Could Goldman Sachs teach the UK how to level up organically?
Almost exactly one year ago, a freshly elected Conservative government made “levelling up” one of its core priorities.
Facing a new parliament with a healthy majority and a dynamic Prime Minister (remember that?), the government promised to bring individual prosperity to regions of the UK which had been “left behind”: not just the big cities like Birmingham, Manchester and Leeds, but the smaller urban areas which had been captured by Conservatives — Stoke-on-Trent, Southampton, Wakefield.
The policy was soon pushed aside by the urgency of the Covid pandemic, and it will be some time before real political capital is expended on it. In the meantime, however, is there a prospect that it might begin to happen anyway?
A few days ago, news leaked that Manhattan stalwart Goldman Sachs was considering relocating its asset management arm to Florida, or perhaps to Texas, partly in response to the sky-high rents of its traditional New York base.
Five years ago, this would have seemed at best a quixotic proposal. In 2020, though, remote working has been tested extensively in real-life conditions, and has been found to work. As such, estate strategy for big financial institutions has to be revised.
In addition to the rent for its own offices, Goldman Sachs bosses will be aware that the cost for its workers of living in Manhattan is extremely high, and that other parts of the US offer advantageous taxation regimes to attract investment and relocation. One might also note that moving south would take Goldman Sachs Group Inc, the branch in question, out of the jurisdiction of the New York Fed, by far the strictest US regime in terms of financial arbitrage.
When the US catches a cold, to paraphrase Metternich, the world sneezes. So might our own financial institutions, and indeed other businesses with heavy-London footprints, look across the Atlantic and consider how they might get better value out of their annual rent bill?
The UK government is already promoting this idea with its plans to move civil service jobs outside the capital. It is not new: the Department of Health moved many key staff to Quarry House in Leeds (inevitably known as the Kremlin) in the early 1990s, while UK overseas development personnel have worked in Abercrombie House in East Kilbride for 25 years.
But the trends of the pandemic offer the possibility that, rather than being dragged kicking and screaming out of London, this sort of dispersal of workers to other parts of the country could happen organically.
This poses the questions: would this help towards the forgotten levelling-up agenda, and if so, what are the risks?
Creating jobs and fostering economic growth outside London, and especially outside the big cities, would address a long-standing problem of ingrained regional inequality. Prosperity is both real and perceived, and while economists can point to soaring London salaries as a mark of success for UK plc, it may not seem that way to those desperately looking for jobs in the South-West or the Midlands.
This is an important political consideration for Boris Johnson and his “red wall” MPs who seized seats rarely (or, indeed, never) before held by Conservatives in marginal areas. It might well appeal to the Prime Minister if Barclays Investment Bank relocated to Bristol, or if Standard Chartered opened a substantial office in Sheffield.
In any event, asset managers are ripe for relocation because their clients are not physically located in the immediate area. If you are serving companies and individuals worldwide, the need for a large and imposing (not to mention expensive) physical centre in the capital is not compelling.
The film industry has perhaps shown the way. Hollywood may still be its notional concentration of power, but the actual production takes place across the globe, and crews chase low-cost locations and tax incentives to keep control of spiralling budgets.
It is of course important that we are not caught up in the rush of this idea. A sudden flight of intellectual capital from London to the regions of England and the rest of the UK might seem attractive, but the City is one of the most dominant centres of financial services in part because of the concentration of talent and competition in one area.
As we have been made painfully aware of recently, this concentration supports an economic-cultural ecosystem of bars, restaurants, cinemas, theatres, galleries and shops, which are suffering acutely because of reduced footfall. To lose that multiplier effect might be a considerable blow not just to London, but to the national economy as a whole.
Nevertheless, if it occurred gradually and naturally, such risks could be offset by the potential for economic booms elsewhere.
Government action is at its most effective when it is riding an existing wave. Whitehall’s futurologists should keep a close eye on developments in the US, and be ready to react if there is the hint of an aid to recovery. We need all the help we can get.
Main image credit: Getty