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London business surveyDecember 2011

Foreword 03

Executive summary 04

1 London’s competitiveness 05

2 Economic and business prospects 08 3 The 2012 Olympic and Paralympic Games 10

4 London’s transport 12

Annex – about the survey 14

Contents

2 CBI/KPMG London business survey December 2011

We are delighted to present the findings of the fourteenth CBI/KPMG London business survey.

The survey received 262 responses from a good cross-section of the capital’s businesses, from CEOs and other senior leaders. Forty-four percent came from SMEs.

The survey was carried out in the early autumn against a backdrop of a sluggish economy just after the riots of the summer and as the eurozone crisis deepened. It therefore provides a measure of business confidence in the government’s current policies and of prospects for the London economy.

The results show that business confidence has taken a knock since June, with regard both to individual business prospects and the outlook for the wider economy. Although a majority of companies have plans to expand in 2012, this proportion represents a downward trend which has continued for the past year. The threat of a double-dip recession is the biggest concern.

London has some great strengths, and the summer’s unrest does not seem to have dented the view that it is a great place to do business. But the negatives – its high operating costs, its transport infrastructure, the tax environment and burden of regulation – must urgently be addressed if its position as a global city is to be maintained. While there have been transport improvements over the past year, improving London’s connectivity to domestic and international markets and addressing road congestion will be key issues for the policymakers. These are among the top things business wants the candidates for the 2012 mayoral election to focus on, along with promoting London internationally.

As the 2012 Olympic Games approach, the great majority of companies are looking forward to the occasion and believe business will directly benefit. But business feels there is not enough information to help it fully prepare for the impact of the additional volumes of people and the proposed re-organisation and closure of some roads in the capital. The Games will be a tremendous opportunity for business and for London but time is running out to ensure business is ready.

33CBI/KPMG London business survey December 2011

Foreword

Richard ReidLondon chairman, KPMG LLP

Sara ParkerRegional director, CBI London

CBI/KPMG London business survey December 20114

Executive summary

London’s competitivenessEighty-three percent of respondents rate London as a good or very good place to do business, slightly down from June. Nonetheless, London continues to have great strengths – its skills base and talent pool, its access to markets, and its proximity to customers and clients. The summer riots do not seem to have dented London’s position as a world city. But the capital’s high operating costs, tax environment and transport infrastructure are undermining its overall competitiveness – and business wants the candidates for next year’s mayoral election to focus on promoting London internationally, improving and maintaining its transport infrastructure, and supporting SMEs.

Economic and business prospectsThere has been a significant fall in business confidence over the past year, with only 13% of respondents feeling optimistic about the prospects for the economy over the next six months, compared to the figures of 43% in June and 44% in December 2010. There is a similar drop in sentiment about individual business prospects over the next six months, with 31% feeling less optimistic compared with 51% in June, an even lower figure than that recorded two years ago. In particular, London companies are concerned about the possibility of a double-dip recession and whether the government has a clear strategy for growth. Reduced public sector investment is less of a concern.

The downward trend in company expansion plans over the past year has continued, although 59% of respondents have plans to expand in 2012. Slightly fewer companies are planning to maintain or increase investment compared to six months ago except on IT, plant and machinery, and slightly fewer are hiring as normal compared to June 2011. A quarter of companies have found that the introduction of the annual cap on the number of tier 2 visas to non-EU migrants has been an issue for the business.

The 2012 GamesNearly four fifths of respondents are looking forward to the Games and two thirds believe their business will directly benefit. International promotion of London is seen as the most important economic benefit, followed by increased tourism and boosting the image and regeneration of east London. But there is continuing scepticism about whether the Games will deliver a skills legacy. Three quarters of companies do not believe they have enough information about security during the Games, and almost the same proportion feel they lack information about the Olympic and Paralympic Route Networks and transport issues. Consequently, only 32% feel prepared for transport and logistics issues. On the other hand, nearly half are now confident about dealing with staff absence during the Games.

London’s transport Overall there have been relative improvements across all transport modes in the past year. At least two thirds of respondents rated the networks as staying the same or getting better, apart from roads. A high percentage also thinks that transport connectivity from outside London is the same or improving. In line with previous surveys, the roads remain the biggest problem. Looking forward, respondents gave high priority to increasing rail capacity and connections, making existing airports more effective and expanding the capital’s airports. They also thought that development of a high-speed rail link between London and the Midlands would be desirable.

