September 10 2013 London & the World Part three: a city under pressure

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London and the World | Overview London and the World | Overview CONTENTS The capital takes the strain in times of austerity London has fared better than much of the UK, but it is not immune to the impact of cutbacks – and also faces unique challenges. By James Pickford

2 OVERVIEW Despite its strengths, the capital is under Cuts to local authority budgets pressure in the wake of the financial crisis 4 POPULATION have left councillors facing Employers say attempts to cut migration could keep out the people London needs invidious choices on funding 6 HOUSING How much impact are foreign buyers having on the property market in the capital? benefit claimants decline since April 2011. But 7 AFFORDABLE HOMES Barnet’s claimant levels went up by 45 per cent, Traditional models of home ownership may and Newham and Haringey showed rises of 41 become a thing of the past, campaigners say per cent and 21 per cent. 8 EDUCATION Private rented property has become more The equivalent of 200 primary schools will be expensive over the period, and research by the needed by 2017 following a new baby boom Centre for London think-tank shows that rental 9 FREE SCHOOLS costs as a proportion of household income have Can the government’s new educational model increased from 21 per cent in 2001-02 to 27 per create places where they are most needed? cent in 2010-11. The proportion of people renting 10 OFFSHORE FINANCIAL CENTRES privately in the capital has risen to 25 per cent, The City’s relationship with overseas tax up from 18 per cent two years ago. havens is under ever-closer scrutiny The government says that London’s local 11 OPINION authorities received an extra £50m to help those Green party leader Natalie Bennett calls for affected by the housing benefit cap. But the a fundamental rethink on how London works councils would like to see the capital treated as a special case, with a higher cap to offset its greater housing costs. CONTRIBUTORS While councils have largely directed their NATALIE BENNETT is the leader of the criticism of public spending cuts at central Green party government rather than City Hall, Mr Johnson HANNAH KUCHLER is an FT journalist has not escaped the effects of tighter funding. FEARGUS O’SULLIVAN is a freelance Local authorities have attacked the mayor over journalist his plan to cut £28.8m from the fire service JAMES PICKFORD is the FT’s London and budget over two years, with the closure of 10 fire southeast correspondent stations and the loss of 14 fire engines and 552 HELEN WARRELL is the FT’s public policy firefighting jobs in the capital. correspondent (education and home affairs) Eight Labour-led councils have written to Eric Pickles, communities secretary, to try to overturn it, and said they would seek a judicial ILLUSTRATIONS review if the decision went ahead. It has even NICK LOWNDES prompted objections from Tory-run councils, such as Westminster and Kensington & Chelsea, where fire stations are to close. Special reports editor Michael Skapinker Londoners are not behind Mr Johnson: a Editor Hugo Greenhalgh YouGov poll in July showed 61 per cent against Lead editor Jerry Andrews the cuts, and 69 per cent believed they would Production editor George Kyriakos threaten public safety. Sub editors Richard Gibson, David Scholefield On infrastructure and spending – City Hall’s Picture editor Michael Crabtree biggest budgetary responsibility – the mayor has Art director Derek Westwood fared better. In its comprehensive spending Head of project delivery Rachel Harris review in June, the government cut Transport Head of strategic sales Patrick Collins for London’s grant by 12.5 per cent, to £1.6bn in Head of B2B & World Reports Robert Grange 2015-16. But fears of threats to Tube upgrades, road safety improvements and an ambitious cycle scheme proved false after ministers All editorial in this special report is produced by pledged to hold capital investment at the FT. Our advertisers have no influence over, or £1bn a year in 2015-21. prior sight of, the articles or online material. Tony Travers, a local government expert at the London School of Economics, OR ALL ITS RELIANCE ON greatest between boroughs and the government. Ravi Govindia, London Councils’ executive says: “Transport has not financial services, London’s Cuts to local authority budgets have left member for adult services, says: “While we The pioneer with the lamp been subject to anything economy has shown remarkable councillors facing invidious choices on funding, support the [Care] Bill, we are concerned that like the pressures imposed strength in the years following including that for activities they are statutorily councils will have to pick up the tab if it goes THE LIVES BEHIND THE BLUE PLAQUES on local government.” the banking crisis. It has put obliged to provide, such as rubbish collection and ahead as planned without first taking into COMMEMORATING SOME OF LONDON’S EMINENT These questions will be more distance between itself and adult social care. account London’s circumstances – particularly RESIDENTS. FIRST: FLORENCE NIGHTINGALE brought to the fore in two the other regions of the UK in London Councils, the umbrella organisation the high cost of residential care.” big tests of public opinion terms of output, and extended its for the city’s 33 local authorities, says a funding It is unclear whether Florence for London politics over the lead against the national average in household gap of £907m will open by 2018 because of the HE APPLICATION OF UK-WIDE Nightingale would have next two years: borough Fincome, employment rates and productivity. With rising cost of adult care. One-third of councils’ policies to London’s distinctive flourished in a National Health elections in 2014 and the general a broad-based economy and highly skilled labour funds are spent on adult social care, and this is economy creates other difficulties. Service tightening its belt. After election in 2015. Video force, the capital has cemented its status as the expected to grow as the population ages during The government is introducing being used by the government Mr Travers says the Labour party Gerard Lyons, chief engine of the UK economy. the next decade. The organisation has also changes to the benefits system, as a heroic figurehead for British efforts was likely to make “small gains” in the This has not left it unaffected by cuts in warned that the capital’s local authorities would Tcapping the total amount that a household can in the Crimean war, she raised the then borough elections, but questioned the view that economic adviser to the government spending designed to reduce a face further costs of £877m by 2019-20 to receive at £500 a week. Londoners pay about lavish sum of £45,000 to found a nurses’ London was a city that habitually votes Labour mayor, debates affordable daunting budget deficit. But the impact has accommodate government reforms to the care £1,400 a month for a two-bed property, against a training school at St Thomas’ Hospital, with in national polls. The party has seen big revealed itself in ways that reinforce the system. Under the plans, any care costs above a national average of £665, so more capital dwellers facilities that now seem spartan but were increases in its London vote share since 1997. housing with Toby Lloyd, contrasts between the capital’s economy and lifetime limit of £72,000 are expected to be will be caught by the cap. excellent for the time. She went on to But the “London Labour lead” is relatively new that of the regions. This has led to calls for carried by councils. Concerns have surfaced that the policy is revolutionise British nursing, despite being in historic terms, and by no means guaranteed. Shelter’s head of policy London to be treated differently by national But the costs of residential care are highest in pushing low-income groups out of central London confined to bed in her house in South Street, “The big challenge for Labour in 2015 is to hold www.ft.com/ policy makers – not least from its Conservative the capital. This means the proportion of people to the outer boroughs, which in turn puts Mayfair, almost crippled by an undiagnosed on to those people,” he says. mayor, . paying for residential care in London could reach pressure on their provision of essential services. case of the bacterial disease brucellosis. Tensions over spending – and arguments over london-world If deficit reduction has exacerbated the 27 per cent, compared with 3 per cent in areas of Islington, Camden, Kensington & Chelsea and Feargus O’Sullivan the capital as a “special case” – are unlikely to

