Should businesses remain in London in a post-Brexit economy?


The result of the 2016 Brexit referendum sparked fears of a mass business exodus, with companies leaving London for elsewhere in Europe.

Yet, while some major names moved on to less politically-fraught bases, it hasn’t quite been the dramatic migration that was initially anticipated.

But with October’s EU-mandated departure deadline looming ever larger, London-based businesses are once again having to face up to the possible ramifications of the UK’s divorce from the EU. Throw in the increasing possibility of a no deal Brexit, and the need for these organisations to potentially reconsider their options grows. But, much like the referendum itself, the question stands when it comes to their place in the capital: should they leave or remain?

Why London businesses may want to stay put

Proximity to their customer base

From enhancing a company’s brand image to making sure it’s near to its competitors, a business’s choice of location is incredibly important. Arguably the biggest factor to take into account is picking somewhere that works as well for clients as it does for employees, and for most sectors, London fits this perfectly. If a company’s target market is largely English-speaking and based in the UK and Ireland, why would it move to a country that makes it more difficult to do business with them?

With 95% of people believing that face-to-face meetings are essential for long-term business relationships, the importance of a company’s proximity to its clients and customers becomes even clearer. Moving a business abroad could jeopardise being able to conduct real-world meetings, and clients may decide to take their custom to more convenient competitors.

London has access to an abundance of talent

Despite the uncertainty surrounding Brexit, the hordes of talent the capital attracts is another reason why its businesses may want to stay put. Research shows that London was Europe’s top tech destination in 2018, with more skilled workers moving there than to any other European city. Meanwhile, 89% of global institutional investors believe London has Europe’s best talent pool for financial services. Indeed, the overall amount of top talent in the capital continues to dwarf other major European cities—for instance, it has357,900 software developers, over three times as many as Berlin.

It’s not just international talent that’s drawn to London as domestic workers from outside the city are also flooding in. Almost a quarter of all graduates from UK universities begin working in London within six months, with 52% of these coming from Oxbridge, showing just how high the calibre of talent is. As such, London’s businesses can draw from a huge network of skilled workers that’s unrivalled across Europe.

London businesses receive significant support

Businesses in London may not get it as good elsewhere when it comes to accessing financial support. According to a study by funding database PitchBook, London tech companies attracted £1.8bn in venture capital funding in 2018. This was by far the most in Europe, almost doubling the amount ploughed into its nearest rival, Berlin.

It helps that the UK government is particularly supportive of SMEs. For instance,the Enterprise Investment Scheme alone raised just under £2bn for UK companies between 2017 and 2018, with 67% of this going to organisations in London and the South East. This programme is unlikely to be affected by Brexit, which is even more incentive for businesses to remain in the capital.

Meanwhile, the Start-Up Loans scheme entitles small businesses to up to £25,000 in funding, and there is a range of grants and tax reduction schemes available. With the government recently announcing a further program to offset some of the funding London businesses will miss out on from the EU, they are also taking preparatory measures for a post-Brexit city.

Why London businesses may want to leave the capital

London businesses may be unable to trade in the EU

Brexit could seriously hinder the ability of certain London companies to do business in the EU. While moving out of London may cut many businesses off from their clients, the same is also true for the ones who remain. Financial companies, for example, will lose the “passport” rights that currently enable them to trade across the EU. Consequently, relocating to an EU member state may be the only option for businesses who want to carry on as normal, explaining why finance giants like Goldman Sachs and Deutsche Bank have already started shifting their assets away from London.

UK businesses may also find it difficult to deliver, or even bid for, EU contracts, owing to the likely divergence from local or regulatory requirements. While it is expected that UK businesses will maintain regulatory alignment with the EU in the short term—even in a no-deal scenario—this won’t last long. Existing contracts could also go into a dispute where material change or cost is involved, and could also be affected by issues like long border delays.

Brexit could restrict access to talent

London has continued to attract skilled workers after the referendum, despite the political uncertainty, which will be harder to maintain once the UK actually leaves the EU. The end of free movement and tighter immigration regulations will leave many London businesses struggling to hire talent. Alternatively, the red tape involved will discourage them from hiring internationally altogether, with 50% of UK businesses saying that Brexit would put them off employing EU workers.

In fact, statistics show that UK companies are already feeling the squeeze, with a staggering 95% drop in EU nationals joining the UK workforce between the first quarter of 2016 and the first quarter of 2018. In addition, 44% of employers have admitted experiencing recruitment problems during 2018, while 34% struggled to retain staff in that period, almost certainly a result of Brexit. By relocating to another EU state, businesses can enjoy the benefits of freedom of movement and employ EU workers as easily as before.

Funding could dry up post-Brexit

While London businesses have still received significant funding since the 2016 referendum, one in three small businesses are concerned that accessing finance will become more difficult post-Brexit. And they’re right to feel this way. Major EU sources of funding—such as theEuropean Investment Fund and the European Regional Development Fund—will no longer be distributed to London companies, making relocation even more attractive to some businesses.

There are already signs that Brexit is having an impact on funding for London businesses. While tech companies did attract a record amount of venture capital in 2018, statistics show that funding, in general, is dwindling.

For instance, equity investors put 19% less into startup and scale-up businesses in 2018 than 2017, and bank lending stock in 2018 was at a similar level to 2017, representing a decline in real terms. In fact, around two thirds of UK borrowers believe that Brexit has already prevented them from adequately funding their businesses.