CBI/KPMG London business survey December 2011 5

1 London’s competitiveness

Firms report that London remains a good place to do business but the figures are slightly down on six months ago. Some of this may be due to the capital’s perennial weaknesses – operating costs, taxation and the transport infrastructure – but the current economic climate is also likely to be a contributory factor.

Key findingsLondon as a global business place• Eighty-three pecent of respondents rate London as a good or

very good place to do business compared with other global cities. This is down from 87% from the last survey and the previous high point (90%) in mid-2008.

• SMEs are less positive: 74% view the capital as a good or very good place to do business, but this is up from 72% six months ago though short of the December 2010 figure of 81%.

• Seventy-one percent of respondents felt the summer’s riots had not affected their view of London as a good place to do business (and 74% of SMEs said this). The rest said the riots had had a negative impact on their view of London as a good place to do business and 2% said the riots had a bad impact.

• Seventy-eight percent of firms believe London’s position in five years will be at least the same or will have improved – the same percentage as six months ago.

• An overwhelming majority of respondents (88%) believe their business will remain in the capital in five years’ time, the same as six months ago, while only 6% said the business was unlikely to remain in London, slightly up from the 4% which said this in the last survey.

Exhibit 1 London as a place to do business

2.5

3.0

3.5

4.0

SeptApr '11OctApr '10OctApr '09SepApr '08SepMar '07OctMar '06SepJan '05

4 = very goodOverall rating: 3 = good 2 = satisfactory 1 = poor/very poor

Exhibit 2 London’s status in five years’ time

1.0

1.5

2.0

2.5

3.0

Sep '11Apr '11Oct '10Oct '09Sep '08Oct '06

3 = improvedOverall rating: 2 = about the same 1 = diminshed


London’s strengths and weaknesses• London’s top three strengths

1 Skills and talent pool

2 Access to global markets

3 Proximity to customers/clients

This list is unchanged over the last two surveys.

For SMEs, proximity to customers and clients was the key attraction, displacing market access which came first in the last survey.

• London’s three major perceived weaknesses

1 Overall operating costs

2 Tax environment

3 Transport

These are the same top three weaknesses as reported six months ago but transport has moved from second to third place. For SMEs, though, transport is still the second biggest weakness.

Exhibit 3 London’s top strengths (scores afterranking)

0 100 200 300 400

Housing

Return on investment

Supply of affordable office space

Proximity to suppliers

Quality of life

Overall governance of London

Regulatory environment

Economic environment

Communications infrastructure

Transport

Proximity to customers/clients

Access to global markets

Skills/talent pool348

320

280

129

97

68

56

51

50

36

15

13

13


Exhibit 5 Priorities for the mayor(scores after ranking)

0 50 100 150 200 250 300 350

Climate change

Tackling the root causes of this summer's unrest

Improving the quality of life in London

Making London safer

Tackling the shortage of good quality and affordable housing

Delivering support for skills and apprenticeships

Strengthening business support for SMEs

Improving London's transport infrastructure

Promoting London internationally including exports and inward investment327

289

184

141

130

113

111

99

29

• Top three most burdensome areas of regulation

1 Employment

2 Taxation

3 Health and safety

These are the same top three as six months ago except that employment has regained the top spot.

The burden of bribery and corruption legislation has gone up from seventh to fourth place, ahead of planning and pensions regulations.

Key manifesto priorities for the next mayorBusinesses think that the top three priorities for the 2012 candidates for London mayor should be:

1 Promoting London internationally

2 Improving/maintaining London’s infrastructure

3 Strengthening support for SMEs

For the past 18 months, respondents have said that improving London’s infrastructure should be the mayor’s top priority, followed by promoting the capital internationally. Delivering skills and apprenticeships came third six months ago.

Exhibit 4 Most burdensome areas of regulation(scores after ranking)

0 50 100 150 200

Environmental and waste regulations

Company law

Pensions

Planning law

Bribery and corruption legislation

Health & safety

Taxation

Employment165

134

89

66

49

47

41

37


2 Economic and business prospects

The cautious business sentiment reflected in the last two London business surveys has grown more marked. Confidence about current business activity and the future economic outlook has deteriorated since June and a significant number of companies are less optimistic about the outlook. Although investment plans are holding up for the time being, uncertainty about economic conditions is acting as a brake while rising prices continue to represent a significant threat for business.

Key findingsEconomic prospects• Only 13% of respondents feel more optimistic about the

prospects for the economy over the next six months, a fall from 43% in June 2011 and 54% a year ago. This is the lowest proportion in three years.

