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Is Birmingham The New London In The UK?

Companies are starting to base HQs in the Midlands city

9May

HSBC’s announcement last year that it is to relocate its headquarters from Canary Wharf in London to Birmingham raised eyebrows, with some in the financial sector critical of the decision. It has, however, provoked a fresh wave of curiosity around whether Birmingham can become a new business and financial hub for the UK.

The benefits for Birmingham’s economy are clear, with the bank announcing plans to move a thousand jobs up to the new offices in Arena Central, Birmingham's central enterprise zone. Some experts and the banks rivals assume that the decision is linked to cutting costs, with London famous for its unjustifiably expensive lifestyle. However, HSBC has explained that Birmingham was chosen after considering all options in the country, and the bank does have historical links to the city. In 1836, Birmingham and Midlands Bank was established by Charles Geach in Birmingham. In 1992, it was fully acquired by HSBC, thus, going back to roots may be another reason.

Birnmingham is the second largest city in the country, and is currently growing rapidly, with flourishing infrastructure and a good business environment. HSBC is not the only bank to decide to expand outside London. More and more banks and companies are thinking to make such move in future. Antonio Simoes, head of HSBC UK, believes that Birmingham is going through a revitalization that makes it an attractive destination for businesses and people.

Something else that can shed light around Birmingham’s new appeal is the fact that all big banks in Britain are tied up with specific regulations. Banks have been forced to separate their UK units into ring-fenced entities with separate funding and leadership from their other riskier activities. As a result, other big banks could see this enforced separation as an opportunity to follow the example of HSBC by moving outside the capital.

One such rival is Deutsche Bank, which has already decided to relocate its trading operations to Birmingham. The German Bank has explained that the reason for expansion in Birmingham was due to cost-effective way to serve its mid-market clients, as it allowed the bank to 'cover clients that would be uneconomical to service out of London'. Deutsche Bank's representatives believe that the city offers a strong talent base with cheaper housing and short commutes for its staff.

However, other big banks such as Lloyds, Barclays and Royal Bank of Scotland have indicated that at the moment, no decisions were made on this subject and they are unlikely to move their ringfenced UK operations outside London.

Over the years, Birmingham has maintained a reputation for being one of the best cities in Europe to do business in - Cusham & Wakefield's European Cities Monitor has it in their top 20. With the current economic challenges facing Europe, it is in a strong position, and is a solid bet for businesses looking to locate.

According to the Office of National Statistics, a record number of 30-39-year-olds left London in 2013. People have settled in Birmingham, Bristol, Manchester and Oxford. One of the reasons why people are so attracted to move out from London is because it's cheaper and more spacious. People have become tired of working long hours and earning average wages, which can only get them through the day and offer a rather modest lifestyle. The average wage for London is £33,000 and in Milton Keynes, for example, it is £28,600. Unfortunately, it appears to be an illusion that people feel better financially in the capital. First of all, London is one of the most expensive places in the world to buy a property. The capital and its property investors have created a sizeable bubble, and there are no longer any affordable places to buy/rent. The cost of living is also probative. According to Alan Manning, from the London School of Economics, London allowances for public sector workers are no longer sufficient, making the situation even worse.

This flight of people from the capital to earn smaller amounts of money means there is a possibility that eventually, the country's GDP will be affected. In the United States, a 2014 study by the University of California showed that a lack of affordable houses in America's strongest performing cities between 1964 and 2009 cost national output 13%, and there is a good chance the same would happen in the UK.

The advantage of wealth spreading outside London is that other cities will become better places for businesses to set up. However, it also means that cities like Birmingham are more likely to see similar problems to those that exist in London. The short term forecast is positive, with investment growing, and new enterprises and jobs. However, it also means that cities like Birmingham will need thousands of houses built to accommodate the new arrivals, and if it doesn’t keep up with demand there is likely to be an increase in housing prices.

In the 1960s, the UK had the so-called 'Birmingham problem' which meant the city was too big, there were too many people living there. As a result, it was creating too many jobs and was too high in demand. As Birmingham was the center of manufacturing sector, wages there were higher than in London. The fact that Birmingham was creating too much influence than it could actually handle caused a deficit in housing and shortage in labor. In the end, Birmingham went into decline because hundreds of industrial firms were relocated to other areas. The city was left with an unemployment rate that had risen from almost 0% to 20%. In a couple of decades, Birmingham had turned from the strategic heart of a fast growing Britain to an unfashionable wasteland that served as an unpleasant reminder of its industrial failures.

At the moment, we can see the situation is changing to Birmingham's advantage, and companies moving their HQs from London to the city should provide an economic stimulus. Hopefully, Birmingham has learnt a lesson from the past and is now strong enough to handle its growth and possible problems it may cause.

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