market
access for UK based firms.
5. As well as including the key emerging
economies such as Russia, India and China which are visited annually,
considerable effort is made to incorporate within the programme
visits to less high profile countries which are visited less often
by UK Ministers. For example, this year the Lord Mayor will be
visiting Columbia and Mexico and last year, Kazakhstan and Azerbaijan
were included in the programme. Feedback from posts in such countries
suggests that there is disproportionate benefits derived from
these visits and they are highly valued.
6. Although it is difficult to measure the
immediate impact of these visits in terms of business developed
and contracts awarded, their strategic benefit is demonstrated
by a continued interest from participating companies to be involved
in the visits programme and by feedback from Posts.
7. Effective and well-resourced UKTI teams
are essential to the successful delivery of the visits. To this
end, the City of London runs an annual "Industry briefing
course" for overseas based representatives from UKTI, who
have a role in promoting the industry within their geographic
remit. The week long intensive course arms UKTI staff with a core
understanding of the UK based financial and professional services
industry and its role in support of the broader economy, with
a view to increasing the effectiveness of its promotion.
INWARD INVESTMENT
8. In addition to the trade promotion work
undertaken in tandem with UKTI, the City further supports the
delivery of inward investment services to assist foreign firms
from the financial and related business services sector set up
or expand in London and the UK. This includes working with firms
that have been identified as targets by UKTI staff based in the
overseas Embassy and Consulate network which, in turn, are usually
referred to the City from the UKTI inward investment team based
in London. The City then provides prospective investors with a
range of services including market intelligence (research reports)
detailing the UK based financial and professional services industry
and facilitates introductions to relevant contacts in the sector.
London's foreign direct investment agency, Think London, is also
a key partner in this work.
9. The UK's Embassy and Consulate network
provides a valuable and high profile point of contact for overseas
firms looking to invest in the UK and posts form an essential
tool in facilitating access to firms to discuss and encourage
their inward investment plans. UKTI is well placed within central
government to work with other departments on issues that affect
inward investment into the UK and this can be extremely valuable.
However, this is not always fully exploited and coordination between
departments is not always as clear as it perhaps could be.
SME FINANCE
10. The presence of small and medium sized
enterprises (SMEs) in and around the City forms an valuable part
of the attractiveness of the Square Mile as they provide essential
support services (such as hospitality, cleaning, management consultancy
and advertising) to City firms and contribute to the area's economic
prosperity through the creation of large numbers of jobs. However,
London currently faces significant challenges in maintaining the
productivity and sustainability of SMEs. Boroughs on the City
fringe have high SME start-up rates, but they also suffer from
some of the highest failure rates. The change in emphasis of Government
support to SMEs towards those with high growth potential should
not be at the expense of start up SMEs. Finance plays a key role
in the creation of SMEs, alongside other support. The City therefore
believes that the encouragement of bank lending for SMEs remains
important.
11. In order to address these challenges
and support a thriving SME community, the City of London Corporation
recently commissioned research to assess the contribution made
by the City (UK financial services) in meeting the equity finance
needs of small and medium-size enterprises (SMEs) in the UK.[1]
It has also initiated a business support programme to facilitate
the development and growth of small businesses in the City fringe
through the provision of premises, finance and guidance.
12. Together with workspace, the availability
of finance is essential to the growth of SMEs. Unfortunately many
struggle to access external finance from mainstream banks, particularly
if they lack an established track record or assets against which
to secure a loan. As a result, publicly backed finance plays a
critical role in promoting the development of SMEs particularly
within deprived communities where banks may be more reluctant
to lend. Accordingly, since 1999, the City of London Corporation
has invested £8.7 million in the following SME loan funds:
— Barings English Growth Fund managed by
Nova and providing capital for small businesses with growth potential.
— London Regional Venture Capital Fund
a £50 million venture capital fund for Greater London, supported
by the Department for Business, Innovation and Skills (DBIS).
The Fund provides equity finance to high growth, innovative businesses
requiring sums below £500,000. Co-investors include DBIS,
the European Investment Fund, Barclays Bank, Royal Bank of Scotland
and a number of local authority pension funds.
— The Chandos Fund, dealing with expansion
capital for high growth businesses, management buy-outs and buy-ins,
pre IPO funding, partial sales, and release of equity.
13. One of the biggest obstacles to SMEs
in supplying City businesses is cash flow. Many large businesses
do not pay promptly, so credit is often critical for SMEs' cash
flow to enable them to take on contracts with City businesses.
City fringe SMEs report that, although the payment terms of the
majority of City based companies are within 30 days of invoice,
frequently payment is not made until 45 or even 60 days after
supply. This places considerable pressure on SMEs especially if
they have to source supplies/staff to deliver the contract prior
to payment being made. Banks' unwillingness to advance credit
or extend overdraft facilities can add to problem.
14. Anecdotal evidence suggests the current
supply of credit to SMEs, despite Government encouragement, remains
inadequate. Current lending criteria, based predominantly on the
size and amount of "security" directors of SMEs can
offer, rather than on the strength of the proposition do not work
in favour of London SMEs, which tend to be service-oriented. To
improve SMEs' access to unsecured loans, the Enterprise Finance
Guarantee (EFG) banks could promote it more effectively and actively.
For the most part it is currently unprofitable for banks to issue
loans through the EFG scheme.
15. Access to micro-finance (loans under
£10,000) also remains difficult. Many SMEs or credit worthy
entrepreneurs previously used personal loans prior to lending
criteria tightening in 2008 but as lending criteria have tightened,
SMEs have been starved of start up and growth funds. An easily
accessed Government-secured micro-credit scheme could help to
alleviate this issue.
16. A further tool that could assist SMEs
would be if local enterprise agencies and banks worked more effectively
together to improve the quality of the applications and business
plans that SME's submit when asking for credit. If all applications
were automatically referred to an agency for support then the
quality of application would improve and the decline rate fall.
BUSINESS INCUBATION
17. The City of London is also a founding
partner in a new-concept business incubator model with a team
of entrepreneurs—the first incubator premises will open
in Smithfield in the Autumn. It is hoped that this, financially
sustainable model with a unique range of services provided by
a diverse support community including investor mentors will be
capable of being replicated elsewhere in the country. It is envisaged
that the City of London Innovation and Incubation Centre (to be
known as the City of London Innovation Warehouse), could support
significant new business growth in the capital and potentially
be a model for other parts of the UK and abroad.
18. The Warehouse will provide high-growth
start-ups with incubation workspace, support to access financing,
networking and training opportunities, and professional business
advice delivered by experienced mentors.
4 October 2010
1 The City's Role in Providing for the Public Equity
Financing Needs of UK SMEs, URS Corporation, published by
the City of London Corporation, March 2010. Back
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