London’s Business Base
a report for London Councils
Produced by the Centre for Economics
and Business Research (Cebr)
1

Disclaimer
Whilst every effort has been made to ensure the accuracy
of the material in this document, neither Centre for
Economics and Business Research Ltd nor the report’s
authors wil be liable for any loss or damages incurred
through the use of the report.
Authorship and acknowledgements
This report has been produced by Cebr, an independent
economics and business research consultancy
established in 1992. The views expressed herein are
those of the authors only and are based upon
independent research by them.
The report does not necessarily reflect the views of
London Councils.

London, November 2019

 Centre for Economics and Business Research

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Contents

Contents
3
Executive Summary
4
About the report
4
Headline findings
4
1
London’s business base
6
2
Revealed comparative advantage
12
3
Gross value added and turnover
15
4
Employment
18
5
High growth sectors
21
6
Knowledge intensive industries
23
7
Business rates data
24
8
Summary
27
9
Appendix 1: Methodology
28

 Centre for Economics and Business Research

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Executive Summary

About the report
•
This report was produced by the Centre for Economics and Business Research (Cebr)
for London Councils. The report summarises the data collection and analysis performed
by Cebr to establish a comprehensive understanding of London’s business base.
•
Particular focus is placed on the contribution of micro-businesses to London’s economy
and the geographical location of particular clusters of industry activity around the capital.
•
The high-level findings presented here are supplemented by 33 local authority profiles
and a data workbook containing additional detail for each local authority in London,
which are available on London Councils’ website.

Headline findings
•
There are over 1 mil ion businesses in London. In line with the UK average an estimated
55% of these are unregistered small businesses.
•
In 2018, 87% of al  registered business local units (495,000) across London were micro-
businesses (fewer than 10 employees).
  London’s registered (non-financial) micro-businesses generated over £210 billion in
turnover in 2018 – an average of £475,000 per business.
  This represents one fifth of the £1.06 tril ion total turnover generated by London’s
non-financial businesses.
  Small and micro-sized firms continue to play an important role in all sectors, even
those such as finance and insurance which are dominated by larger companies, with
58% of registered businesses in these industries employing fewer than 10 people.
  Since the financial crisis London’s business base has grown substantially. The micro-
business count grew by 50% between 2010 and 2018.

•
While all of London’s boroughs have their own economic strengths just three of them –
the City of London, Camden and Westminster - account for 20% of all London’s Gross
Value Added.
  On average, each London borough has a revealed comparative advantage in 71
industries.
  The Central London Forward boroughs have more unique industry specialisms which
produces a higher average ‘complexity score’ than across the other sub-regions of
London.
  50% of London’s micro-businesses operate in knowledge intensive industries, 13
percentage points higher than the UK average (37%).

 Centre for Economics and Business Research

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What proportion of businesses operate in Knowledge Intensive Sectors?
57%
50%
45%
41%
of Central
of South
of West
of East
London
London
London
London
businesses
businesses
businesses
businesses

 Centre for Economics and Business Research

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1  London’s business base

London is home to around 1.1 mil ion businesses, making up around one fifth
of the UK’s total business population and generating over a quarter of national
business turnover. Notably, London hosts 29% of the country’s Information and
Communication sector businesses, accounting for almost half (49%) of their
turnover.
One important role of this research is, however, to establish more information
about London’s smaller businesses, revealing further detail about the location
and industry mix of these firms.  As such, much of the report considers micro-
businesses, those with 0-9 employees, in detail. Altogether these represent
96% of all businesses in London, although more than 600,000 of these are so small as to be
unregistered i.e. with turnover below the VAT threshold and not registered for PAYE (see
Table 2). However, even among registered firms some 87% are micro-businesses.
Table 1: Summary of business population statistics for London (2018)
Category
Business
% of UK
Turnover
% of UK
counts
total
(millions)
total
All UK
5,667,510
100%
£3,861,613
100%
London
Of which:  1,096,095
19%
£1,055,103
27%
Manufacturing
31,270
11%
552,725
8%
Construction
172,395
17%
318,170
18%
Wholesale and retail
94,320
17%
1,295,613
28%
Information and communication
104,175
29%
255,901
49%
Finance and insurance
20,755
24%
n/a
n/a
Professional, technical etc
207,165
25%
340,384
43%
Administration support services
88,490
18%
267,194
30%
Other services
49,860
15%
34,154
17%
Source: Department for Business, Energy & Industrial Strategy, business population
estimates
Micro-businesses
As a proportion of all businesses, unregistered businesses are most prevalent among firms
in the construction and ‘other services’ sectors. This result makes intuitive sense1 as many
forms of ‘other services’ activity cover so-called lifestyle businesses including small scale
operations such as dog-walking or hairdressing that are often chosen for their flexibility but
wil  often only generate turnover below the VAT threshold. Meanwhile, construction work is
project based and skil ed construction workers often seek a steady supply of new jobs from
different employers which encourages self-employment.