PHOTOS: GETTY; BLOOMBERG; ANNA GORDON tensions in London politics, friction has been the UK where it is far cheaper, the report said. Westminster have seen the number of housing recede soon from London’s political debate. 4 FINANCIAL TIMES TUESDAY SEPTEMBER 10 2013 FINANCIAL TIMES TUESDAY SEPTEMBER 10 2013 5

London and the World | Migration An open or shut case Is the push to restrict immigration keeping out the very people the capital needs? By Helen Warrell

ORE THAN ONE IN three Londoners were born outside the UK, and last year it emerged that white ethnic Britons are, for the first time, a minority in the capital. A decade-long surge in the numbers of Indian migrants, among Mothers, has contributed to London’s diversity. But just as this trend became apparent, ministers began signalling that visitors from the Asian subcontinent and other non-European climes are less welcome than they once were. The tightening of the UK’s borders – targeting migrants from countries such as India, Pakistan and Sri Lanka – will not only affect the cultural composition of the big cities. Those in the City of London who compete with businesses in other countries to hire talented foreigners argue that politicians’ immigration objectives are undermining the government’s drive for growth. At the centre of the controversial change of direction is Theresa May, the home secretary. Ms May is battling to meet the prime minister’s pre- election pledge of bringing down annual net immigration to less than 100,000 by 2015 – a significant task given that this figure reached 250,000 in the early years of the coalition. Efforts to stem the flow of immigrants have included a cap on skilled workers entering the UK from outside the EU, a clampdown on bogus international students and colleges, and new restrictions on foreign students staying on in Britain after they have finished their degree. But Baroness Valentine, chief executive of the business lobby London First, says policies such as these have “undoubtedly” affected the City’s ability to hire the skilled people it needs. “David Cameron and his colleagues preach a strong ‘open for business’ mantra, but undermine themselves by the barriers they create,” she says. “To hit its net migration target, the government’s only option is to reduce non-EU immigration. . . but these are the high value people needed by business,” she adds. “Restricting these migrants is a genuine threat to the Johnson said it was “crazy” that the UK should Salt says has shifted the UK “particularly out of competitiveness of London and the UK.” lose foreign students to the US and Australia. He line with other OECD countries”. While senior HR directors across the Square also criticised Home Office visa policies for “Most of those passing legislation on this in Mile express similar views, such concerns are not sending the “wrong signal” to talented foreigners the past couple of years have been trying to well heeded by politicians. The recent electoral who were considering coming to Britain. encourage their international graduates to stay successes of the staunchly anti-immigration UK The mayor focused his vitriol on the damage and enter the labour market,” he says. Independence Party have only emphasised that that student visa changes are doing to the UK’s After an intensive period of rule changes in the immigration will be a particularly sensitive issue education exports – which eventually also harms first two years of government, the Home Office in the next election. Politicians in all three main businesses if the brightest tech and engineering last year announced an end to the constant parties are keen to show they understand voters’ students gravitate towards universities and turmoil and promised companies that they would concerns about foreign settlers, and the potential companies in other English-speaking countries. not have to contend with new restrictions or a strain they put on jobs and public services. While the Office for National Statistics estimates further tightening of the cap on skilled One exception is London’s mayor, Boris that 246,000 international students arrived in the immigrants. This proved a welcome reprieve, and Johnson, who has argued with Downing Street UK in the year to September 2011, this many of the business criticisms receded. against his own party’s efforts to cut immigration number fell to 190,000 in 2012. But as the election approaches, ministers are and particularly about the repercussions for his John Salt, director of the again beginning to consider ways to send voters