• Furthermore, 56% feel more pessimistic than six months ago, more than double the June figure (26%) and almost five times the figure of a year ago (12%).

• The composition is similar among SMEs – 16% are more optimistic about economic prospects, but the majority (48%) are more pessimistic than six months ago.

Business prospects and concerns • Thirty-one percent of respondents are optimistic regarding

prospects for their business over the next six months, which is a significant fall from the figure of 51% in June 2011, and lower than the figure of 47% two years ago. Twenty-six percent are more pessimistic about business prospects over the next six months, more than double the figure in June (12%).

• Again the composition is similar among SMEs – 31% are more positive about their six-month prospects, but this is a fall from the figure of 57% six months ago. More SMEs are also more pessimistic about their six-monthly prospects (22%) than in June (15%).

Exhibit 6 Optimism about business prospects overthe next six months (% optimistic)

0

25

50

75

100

Sep '11Apr '11Oct '10Apr '10Oct '09Apr '09Sep '08

Exhibit 7 Major issues of concern over the next12 months (scores after ranking)

0 250 500 750 1,000

Bribery and corruption legislation

Auto-enrolment pensions

Industrial relations difficulties

Energy supply and costs

Rising unemployment

Greater complexities in forecasting and business planning

Reduced public sector investment

Availability of credit

Rising prices and inflation

Cost control

Lack of clear government strategy to deliver growth

Tax regime

Threat of double-dip recession818

394

325

293

269

240

224

200

192

157

59

35

24


• Top three concerns for London business over the next year:

1 Threat of a double-dip recession (55%)

2 Tax regime

3 Lack of a clear government strategy to deliver growth

SMEs ranked rising prices and inflation, and cost control above the tax regime.

Six months ago, companies said that rising prices and inflation was the third biggest concern but this has dropped to fifth place. A year ago, companies thought that reduced public sector investment was the second biggest concern but this has now dropped to seventh place (up from eighth place in June 2011).

• Fifty-five percent of companies think the public spending cuts will have at least a moderate impact on their business, lower than the figure of 71% a year ago.

Expansion plans• Fifty-nine percent have plans to expand over the next year,

continuing the downward trend over the past year and only slightly higher than the 58% recorded in mid-2010. Forty-two percent of those looking to expand want to do so in London – roughly the same (43%) as six months ago and up from a third (32%) in December 2010 – and 37% want to expand outside the UK, similar to the figure of six months ago (36%).

• Business value has continued its downward trend over the past year and is now at its lowest level for 18 months, but still higher than the low recorded in 2009.

• Overall, slightly fewer companies are planning to maintain or increase investment compared to six months ago, except on IT, plant and machinery. Spending plans have not caught up with the investment intentions of 18 months ago though they are higher than the low point of December 2009.

Exhibit 8 Spending plans over the next sixmonths compared to the last six months

2.0

2.5

3.0

3.5

4.0

Sept '11Apr '11Oct '10Apr '10Oct '09Sep '08Sep '07Oct '06Mar '06

Overall rating: 4 = more 3 = same 2 = less 1 = none

Marketing and promotion Product/process innovation

Land and buildings IT, equip, plant, machineryRecruitment/training

• Slightly more respondents are hiring only where essential (64%) or have a recruitment freeze (23%) compared to six months ago, when the figures were 59% (hiring where essential) and 20% (recruitment freeze). Conversely, slightly fewer are hiring as normal (54%) compared to last June (57%). The percentage resorting to redundancies remains around a fifth (22%), similar to the figure of last June (20%), and down from 53% two years ago.

• A quarter of companies responding have been negatively affected by the introduction of the annual cap on the number of tier 2 visas to non-EU migrants. Of those reporting problems, almost two thirds (63%) reported difficulty recruiting individuals with specific skills and over a third (37%) said it is taking longer to fill vacancies. Worryingly, as a result of these problems, 17% of respondents are now more likely to relocate work overseas.


3 The 2012 Olympic and Paralympics Games

The 2012 Games represent a huge opportunity for London. Business remains very positive about the Games and there is a growing confidence that the long-term legacy will be delivered. But there are lingering doubts about whether a skills legacy can be secured or the extent to which the Games will bring benefit to the UK economy outside the capital. More businesses are becoming aware of the need to prepare for staff absence and transport issues – but while more are ready for the former, fewer feel confident about how they will manage the latter. With only a few months to go before the Games begin, this represents a key challenge for policymakers and delivery bodies. On a more positive note, the summer’s unrest has not shaken business confidence in the handling of security matters.