1 Notwithstanding any potential issues around businesses that fail to declare income in order to avoid registering
for VAT

7

Table 2: Micro-business in London
Businesses  Of which:
Proportion of
Category
Micro (1-9
employees)  with no
Unregistered  all business
employees*   businesses
unregistered**
All UK
1,137,290
4,278,225
3,093,710
55%
London
Of which:
195,420
858,580
605,995
55%
Manufacturing
5,995
23,480
17,515
56%
Construction
20,830
149,610
120,395
70%
Wholesale and retail
30,085
58,220
33,765
36%
Information and communication
20,205
80,090
35,835
34%
Finance and insurance
4,580
14,260
6,745
32%
Professional, technical etc
37,870
162,390
89,495
43%
Administration support services
21,030
62,900
40,980
46%
Other services
9,410
39,305
35,115
70%
Source: Department for Business, Energy & Industrial Strategy,
* includes working proprietors
**percentage of all businesses in each sector that are unregistered
Although 55% of businesses in London are unregistered their small scale
means they generate just 2% all London’s turnover, an average of £41,500
per business. By contrast, registered micro-businesses generate 20% of the
total turnover across London an average of £475,000.

Figure 1 Share of total sector turnover generated by micro-businesses, London

Source: Department for Business, Energy & Industrial Strategy, Cebr calculations

8

Mapping London’s business base
There are over one mil ion businesses across the capital. But a lack of good data and the
inherently low level of economic output produced by unregistered businesses means the
following sections are concerned with analysing the role of the more than half a mil ion
registered firms in London. Nevertheless, the role of the self-employed people and
unregistered business owners within London’s supply chains remains worthy of discussion
and clusters of activity within industries are often supported locally by self-employed workers
within related industries.
A registered business (an enterprise) may operate across a number of sites and the majority
of the analysis below considers the location of these individual sites across London’s
boroughs. The data used recognises these individual sites as ‘local units’ which the ONS
defines as follows:
“A local unit is an enterprise or part thereof (e.g. a workshop, factory,
warehouse, office, mine or depot) situated in a geographically identified place”
Local units may therefore be either a complete business based in a single location, or a local
unit of a larger enterprise. There were 568,000 of these local units in London in 2018.
Figure 2 Various heatmaps – the number of local units, share of micro-businesses and
number of rateable properties in London, by Middle Super Output Area, 2018

Source: Inter Departmental Business Register, London Councils, Cebr calculations
Maps contain public sector information licensed under the Open Government Licence v3.0.