own domain. On a trip to India last year, Mr PHOTOS: GETTY; ROSIE HALLAM migration research unit at the message that immigrants are being kept out. University College London, Julia Onslow-Cole, head of global immigration agrees with Mr Johnson that at PwC Legal, fears a “promised period of policy student policy is the area in stability” for companies may never materialise, as Seeking sanctuary in suburbia which Britain’s visa changes public concern about immigration increases. The have been most potent. next flashpoint is likely to occur when controls Émile Zola’s London sojourn “OECD [Organisation for on EU migrants from Romania and Bulgaria are from 1898 to 1899 was not a Economic Co-operation and dropped at the end of this year. happy one. After writing Development] members are all Ms Onslow-Cole also warns that the ‘J’accuse’, his front page competing for high-level skills introduction of £3,000 visitor bonds to deter newspaper article lambasting the and have been for some time,” immigrants from India, Pakistan, Sri Lanka, French establishment for the says Prof Salt. “I suspect the UK Bangladesh, Ghana and Nigeria from overstaying Dreyfus Affair, he fled without even is as competitive as it ever was for could directly affect City graduate schemes that a suitcase to escape jail for libelling those sectors in which the UK bring in new recruits for a short time. the French state. Speaking no English, he economy is strong. The area where The migrant bond move, floated over the ended up isolated at a hotel in Church Road, government policy really has had an effect is summer, has already caused a political furore, Upper Norwood, in suburban South London, tier one. The UK has effectively put up the with Vince Cable, the Liberal Democrat business separated from wife and mistress, and incognito shutters on people coming here from non-EU secretary, warning his Cabinet colleagues that it to all but a few close friends. It is little surprise countries to search for work.” would send the message that Britain was “closed that Fécondité, the novel he wrote during this Ms May’s closure of the old visa route, which for business”. Whether this translates into yet time, is not considered one of his best. gave foreign students two years after their more problem for struggling companies in the studies to find work in Britain, is the policy Prof capital remains to be seen. 6 FINANCIAL TIMES TUESDAY SEPTEMBER 10 2013 FINANCIAL TIMES TUESDAY SEPTEMBER 10 2013 7

London and the World | Housing London and the World | Housing Foreign players in the property game Do buyers from overseas snap up homes destined for Londoners – or help to ensure that new developments get built in the first place? By Hannah Kuchler