Key findingsBenefits of the Games• Seventy-eight percent are looking forward to the Games and

two thirds (67%) believe their business will directly benefit.

• Ninety-two percent think the Games will help promote London internationally, slightly down from six months ago (94%). This is seen as the most important benefit.

• Eighty-nine percent think it will boost tourism, 82% think the Games will help give a positive image of east London, 78% think it will have a positive impact on regeneration, and 62% think it will improve transport – also important priorities.

• Only 34% think the Games will enhance skills, compared to 45% last June.

• Forty-three percent think enough is being done to ensure a positive long-term legacy from the Games, up from 35% six months ago.

Not confidentConfidentVery confident

Exhibit 9 Contribution of the 2012 Games: year-on-year comparison (%)

0 20 40 60 80 100

International promotion of London – Sept '11

International promotion of London – Apr '11

International promotion of London – Oct '10

Strengthened skills base – Sept '11

Strengthened skills base – Apr '11

Strengthened skills base – Oct '10

Improved transport infrastructure – Sept '11

Improved transport infrastructure – Apr '11

Improved transport infrastructure – Oct '10

Regeneration/physical legacy – Sept '11

Regeneration/physical legacy – Apr '11

Regeneration/physical legacy – Oct '10

Enhanced the visitor experience/increased tourism – Sept '11

Enhanced the visitor experience/increased tourism – Apr '11

Enhanced the visitor experience/increase tourism – Oct '10

Increased corporate community involvement – Sept '11

Increased corporate community involvement – Apr '11

Increased corporate community involvement – Oct '10

Boost to UK economy outside London – Sept '11

Boost to UK economy outside London – Apr '11

Boost to UK economy outside London – Oct '10

Positive image of East London – Sept '11

Positive image of East London – Apr '11166915

176517

16

16

19

12 56 32

12 55 33

11

4 25 70

6 39 55

3

57 31 12

54 40 6

45 47 8

31 66

51 38

59 22

56 28

51 33

24

27

26 63 11

58 15

52 24

58348

5

9

9

6 46 47

46 45

9 48 43

39

33 62

52


Business preparedness• Seventy-five percent do not believe they have enough

information about security during the Games, yet 62% say the summer’s riots have not dented their confidence in the authorities’ ability to deliver a secure Games. Seven percent say they are now more confident.

• Seventy-two percent of respondents feel they do not have sufficient information about the Olympic and Paralympic Route Networks and 69% said this in respect of transport bottlenecks.

• As more companies begin to think about potential transport and logistics issues during the Games, the percentage that currently feel prepared for these issues has fallen to 32% from 36% six months ago (though this is higher than the 26% recorded a year ago). But at the same time, the proportion of companies that feel unprepared for these issues is 39% (the same as in June), having fallen from 48% last December. This suggests that more companies are in the middle of planning for the Games and, indeed, only 13% of respondents have not yet considered the potential impact of these issues.

• Overall, almost half of businesses (49%) are now confident about dealing with staff absence during the games and only 20% have not yet considered the issue.

• Only 6% of SMEs are not confident about staff absence during the Games. While most have considered the impact of transport and logistics issues (87%), only 26% feel prepared.

Exhibit 10 Do you have enough information aboutthe following areas during the Games? (%)

Yes No

0 20 40 60 80 100

Transport bottlenecks

Olympic Route Network/Paralympic Route Network

Security25 75

28 72

31 69

Exhibit 11 How confident are you that yourbusiness is prepared for the Games? (%)

Does not apply Haven’t consideredNot confidentConfident

0 20 40 60 80 100

Security

Advertising restrictions during Games

Transport/logistics issues during Games

Staff absence during Games49 9 23 20

32 39 15 13

24 3410 33

49 2017 15


4 London’s transport

Key findingsPerformance of networks• Respondents think that overall there have been relative

improvements across all transport modes over the past six months. At least two thirds rate the networks as staying the same or getting better, except for the roads (47%).

• The tube has shown the biggest improvement: 36% say it is improving compared to 20% six months ago and only 5% say it is getting much worse (11% last June).

• Twenty-three percent say rail services are improving, up from 16% six months ago, and 17% think the Docklands Light Rail is getting better compared with 12% six months ago.

• Although fewer think the roads are getting worse, the number reporting concerns is still significant (almost half – 47% – but down from 62% last June).

• Seventy-one percent think transport connectivity from outside London is the same or improving, up from 63% six months ago.