9

The maps above il ustrate the distribution of businesses across London at the Middle Super
Output Area (MSOA) level. An MSOA is a geographical unit based on the 2011 census
which contain a population of between 5,000 and 15,000 people. However, as indicated by
the maps above this can relate to vastly different levels of business activity. The local units
map (top left) simply shows the count of local units in each MSOA, with darker shades
indicating a higher business count. The micro-business map (top right) is similar but in this
case the count excludes local units with 10 or more employees. The proportion of micro-
businesses in the total count of local units is shown in the micro-share map (bottom left),
with dark blue indicating a lower share of micro-businesses in the area. Finally, the rateable
property map (bottom right) shows the count of properties eligible for business rates in each
MSOA.
London’s economic geography is in part a function of its long history, with a central activity
zone that has been home to globally important industries such as finance, insurance and
shipping for centuries. As a consequence, older central areas both within and between
boroughs are more firmly established and have over time attracted more dense clusters of
businesses. Indeed, a quarter of local units are found in just four boroughs: Westminster
(10.0%), Camden (6.1%), the City of London (4.8%) and Barnet (4.4%), of which Barnet is
the only borough outside of central London. This is a similar proportion to the combined
business count across the 13 boroughs with the smallest number of local units (26.4%).
Much of the industry within central areas is well established and these are home to many of
the UK’s largest firms. Consequently, the proportion of micro-businesses is typically lower in
these central areas than in the outer London boroughs. Across London as a whole, 495,000
local units are micro-businesses – 87% of all local units.
While the number of businesses is skewed towards London’s central activity zone, the level
of economic output is even more concentrated within those same local authority areas.
Westminster (14.6%), Camden (7.8%) and the City of London (11.9%) are estimated to have
produced more than one third (34.3%) of London’s Gross Value Added (GVA) in 2018. The
13 boroughs with the smallest volume of local units produced just 18.3% of GVA in the same
period. One of the other notable hotspots on the maps above is the large MSOA on the
western edge of London around Heathrow airport that contains many rateable properties and
a relatively low share of micro-businesses.

10

Comparing the business base across boroughs
In order to compare each borough’s business base, this report analyses a range of relevant
data across the six dimensions outlined in Table 3. Details of the measures and the
methodology for calculating the scores can be found in Appendix 1: Methodology.
Table 3 Summary of measures
Measure
Description
London
Business
The number of registered businesses in the borough.
count
568,200
The number of registered businesses per resident employee.
A score of 1 indicates an equal number of business and
Business
employees based in the borough. A low score suggests that
density
resident employees are out-commuting or work for a few
0.21
large companies, a high score indicates low levels of out-
commuting and/or smaller businesses.
The share of registered business that are micro-businesses -
Micro-share  defined as those businesses with 0-9 employees.
87%
The number of rateable properties per registered business. A
Rateable
low ratio indicates that there are more businesses than
properties
rateable properties in the borough suggesting smaller
per
0.48
businesses in industries that may not have a fixed place of
business
work e.g. consultancy or construction.
GVA per
The borough’s total economic output (Gross Value Added)
business
per registered business.
0.75
(£m)
A measure of the industry concentration of the total business
Business
count. Higher scores indicate the business population is more
diversity
0.32
concentrated in a few industries.
The complexity score measures the number of industries in
which the borough ‘punches above its weight’ i.e. where the
share of businesses in that industry exceeds the borough’s
share of all businesses in the country. The borough holds a
‘comparative advantage’ in these industries.

Complexity  The final score is the count of industries in which the borough
0.90
has a comparative advantage, scaled by how widespread the
industry is nationally, as measured by the count of local
authorities that also punch above their weight in that industry.
A score of 0 indicates no industry specialisation. Higher
scores indicate more specialised and/or unique economic
activity.

Table 4 sets out the scores for all 33 local authorities in London across all six measures. The
scores are heavily skewed towards the inner London boroughs for business density and
complexity. Commercial land uses are far more prominent and intensive in these boroughs
so there are inevitably more firms per resident employee, with workers commuting in from
outer boroughs and beyond.
These areas are also significantly more ‘complex’ and in some cases e.g. the City of London
represent global or national hubs for industries that are not widely represented outside of