OREIGN PROPERTY BUYERS may be looking beyond Affordable housing Local residents are priced out London’s most pristine streets to purchase in less desirable parts of the capital but some estate agents argue they are not distorting the housing market HISSUMMERACONVERTED can charge, and in the private market, still for one simple reason: most live garage in Highgate was put on the dominated by individual buy-to-let landlords, it is and work in London. As mansions on the streets market for more than the price of an pushing for longer leases. Fof Kensington have been bought up by Russians average house in England and Wales. But Roger Harding, head of policy, research and Italians, and even new-build developments in It was one more indicator that and public affairs at Shelter, says the less prestigious areas are being advertised in Taffordable accommodation is moving out of government is not taking the “bold choices” Singapore and Hong Kong, some have feared a reach for many of the capital’s workers. needed to control rising rents and help people new housing bubble fuelled by foreign money. For £250,000, the 224 sq ft “one-bedroom studio” buy homes. “Outright normal home ownership Tales abound of whole blocks of flats left offered a small window, a couple of skylights, just won’t be an option in London,” he says. “It empty by arm’s-length investors awaiting capital and a toilet squeezed into a corner between will become more of a question of shared return, but estate agents insist that changes in shower and hand basin; even some of these so- ownership or long-term private rentals.” the market simply reflect the international called “beds in sheds” are too expensive for Mr Harding thinks the government needs to metropolis that London has become. Yolande many Londoners. boost shared ownership, to help create a Barnes, director of residential research at the Decades of missed targets for housebuilding secondary market that would encourage middle- estate agent Savills, argues that blaming foreign have left the UK – and especially jam-packed income earners to view it as a viable option. He investors for fuelling a boom in London house London – significantly short of affordable homes. says London is losing these middle class prices is “verging on the xenophobic”. Mark Prisk, the housing minister, admits there professionals the fastest, making the capital a “There’s a lot of money in London, whether it is is a “mountain to climb” to turn the situation more polarised place to live. from UK nationals or foreign nationals, and around. Housebuilders’ pre-tax profits last “London is an increasingly unequal city,” he simply not enough housing,” she says. “It’s true quarter rose almost 10 times faster than the says. “Over the past 30 years those on middling that the middle class has never been able to live number of homes built and Mr Prisk is calling incomes have moved out and the trend seems to in Mayfair. But ‘Mayfair’ has now become a lot on them to step up construction of affordable be continuing: to remain living in London you bigger – and includes Bermondsey.” properties. “I don’t have a problem with need either a significant wage to buy or you She says the number of foreign buyers – housebuilders securing good profits, he says. need to be able to access social housing.” about 38 per cent of purchasers of prime London “But now we think the market has turned the Duncan Stott of the campaign group Priced property overall – is close to the 35 per cent of corner and housing association demand is strong Out, which lobbies for people who cannot afford Londoners who are born overseas. As few are enough, I’m going to ask them, what are you to get on the housing ladder, says people are predicting the mass departure of migrants, going to do about it?” moving out of the capital so they do not have to analysts do not think the bottom is likely to drop The government is trying to encourage big spend so much on housing. “There are people in out of this market any time soon. institutions such as insurers and pension funds their 40s realising that the chance of getting a The housing charity Shelter says the UK is to invest in both the social housing and private mortgage is very slim because of their age, and building half of the 250,000 homes required each rental markets. For affordable housing, it has that often proves a wake-up call,” he says. year to meet rising need. A shortage of housing committed itself to a 10-year rent policy to give Mr Stott is calling on the government to has meant the proportion of homes in the capital investors more certainty about what rents they restrict foreign capital investment in housing – owned with a mortgage dropped by 18 per cent in perhaps by increasing stamp duty for foreign the decade to 2011, while private renting rose by buyers – to ensure houses are lived in and not 63 per cent, according to census data. ‘You need either a significant left empty as investments. “This is a bubble,” he Some in the property market do worry that the says. “As the global economy improves, London surge in overseas buyers causes problems for wage to buy or you need to be property will be viewed less as a necessary safe domestic would-be homeowners. haven and money may shift out of it.” “It is fantastic that London has this able to access social housing’ Hannah Kuchler magnetism, but the reality is that prices have skyrocketed and are, for many locals, simply out of reach,” says Charles McDowell, an estate agent specialising in prime London property. “It has existed at the top end of the market for a long time, but the overseas interest in the mid and low market housing is relatively new.” Liam Bailey, global head of residential research at Knight Frank, the estate agents, says foreign buyers might be looking beyond traditional areas such as Kensington and Chelsea precisely noticeable in areas like the City fringe and the the market that appear overheated. Analysts at because they live and work in the city. The Southbank – areas which were not on the radar Fathom Consulting, the research and consultancy eurozone crisis has drawn more European of wealthy foreign buyers a decade ago.” Many central London company, say valuations of prime central London professionals to London to develop their careers Foreign buyers are more dominant in the property are more vulnerable. The price of a or businesses, he adds. “This is especially new-build market, purchasing nearly three- developments are typical property in the most expensive parts of quarters of new homes in central London is 6.5 times the national average – up London. Most of these are advertised at advertised at more than 20 per cent in the year from mid-2012. overseas events in places such as Danny Gabay, director of Fathom Consulting, Carpenter’s grand ambitions Singapore and Hong Kong before events overseas says prices of high-end central London property being offered to UK buyers, according are more driven by global equity prices and Master builder Thomas to research from Knight Frank. currency flows than house prices in the rest of Cubitt not only built the But the newbuild market is a small from investing in housing, this will help. All it the UK. He believes that the withdrawal of grand house in Lyall section of the whole, about 20 per cent will do is it will never get off the ground.” quantitative easing by the US Federal Reserve is Street, Belgravia, where his of all transactions in 2012, and buyers For Henry Overman, a professor of economic the biggest threat to house prices in the most blue plaque hangs, he built do rent out the flats they purchase, says geography at the London School of Economics, expensive central London areas, which he thinks the entire area. From a Savills’ Ms Barnes. “It seems to be a there is a simple explanation for London’s house are about 10 per cent overvalued. humble background in Norfolk, popular notion but if the lights are out at prices: you just need to “do the maths”. “In the “The gradual withdrawal of monetary stimulus Cubitt designed and built a large 8pm it is because the residents are out in [2011] census the population went up by 4m but by the world’s central banks risks removing one swathe of what still counts as London’s London enjoying themselves or working long we built 1.4m homes in a decade,” he says, of the key supports to global asset prices, most desirable property. From leafy suburbs at hours – not because they are empty properties.” adding that the trend was seen outside London including prime central London,” he says. Highbury and Stoke Newington to grand Mark Prisk, the housing minister, warns not to where there were far fewer foreign buyers. “In But owners of some of London’s most Bloomsbury squares and the stucco “throw the baby out with the bathwater” when southern Manchester, property prices are pretty prestigious properties could put their faith in the concoctions of Belgravia and Pimlico – and talking about foreign buyers. He says money from high relative to incomes, which is put down to a new governor of the Bank of England, according even Buckingham Palace – his legacy is all the foreign buyers willing to buy off-plan helps supply constraint and domestic demand... prices to Mr Gabay. If Mark Carney can convince more impressive when you learn that he began developers get new schemes built – which leads are high in most successful places in Britain.” markets that policy tightening in the UK remains his career as a lowly ship’s carpenter. to a greater supply of housing for everyone. “It is While few dispute that there is a shortage of a “very distant prospect”, prices could just about

