Anthony Hilton: Immigration curbs will sour thriving Flat White economy

The British Business Bank does not always get the high profile it deserves. Its annual report showed it had supported 74,000 businesses and had £12.3 billion of funding deployed since 2012 when it was set up by Vince Cable, the Liberal Democrat minister in the coalition government, to foster small and middle-sized businesses. In start-ups, in growth companies and among those looking for long-term capital, it is making a material difference.

Through its Patient Capital brand it has also produced at least ten unicorns, companies with an estimated value of $1 billion or more, based in London. These include Funding Circle and Revolut.

It is nothing like Silicon Valley or China but in terms of Europe, Britain is doing well. There have been 17 unicorns in London since 2011 apparently, with 13 currently viable. Berlin managed seven in that time and Paris four.

Not all of these are tech companies but a lot are. Indeed London & Partners, Mayor Sadiq Khan’s publicity vehicle, said recently that tech is fast becoming the dominant force in the capital. It listed Google at King’s Cross employing 4500, Apple at Battersea Power Station, which should have 1400 by 2021, and Facebook, which has plans to double its capacity with up to 6000 jobs. LinkedIn, Amazon and Spotify also have a major presence. All told in 10 years, 740 financial firms creating 25,000 jobs set up in London, but in that time 822 tech companies creating 27,000 jobs also set up here.

The two businesses, finance and tech, work well together. Anne Boden, CEO of Starling Bank, potentially another unicorn in the making, says this is something Silicon Valley does not have. A thriving tech community and an entrepreneurial culture help, she says, but “London’s success as a fintech hub should enable it to spread wealth beyond the capital city though all the UK and the wider economy”.

Doug McWilliams, founder of the Centre of Economics and Business Research, was first on to this phenomenon in The Flat White Economy, a book he published in 2016. In it he covers the creative and digital sectors that dominate east London from Old Street to Stratford, paying particular regard to the digital marketing that results from the UK’s high share of online shopping. He also covers fintech, computer programming, telecommunications, management consultancy, and creative and media. So it is not just fintech but all tech, plus the consultancy, the creative and the marketing, which make this part of the economy so vibrant.

He called it the Flat White Economy partly because its employees seemed to live off that particular type of coffee, but also because many of the younger ones simply preferred the coffee shop to the scruffy flats and offices they might otherwise have had to work in.

Flat White meant there was often very little money, but that was compensated for by loads of brainpower. It celebrated the fact that scores of businesses were start-ups, or in their early stages. It may initially be poor, but it has a vibrancy and a diversity which left most other sectors gasping.

Anyway in an update in April, McWilliams revealed that this economy had become the UK’s largest industrial sector. In 2013 it was estimated to be 8.7% of Gross Value Added. By 2016 it had risen to 13.3% of GVA, and the latest data suggests that in 2018 it had reached 14.4% of GVA.

To put this in context, industry, which in this definition includes manufacturing, mining, power generation and water supply, was 13.8% of GVA in 2016 and has flatlined ever since. This gives the Flat White sector the edge, though that is not really the point.