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those particular boroughs. A consequence of this level of specialisation is a lower business
diversity score. By contrast, in most out boroughs the type of business is typically less niche
and more evenly distributed across different industries.
Table 4 summary of key measures by London borough
Rateable  GVA per  Business
Borough
Business  Business  Micro-
properties
count
density
share
per
business
2
Complexity
diversity
business
(£m)
Barking and Dagenham
7,790
0.16
88%
0.50
0.51
0.24
0.46
Barnet
24,820
0.22
91%
0.33
0.44
0.27
0.79
Bexley
9,895
0.12
88%
0.48
0.52
0.31
1.00
Brent
16,460
0.17
89%
0.48
0.58
0.23
0.80
Bromley
17,070
0.14
90%
0.38
0.46
0.31
0.57
Camden
34,745
0.58
85%
0.43
0.96
0.36
1.09
City of London
27,365
> 1
79%
0.59
1.86
0.54
1.93
Croydon
16,615
0.15
89%
0.49
0.49
0.28
0.66
Ealing
19,490
0.17
90%
0.48
0.54
0.25
0.79
Enfield
14,285
0.15
88%
0.46
0.49
0.23
0.63
Greenwich
11,265
0.14
89%
0.42
0.41
0.33
0.63
Hackney
21,145
0.27
89%
0.44
0.39
0.34
2.00
Hammersmith and Fulham
14,460
0.23
86%
0.55
0.83
0.31
0.64
Haringey
13,200
0.16
91%
0.49
0.46
0.25
0.71
Harrow
15,500
0.19
93%
0.31
0.42
0.37
0.52
Havering
10,990
0.13
87%
0.47
0.55
0.26
0.54
Hillingdon
15,320
0.17
85%
0.50
0.91
0.25
0.65
Hounslow
14,775
0.17
88%
0.45
0.91
0.36
0.67
Islington
21,010
0.28
85%
0.49
0.89
0.34
0.70
Kensington and Chelsea
15,590
0.47
85%
0.52
0.80
0.33
0.76
Kingston upon Thames
9,860
0.19
88%
0.44
0.52
0.34
0.55
Lambeth
15,660
0.15
87%
0.52
0.74
0.32
0.68
Lewisham
10,970
0.11
91%
0.49
0.48
0.31
0.51
Merton
12,490
0.16
89%
0.38
0.45
0.33
0.55
Newham
14,005
0.16
89%
0.49
0.54
0.31
0.51
Redbridge
14,760
0.20
92%
0.37
0.36
0.35
0.57
Richmond upon Thames
14,485
0.26
90%
0.38
0.53
0.43
0.83
Southwark
18,320
0.19
83%
0.58
0.86
0.32
0.85
Sutton
9,280
0.13
89%
0.39
0.51
0.31
0.58
Tower Hamlets
19,215
0.21
86%
0.68
1.55
0.36
0.96
Waltham Forest
11,775
0.14
91%
0.52
0.41
0.25
0.54
Wandsworth
19,010
0.16
90%
0.42
0.61
0.38
0.61
Westminster
56,580
0.99
81%
0.56
1.10
0.30
1.58

London
568,200
0.21
87%
0.48
0.75
0.32
0.90

2 Note: The diversity score is a Herfindahl index where a higher score indicates a higher levels of concentration
i.e lower diversity in the business base. This indicates the City has a lower diversity to Lewisham where there is
no dominant sector

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2  Revealed comparative advantage

One of the fundamental drivers of the complexity measure derived for the borough summary
is the concept of revealed comparative advantage (RCA). The RCA is a way of looking at the
various industries in a particular geography and assessing whether the size of an industry
within that area is large relative to i) its own business base and ii) the size of the industry
nationally.
Business based location quotients
The business-based location quotient is a score at ributed to every combination of a location
(local authority) and industry (3 digit SIC3 code). These scores are calculated as the
proportion of an industry’s national business count that are based in a location, divided by
that location’s share of all businesses nationally. If the score is 1, then that industry in that
location is representative of the national average. A higher score indicates there is a local
cluster and the area is ‘punching above its weight’ in that industry.
Figure 3 simplified example of revealed comparative advantage

In the hypothetical case presented in Figure 3, a local authority has a 10% share of the UK’s
total businesses but a 5% share of industry A, a 10% share of industry B and a 25% share of

3 Standard Industrial Classification code: SIC codes are numerical representations of major businesses and
industries. SIC codes are assigned based on common characteristics shared in the products, services,
productio n and delivery system of a business e.g. 620: Computer programming, consultancy and related
activities