a mistake to think if we bar people from abroad housing in London, some argue there are areas of PHOTOS: GETTY; ANNA GORDON stay steady, he says. 8 FINANCIAL TIMES TUESDAY SEPTEMBER 10 2013 FINANCIAL TIMES TUESDAY SEPTEMBER 10 2013 9

London and the World | Education London and the World | Education Beware children: schools face new baby boom The capital needs the equivalent of nearly 200 new primaries by 2017 if it is to meet the soaring demand for places, writes Helen Warrell

NLY TWO DECADES AGO, schools in London were Free thinking Can Michael Gove’s pet policy plug the gap? among the worst-performing Many parents have in the country. The subsequent campaign to to contend with improve state school provision has resulted in a having children at remarkable turnround, so Of 93 free schools that that many London schools now vastly outperform two or three schools Otheir counterparts in the rest of the UK. opened this month, This, combined with the enduring success of London’s well-known private schools, has drawn none was in the most families from all over the world. However, an impending shortage in school affected boroughs places, set to hit schools in the capital harder than elsewhere, threatens London’s hard-won primacy as a centre for education excellence. The shortfall in places, due to take hold in September 2014, is caused by the biggest birth boom in the UK since the spike immediately after the end of the second world war. While this will affect cities all around Britain – a total of 256,000 extra places will be needed by this time next year – London, with its high number of immigrants and growing school-age population, accounts for 42 per cent of the deficit nationally. The demographic data explain starkly why the capital will be under fire. Census figures show that between 2001 and 2011, the capital’s school- age population rose by 107,000, a growth rate of 8.2 per cent compared with 0.2 per cent in the rest of the UK. London’s primary-age population is also increasing at twice the rate of the national average. To cope with this, the capital needs to create 83,470 school places between 2014 and 2017 – the equivalent of 199 new primary schools or 80 new secondary schools. Expansion on this scale would mean building enough classrooms to cover 151 full-size football pitches. HE SHORTAGE OF SCHOOL PLACES government is putting huge amounts of Unsurprisingly, schools around the capital are is not only creating problems for money into their pet projects with academies already feeling the pressure. Gascoigne Primary teachers – it has also become a vexed and free schools whilst councils like ours in Barking, east London, is already the largest political issue. Michael Gove, education aren’t getting the money we need to create primary school in England, and Bob Garton, its secretary, argues that Labour ignored more school places.” headmaster, is running out of space to build new Twarnings about the imminent capacity squeeze, Fiona MacTaggart, Labour MP and former classrooms or park portakabins. Despite having slashing 200,000 primary places and reducing the primary school teacher, says she faces a crisis increased capacity to 1,200 pupils, Mr Garton has amount spent on areas of population growth. over school places in her Slough constituency, to turn down more and more pupils, and he says By contrast, Mr Gove says, the coalition has to the west of London. “We are struggling to many parents in Barking and Dagenham now taken “swift action” to repair the damage caused achieve sufficient places, and the free schools have to contend with having children at two or under the previous government by doubling the movement doesn’t necessarily provide places three schools. argues that ministers have not taken property some pupils attending Monday to Wednesday and funding available for new school places and where they are needed,”she says. “What happens is the children who are in Contingencies for a worst-case prices in the capital into account. the others Thursday to Saturday. setting up “great new free schools, which are While the MP is not against the creation of Barking can’t get a place in Barking,” Mr Garton There is, however, yet another reason why Mr Gill says that unless the government can giving parents a choice of high-quality school academies or free schools, she says the fact that says. “They are then . . . being placed in schools scenario could include splitting state schools in London are feeling increasingly provide the necessary funds, these measures may places in areas Labour neglected”. these institutions operate outside the local a distance away, or they’ll have siblings in two stretched. It appears that rising school fees in become necessary. Critics of the free school reforms argue that authority means that there is no one body that other schools. That is really difficult. You’ve got the day into shifts of pupils sector are also taking their toll, “These aren’t top of the options, because we since these are demand-led, local has oversight of provision in any given area. two or three children in your family, they’re and some parents who would traditionally have want to provide everyone with a place in the authorities and ministers “The changes to the school system under this young children, so you’ve got to take them to sent their children to private schools are now current system,” he says. “But the problem is cannot