London is booming again – and no, it’s not just about the spivs

published 2 February 2015

Overpaid 'banksters', crooked oligarchs, oily estate agents catering to both groups, and a smattering of celebrities and political lobbyists.This caricature of London has become widely accepted in recent years. Populist politicians from the Liberal Democrat business secretary Vince Cable to Ukip leader Nigel Farage have made a career out of bashing the capital. The Scottish Nationalists have played the same tune. With its mansion tax proposals, the Labour Party seems willing to go down the same road, held back only by the fact that it wins plenty of seats in the city.

In short, London is often viewed as owing its prosperity to little more than the City, with its bailed out bankers and non-domiciled billionaires, all of whom are sucking the life out of the rest of the UK economy.

A return to our roots

Yet that image is increasingly unfair. On Monday, the peer-to-peer money transfer company TransferWise announced it had raised $58m, mostly from Silicon Valley venture capitalists, in a funding round that is reported to have valued the company at $1bn.

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Only a few days earlier, the London-based music discovery app Shazam was also valued at $1bn in a funding round. Meanwhile, Notting Hill-based Made.com, which sells designer furniture online, has announced its intention to float on the stock exchange. New tech companies are springing up all the time, making London a rival to San Francisco for its cluster of high-growth web start-ups.

To anyone who knows London's history, this should not be a surprise. London is often thought of as a city dominated by finance, law, politics and the media. But that is not really true. London has always been a technological and industrial city. In fact, it has as rich an industrial and entrepreneurial heritage as any part of the UK. Henry Maudslay, acknowledged as the father of the machine tool industry, came up with the radical idea of machines that make machines in his workshop in Vauxhall. Without that, the industrial revolution would not have happened.

From tin cans, to sewers, to shipbuilding and subways, many of the key innovations of the 19th century came out of London. The film industry was based in the suburbs of London, and so was the pharmaceuticals industry, which became one of the UK's major exporters. There is nothing especially new about a technological London it is just that it has not been as prominent in the last 30 years as it was for most of the city's history.

Finance is no longer the driver

The new wave of tech entrepreneurs are rediscovering that tradition. By contrast, the City is hardly expanding at all. According to the City of London Corporation, total employment in the traditional finance industry, for which it is best known, fell in 2013, down to 392,000 people, compared to nearly 400,000 a year earlier. It has scarcely grown in a decade. The 2014 figures have not been calculated yet, but it would be surprising if they were up hugely, and it's more likely that they were down again.

The City is not creating new jobs in the way it was 15 or 20 years ago, when the towers of Canary Wharf were being filled with bankers, and new firms were moving to London all the time. Finance is consolidating and is likely to continue doing so. Bonuses are not what they used to be, and are unlikely to return to their stratospheric pre-crash levels.

A farewell to oligarchs

The oligarchs are unlikely to be as prominent either. A mixture of the UK's generous law on the taxation of non-domiciled foreigners which made London one of the best tax havens in the world and the rapid rise of huge fortunes in a few politically unstable regimes, made the British capital "Monaco-minus-the-yachts" for a few years. Now the oligarchs have plenty of problems at home, and the law is starting to be toughened up. It is unlikely that offshore billionaires will be the source of London's prosperity in the next decade, outside the smarter parts of Kensington.

Increasingly, London's success is entrepreneurial, not financial. A young, well-educated workforce, plenty of new, hard-working migrants, a vibrant financial sector to fund start-ups, and close proximity to a hugely wealthy market, have made it one of the best places in the world to start a new company. That can be seen in the number of new businesses coming through. In the first dotcom boom, there were relatively few London success stories Lastminute.com was the only one of real note. This time around there are plenty.

The rest of the country should stopbeing so snooty about London's prosperity. There isnothing flimsy or spivy about it. Instead ofbashing it, we should be thinking more about how it can be emulated across the rest of the country. If a few more cities were growing as fast as London is, then the whole economy would be in far better shape.

Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.

He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.