London Beyond Brexit: Uncertainty and Opportunity

The decision of the United Kingdom on referendum to leave the European Union back in June of 2016 and its final realisation in the invocation of Article 50 of the Treaty on the European Union has overwhelmed the world with uncertainty and fear. With its roots in London, the UK will project its global identity outside the EU and will search for its new position in the international stage.

Europe works as an intangible embodiment of values, such as those of democracy, freedom, and justice. In this sense, there is no question that the UK is tremendously European and, although in its own image, it remains a figurehead of the defence of democracy and its values in the world. For its part, London conveys the practical side of the coin for its openness to people, ideas, and multicultural heritage and by creating a unique, international environment.

With an economy the size of Belgium’s, London is not to be thought as merely a city. One might even say London is a nation within a nation. As it happens, it accounts for 22% of the UK’s GDP, imposing a great imbalance between the capital and the rest of the country. A big part of this growth is due to the UK’s membership to the European Union and the common market, which has played a significant role in London’s predominant position over the last 25 years.

Given the uncertainty it brought to the UK and London’s economic performance, the aftermath is still blurry. What has not changed for London, however, is its leading position as a global reference in education, health, business, finance, technology, and creativity. It still represents everything contemporary states want for their cities. It is the world capital of knowledge economy, bringing along dynamism and interconnection through its network of world-class universities and centres for innovation. Indeed, the prominence of competent academic institutions devoted to research and educating high-skilled professionals has earned London the power to attract not only business, but knowledge and cultural capital, too.

Talent remains the fuel of London and keeping it will be paramount for the city’s prosperity in the years to come. This implies that it will be constantly on the lookout for human resources to boost its position as a true global city, thus strengthening its referential position worldwide. But the city’s labour market, in terms of talent acquisition for companies and universities, could have its drawbacks after Brexit.

UK and London’s unemployment figures. Source: London Datastore.

The unemployment rate in London was 5.9% as of February 2017, well below the EU average and slightly higher than in the rest of the country. It shows the considerable strength of London’s labour market, but Brexit bounds a clear restriction to its future. Owing to the UK’s membership to the European Union and its Common Market, British firms and research institutions could seek the best talent in a 500-million-citizens market, instead of the relatively modest British one. Right after Brexit, allegedly in two years from now, it all will be gone. At least, after a hard exit from the EU.

In this scenario, there might be scarcity of that high-skilled workforce which the UK imported from other European countries by offering better working conditions, higher salaries and more favourable career prospects. Companies would compete between them to attract talent, registering an increase in the average wage for high-skilled workforce and, thus, diminishing the productivity rates and profitability of those firms. This is precisely the reason why it is so strategically important for the UK to not close its job market to the immigration which, in fact, has shaped London during the last century. But, regarding this issue, I am afraid the hurtful myopia shown during the “Leave” campaign is here to remain.

Europe is the global region performing the strongest density of high-skilled employees compared to the total market. For that reason, the Single Market is the perfect source to drive talent towards London and British firms. Everything on Brexit will depend on the negotiations further to the activation of Article 50 of the Treaty on the European Union, as well as the political and ideological bias in the negotiating position maintained by Theresa May’s Government.

Extract of the letter sent by Theresa May to invoke the Article 50 of TEU. Source: BBC.

This is precisely where London public and private institutions, headed by the City Council and its Mayor, will be able to move this position towards their legitimate interest in fostering the city’s growth and prosperity. In this sense, the Mayor of London, Sadiq Khan, stated in his response to the Government’s White Paper on Brexit: “London’s competitiveness as a global centre of commerce and finance is dependent on our city remaining open to people, ideas and innovation.”

It is in its DNA: London is one of the most cosmopolitan and culturally exciting cities in the world. But it needs to work hard to retain its comparative advantage. The city has thrived on diversity and free movement of talent, much of it coming from across the European Union. In short, there is still much to expect from London as it faces complex yet vibrant challenges. The city and the whole country has the great chance to write a book from scratch on how it will be seen in the eyes of the world during the next generations.

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