direct the creation of coalition have skewed the capacity to plan,” school. Where do you go first – where would is more pressure on teachers, who face falling back on the state. very real and we have to have a plan.” schools where they are Ms MacTaggart says. “I am not against having a you drop them off first?” increasing class sizes. “We are already seeing Research conducted this spring by the Good most needed. This pitfall variety of different types of schools, but what I Barking and Dagenham, in common with other many schools where the number of children in Schools Guide found that charges for the eldest is evident in the newest think we do have to have is the ability to plan.” local authorities around London, has campaigned the classroom has gone over the 30 limit that pupils at 50 highly academic day and boarding wave of 93 free schools Bob Garton, headmaster of Gascoigne Primary for more funds from the Department for used to apply,” he says. schools had gone up by almost 5 per cent Where ‘The Planets’ was born that opened this school in Barking, England’s largest primary Education to pay for new places. Small amounts In fact, research published this month by between September 2011 and 2012 – significantly month. None of the school, says ministers should not be relying on have been pledged as a stopgap, but the new London Councils, a body representing the higher than the 2.2 per cent inflation rate over One wonders if pupils at St Paul’s London boroughs piecemeal school start-ups catering only to small £820m announced for school places in England capital’s 33 local authorities, found that councils the same period. The researchers suggested that Girls School realised how lucky most affected by the numbers of pupils. “Free schools don’t want to under the Spending Review will not become are spending £9,000 a pupil of their own funds to London day schools and boarding schools were they were to be taught by shortage of places – build five-form entry schools because they’re so available until 2015. create the places needed. This comes at a time increasingly relying on foreign parents to afford Gustav Holst. The composer of Barking and big,” he says. “It’s about 90 per cent of primary David Simmonds, chairman of the Local when London boroughs have had to contend with higher fees, while British children were in some The Planets worked at the school in Dagenham, Newham schools that have had to take in extra classes in Government Association’s Children and Young a 35 per cent funding decrease over the current cases “falling out” of independent education. Hammersmith, west London, from and Waltham Forest – each year group, and that’s such a massive People Board, and a Conservative councillor in spending review period. Back in Barking, the local authority is less 1905 until his death in 1934, halting a have a new primary problem, just building a small free school or the London borough of Hillingdon, says delays concerned with why it is facing a places crisis regime that had taught girls to do little school on this list. academy won’t alleviate the problem – it’s got to such as this are crippling for schools. HE PROBLEMS FACED IN THE than how it can plug the gaps. Rocky Gill, more than tinkle prettily at the keyboard, For Margaret Hodge, Labour be a borough-wide initiative.” “The challenge at the moment is getting the capital are made worse by the fact deputy leader of Barking and Dagenham Council, and introducing his pupils to the mathematical MP for Barking, the government The headmaster also fears that the long process money for the projects on the ground,” he that higher property and construction is meeting headteachers to discuss contingencies rigour of Bach. While Holst took the post response is “simply not good enough. of achieving local consent for a free school is explains. “The processes for getting funding from costs make it more expensive to build for a worst-case scenario. This could include because composing work did not keep Playgrounds and playing fields are under threat impractical when places need to be found central government involve a lot of bureaucracy, new premises. Even the coalition’s splitting the school day into shifts, so that half his family, the large volume of scores he as schools struggle to make room. Facilities urgently. “I feel this is an emergency situation and we don’t have 18 months to go through all Tflagship free schools are struggling to find the pupils attend from 8am until 2pm, while the wrote during the period suggest it cannot like music rooms get closed as heads struggle which needs direct action, and government needs that when a child needs a place next term.” adequate sites in London to set up new other half comes in from 2pm until 8pm. have been an entirely onerous one. to find more classrooms for our children,” she to realise that,” Mr Garton says.

The consequence of this, the councillor says, education institutions, and London Councils Another idea is a three-day school week, with PHOTOS: GETTY; ROSIE HALLAM wrote earlier this year. It is not right that the Helen Warrell 10 FINANCIAL TIMES TUESDAY SEPTEMBER 10 2013 FINANCIAL TIMES TUESDAY SEPTEMBER 10 2013 11

London and the World | Tax London and the World | Opinion Trouble abroad for the City? London’s relationship with Britain’s offshore financial centres is under scrutiny amid calls for greater transparency. By Vanessa Houlder