Exhibit 12 Assessment of transport – is itimproving or deteriorating? (%)

Don't knowGetting much worseGetting worse

Staying the sameImproving slightlyImproving significantly

0 20 40 60 80 100

Transport connectivity from outside London

Cycle hire scheme

Taxi services

River buses

Docklands Light Rail

Road network

Rail

Buses

Tube3 5 20

18

8

6 13

35

44

13

25

14 12 47 21 34

18 35 211

13 62 9 12

40 12 31

44 14 31 3

34 38 8 1

8 21 39 21 2

49 20 31 9

37 33 3

Exhibit 13 What is your assessment of the serviceon each transport mode?

2.0

2.5

3.0

3.5

4.0

Sept '11Apr '11Oct '10Oct '09Sep '08Sep '07

Transport connectivityfrom outside London

Cycle hire schemeTaxi services

River busesDocklands Light RailRoad network

RailBusesTube

5 = improving significantly 4 = improving slightly3 = staying the same

2 = getting somewhat worse1 = getting much worse


Solutions for improvements• Top solutions for addressing pressures on London’s transport

networks:

1 Increase capacity

2 Optimise existing network

3 Pricing

• Top solutions for preserving London’s economic pre-eminence:

1 Increase rail capacity and connections

2 Make existing airports more effective

3 Expand Heathrow

4 Expand London airports other than LHR

This is the same as six months ago except that Heathrow expansion has moved from fourth to third place and other London airport expansion from seventh to fourth.

• Seventy-nine percent of respondents would support the development of a high-speed rail link between London and the Midlands.

• More respondents said the fare increases announced over the summer would not affect their view of London as a good place to do business (43%), than said that the increases would undermine the capital’s competitiveness (37%).

Exhibit 14 Top solutions to increasing London’stransport (scores after ranking)

0 100 200 300 400

Expand other SE airports

A new airport in the Thames estuary

Increase road capacity and connections

Expand London airports other than LHR

Expand Heathrow

Make existing airports more effective

Increase rail capacity & connections359

238

182

171

149

146

98

About the survey

The survey was carried out between 8 September and 11 October 2011. We received 262 responses, many directly from CEOs of leading companies.

Professional services was the largest sector with 23% of responses, followed by banking, finance and insurance (17%), and energy, manufacturing and construction (14%).

Forty-four percent came from SMEs.

NoteScoring methodology: where businesses were asked to rank preferences, a scoring methodology was used to reflect the ranking given. So where respondents were asked to prioritise a number of issues from a list, for example the three most important, if the answer was ranked 1 it scored 3, where it ranked 2 it scored 2 etc. The overall score for each answer is the sum of the scores for that answer summed over the set of respondents.

In some cases percentages amount to more than 100, due to rounding.


Annex – about the survey

Exhibit 15 Response by sector (%)

0 5 10 15 20 25 30Public

Transport & distribution

Property

Information, communications & technology

Professional services

Energy, manufacturing and construction

Hospitality, leisure, retail

Banking, finance & insurance17

9

14

11

5

7

2

23


About the sponsorKPMG is the global network of professional services firms of KPMG international, whose member firms provide audit, tax and advisory services. KPMG LLP (UK) operates from over 22 offices across the UK with over 10,000 partners and staff. KPMG works with business around the UK ranging from FTSE 100 to middle-market companies.

For KPMG For the CBI

Richard Reid Matt Lewis Bryan Cress London chairman Partner, National Markets Assistant director (policy)KPMG LLP KPMG LLP CBI London15 Canada Square 8 Salisbury Square Centre Point, 103 New Oxford StreetLondon E14 5GL London EC4Y 8BB London WC1A 1DU

T: +44 (0)20 7311 8956 T: +44 (0)20 7694 5452 T: +44 (0)20 7395 8125E: [email protected] E: [email protected] E: [email protected]

London

CBIThe CBI helps create and sustain the conditions in

which businesses in the United Kingdom can compete and prosper for the benefit of all.

We are the premier lobbying organisation for UK business on national and international issues. We work with the UK government, international legislators and policymakers to

help UK businesses compete effectively.

Our members benefit from our influence, a wealth of expertise, business services and events.

December 2011

© Copyright CBI 2011The content may not be copied, distributed, reported or dealt with in whole or in part without prior consent of the CBI.

www.cbi.org.ukProduct code: OPS_LON_212

For further information or a copy in large text format, please contact:

Bryan CressAssistant regional director (policy)

CBI LondonT: +44 (0)20 7395 8125

E: [email protected]

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