N THE EVE OF THE 2008 financial crisis, a dinner at Natalie Bennett The Green Party leader re-imagines the city the Mansion House in the heart of the City of London celebrated the increasingly close relationship between Britain’s financial hub and the Isle of Man. “You are indeed a core asset of the City,” said London’s Othen Lord Mayor David Lewis, toasting the financial centre established on the small island 60 miles off the coast of northwest England. CAN DATE THE MOMENT I FELL IN The five years that followed have been a torrid love with London. It was April 1990. I laid London’s economy time for offshore financial centres. Amid growing a hand on the Norman wall of St Bar- anger over tax dodging from a public wearied by tholomew’s church in West Smithfield and must be much more austerity, critics have accused tax havens of fell for all those human stories that it had destabilising the world economy, helping to hide Iwitnessed through the centuries. than the Square Mile money in secret accounts and facilitating Political life has given me many new angles on corporate tax avoidance. London, its past and present, and how this city is But throughout, the City of London has valued becoming riven with faultlines – giant crevasses That has begun: I recently visited OrganicLea, its symbiotic relationship with Britain’s offshore of low wages and insecure jobs, impossibly expen- a workers’ co-operative in Chingford, in the centres, particularly the Crown Dependencies of sive housing and punishingly costly transport. northeastern suburbs, that is making a valiant Jersey, Guernsey and the Isle of Man that It is rapidly becoming a massively difficult, start, but there is a vast distance to go towards provide liquidity to UK-based parent banks. even impossible, place, for many of its inhabit- food sovereignty and security for London. Roger Gifford, current Lord Mayor of London, ants to survive in. Yet history can give us a Restoring manufacturing and food production – recently described Jersey as “a fantastic adjunct” guide on how to make London livable and afford- part of the “reshoring” trend being increasingly to the UK economy. “They gather funds in a tax- able for all of its residents, a transformation reported in the media – would help to recreate a efficient way and send them on to London. essential for its economic and social stability. range of employment and opportunities for small That’s a great advantage to the UK,” he said. It is important to begin with a long-term prob- businesses and co-operatives to flourish, which is Jersey is the custodian of £1.2tn of wealth, lem. London has at its centre a massive black essential if we are to rebalance the capital’s nearly half of which is funnelled into UK assets hole that sucks in money and talent. And it spits economy, and provide the decent, secure jobs that support about 112,000 jobs, according to out ruined human lives, while playing a huge that Londoners need. Capital Economics, a consultancy that conducted role in creating global crises from financial a study of Jersey’s finance sector. It found that crashes to developing world debt. N THE LIVING WAGE, LONDON HAS the City of London would lose business to rival Boris Johnson might have the title Mayor of been a leader – pushed by the two Green financial centres such as New York, Hong Kong London, but at the heart of the capital is the OParty London Assembly members – but or Dubai if the Crown Dependencies did not exist. Square Mile, over which he has little say – a only 1.3 per cent of low-paid workers have bene- But the notion that Britain benefits from tiny city state with vast global reach through its fited. Cleaners working for TfL and Met Police offshore centres cuts little ice with critics, not colonial outposts, the tax havens. On day one of security staff are still struggling by on the least because their reach extends far beyond the the Occupy protests, I stood at its heart and saw national minimum wage of £6.19 an hour, among UK. Christian Aid, the charity, calculated that $1 a little of the veil over the City torn back. It is the 680,000 adults in London living in in-work in every $10 of foreign direct investment to a tear that is only going to widen if we fail to poverty. What we need is national action to make developing countries is routed through the UK’s regulate and restrain our financial industries. the minimum wage a living wage. Overseas Territories and Crown Dependencies. The City of London Corporation has powers Today, the minimum wage delivers a monthly Kofi Annan, the former UN secretary-general, dating back to before William the Conqueror but, take-home pay of £913. There is no borough in has raised concerns that the use of offshore while it once stood up to kings to defend its citi- London where that will make the rent of the companies “facilitates tax evasion and, in some the rankings of corporate bank accounts involved says: “Britain started with the biggest problem. and standards. Geoff Cook, chief executive of zens and provided a safety net for its poor, it is cheapest two-bed home affordable. The soaring countries, corruption, draining Africa of resources in corruption cases examined by the World Bank. London is the epicentre of law and accountancy Jersey Finance, says: “It cannot be reiterated now the representative of global financial capital, cost of rent, combined with the “bedroom tax”, that should be deployed against poverty and Even so, Britain’s offshore centres are under firms and has the most overseas territories. The enough that Jersey has no interest in fostering threatens to create another big change. Rich and vulnerability”. The Organisation for Economic pressure to become more transparent in the wake fact we have stepped up to the plate and tackled abusive tax practices or money laundering.” poor living cheek by jowl has always been a Co-operation and Development cites estimates that of new US legislation – the Foreign Account Tax this puts us in a strong position.” Allan Bell, chief minister of the Isle of Man, is The centre has been emptied of characteristic of the city, and a safety valve. And developing countries lose three times as much Compliance Act – that requires them to hand Some offshore centres fear for their position if comfortable with the move to transparency, after the second world war, the massive provision money to tax havens annually as they receive in over tax information on US clients. The US law privacy-conscious investors move to less which is not a new agenda for the island. It is all but the wealthy... Others are of council housing ensured decent standards and aid, although it notes the data are “unreliable”. opened the door to the British government transparent regimes. Ahead of the G8 summit, time to stop the criticism, he says, and. “give affordability for nearly all. However, offshore centres argue they have a insisting on a similar measure, which is due to be Orlando Smith, premier of the British Virgin places like the Isle of Man some recognition”. compelled to the outer reaches Yet increasingly we see the centre emptied of positive impact on developing countries. Tax-free rolled out by other European countries as well. Islands, said there was a risk of “irreparable The City of London has long been receptive to all but the wealthy, heading towards the Chelsea jurisdictions play an important role in deals The UK government’s insistence on greater harm” to their economies if they were forced to this message – although its close links with the with an anti-democratic weight that hangs heavy model of a giant pied-à-terre for the global pluto- involving investors from different countries who transparency from Overseas Territories and implement transparency ahead of other countries. offshore centres have served to intensify the on British society. That weight needs to be lifted, cratic class. If only the rich can afford Zone 1 require “tax-neutral” structures that avoid Crown Dependencies paved the way for a global John Christensen, director of the Tax Justice suspicions of its critics. Opinions will remain the City as a separate entity abolished and its and 2, while the struggling middle cling on in 3 additional layers of taxation. In 2009, the World push for openness at the G8 summit in Northern Network and a fierce critic of offshore divided about the role played by offshore centres, vast resources put to the good of all Londoners. and 4, and others are compelled to the outer Bank’s private sector arm, which invested about Ireland. Paul Collier, the development economist centres, agrees that: “There is a real but as they make strides towards transparency, London’s economy must be much more than reaches, then we’re fast heading towards the £2bn through centres such as the Cayman who advised the prime minister on the G8 agenda, danger that measures taken in one their international standing can only improve. the City. That imbalance has grown as manufac- Paris banlieue model – not something to emulate. Islands, Mauritius, Guernsey and Jersey, pledged part of the world but not replicated turing has disappeared and food production has We must return to the postwar model of coun- to step up its scrutiny of transactions but said elsewhere will lead to a vanished from the city’s hinterland. I live in cil housing. And we need to stop inflating house many projects would not be sufficiently displacement,” he says. Camden, which even in the 1960s was a haven of prices with government-inspired bubbles. Rental economically viable to attract capital investment Banker’s homing instinct The increased transparency manufacturing industries and employment. The agents need to be regulated, and rents reined in. without the use of these intermediaries. and co-operation over tax are More online last large piano manufacturer, once one of 300 in History provides further lessons. In Victorian Jason Sharman, an Australian academic and American banker and unlikely to silence all the Video on affordable what was a hub for the craft, closed in 1970. times, floods of clerks walked from Islington to expert on offshore centres, believes the relative philanthropist George Peabody critics. Governments may We might have Silicon Roundabout, but there the City. “Active transport” – walking and openness of China and India to flows of capital is may have lived in one of the reserve judgment until they housing, plus past are questions about the economic and social cycling – needs again to be at the heart of the “a key factor that has previously been ignored” fine Belgravia town houses built have evidence of the new editions www.ft.com/ returns of an industry in which a handful win way we move around London. The cheap train in explaining how they have lifted millions of by Thomas Cubitt, but he made transparency measures working. huge, and others just feed the maws of the Apple fares that allowed suburbs such as Walthamstow people out of poverty. He says investment flows his mark on the city with housing Nor will the new measures london-world Store and Google Play. And we have retailing – to develop as working men’s havens need to be in and out of China are mostly routed through for the working classes. Settling protect offshore centres from the lots of it and dominated by multinational compa- echoed in future Tube and bus pricing. offshore centres to benefit from more efficient permanently in London at 42, kind of global media storm that broke nies and low-paid, insecure jobs. Neither is the London is, and will remain, a world city. But incorporation and listing procedures, rather than Peabody ploughed much of his private when a data leak exposed the identities of foundation of London’s future. now that globalisation has hit the buffers, it to dodge tax bills. fortune into building better homes for the thousands of BVI investors this year. Food supply, in the age of climate change, mas- needs to return to being a more self-sufficient He also challenges the view that offshore deprived. Founding the trust that still bears his Rival financial centres such as Switzerland and sive loss of arable soils and rising prices, must be and more equal city, with a balanced mixed centres are havens for illicit wealth plundered name, he filled what were then the poorer Luxembourg are likely to continue to criticise taken seriously. I used to live in Holborn, where economy built around small businesses and co- from developing countries. Industrialised districts with handsome, well-built barrack-like what they view as opaque trust structures there was once a dairy that supplied milk fresh operatives. That fits neatly with the need to countries often provide a higher level of tenements, many of which would sell for a available in offshore financial centres. from the cow. That will never return, but we do restructure to provide a range of decent-paying, corporate secrecy than is available in offshore fortune if they were on the market today. The biggest offshore centres emphasise their need to restore the ring of market gardens and secure, economically sustainable jobs that the

centres. The US, Switzerland and Britain topped strong record at meeting international regulations PHOTOS: GETTY; ANNA GORDON orchards that once surrounded the city. people of London can build their lives around. 12 FINANCIAL TIMES TUESDAY SEPTEMBER 10 2013