13

Industry C. The business location quotient scores for the three industries would be 0.5, 1
and 2.5, respectively.
This measure is useful because a score above 1 indicates that the industry is of greater than
average significance to the local economy. In other words, something about the location
suits that industry and it has a revealed comparative advantage (RCA). In the example, this
borough punches above its weight in Industry C, which is more important to the business
base locally than it is across the rest of the country. The opposite is true where the score
falls below 1. In the example, Industry A is less prevalent than average in this local authority
and there is no local advantage.
It is notable that the manufacturing sector is constituted of a large number of relatively niche
industries – there are 95 separate 3 digit SIC codes in the manufacturing group, compared
to just 9 in construction. This means manufacturing industries more regularly show up as a
source of local comparative advantage because the national business count is spread
across many categories. For instance, with only around 940 UK businesses engaged in the
manufacture of electronic components and boards, just 5 or 10 of them being located in the
smaller London boroughs would be indicative of a RCA.
Complexity scores
Across London most places have some areas of relative strength within their business base
when compared to the rest of the country. To focus in on local authorities with a range of
specialist industrial advantages, the relative strengths are adjusted into a ‘complexity’
score, which begins with the number of industry RCAs. On average, out of the 273
industries included in this analysis, the London boroughs record 71 industries in which their
RCA score is greater than 1: Croydon has the highest number (83) while Harrow has the
lowest (56).
In many cases, however, these strengths are not unique and are observed widely across
the country. For instance, the requirement to provide some services close to the customer
means that in industries such as repair and maintenance of motor vehicles or electrical
installation, there are many small businesses providing these services across most local
authorities. As a consequence of this business model, in both of these industries over 200
hundred of the UK’s 381 local authorities have a RCA in at least one of them. By contrast,
the City of London is the only local authority with a RCA in reinsurance.

260 of the UK’s 381 local authorities have a revealed
comparative advantage in the maintenance and repair of
motor vehicles.

The purpose of the complexity calculation is to weight the raw count of the RCA values to
account for how many other areas also indicate a relative strength in that industry. The final
complexity score is the sum of these weighted RCA counts. For instance, an industry that is
effectively confined to a single location e.g. reinsurance in the City of London, receives a
100% weighting. Meanwhile, relative strength in an industry like the maintenance and
repair of motor vehicles is given a lower weighting, because so many other local authorities
also have a high share of these businesses.
Some industries in London stand out based on their contribution to the complexity score.
For instance, just 79 local authorities hold a comparative advantage in creative, arts and

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entertainment activities across the country and 25 of these are located within London.
Similarly, 26 London boroughs out of a total of 69 local authorities have a comparative
advantage in motion picture, video and television programme activities. These industries
clearly benefit from access to the pool of specialist talent and facilities that London is able
to provide.
The simple average of the complexity scores for local authorities districts/unitaries across
the UK is 0.68. Across London the simple average of all borough complexity scores is 0.78,
which increases to 0.90 when weighted by business counts.
Figure 4 indicates the complexity scores of the four London sub-regions. With the most
specialist industries that combine to produce higher complexity scores, typically found in
the central boroughs4. This produces the highest overall complexity score across this sub-
region. Outer boroughs have economies that are less dif erent to the UK average, with their
comparative advantage concentrated in industries that are much more common.
Figure 4 Complexity score by sub-region of London

Source: Inter Departmental Business Register, Cebr calculations

4 ‘ London is divided into four subregions with four subregional partnerships, Central London Forward’s Central’ includes
Lewisham, Southwark, Lambeth, Wandsworth, Kensington & Chelsea, City of Westminster, City of London, Tower Hamlets,
Hackney, Islington, Camden, and Haringey; Local London’s ‘East’ covers Enfield, Waltham Forest, Redbridge, Newham,
Greenwich, Bromley, Bexley, Barking & Dagenham, and Havering; The South London Partnership South’ includes Croydon,
Sutton, Merton, Kingston upon Thames, and Richmond upon Thames; ‘The West London Al iance’s West’ includes Hil ingdon,
Harrow, Ealing, Hounslow, Hammersmith & Fulham, Brent, and Barnet.

15

3  Gross value added and turnover

Gross Value Added (GVA) measures the combined value of the output produced in the
economy (after accounting for taxes and subsidies). At the borough level this measures the
amount of value added by the economic units in the production of goods and services in the
local area. Figure 5 once again il ustrates the dominance of central London in terms of GVA,
and particularly the boroughs of Westminster and Camden and the City of London. Given the
huge volume of businesses in these areas it is unsurprising that, in 2016, they accounted for
20% of total London GVA, worth £141 billion. Furthermore, the Central London boroughs
had a GVA of £266 bil ion, equivalent to the South East of England (£259 bil ion).
The remaining London boroughs (the East, West and South sub-regions) had a combined
GVA of £160 bil ion. This was close to that of the North West of England (£167 billion) and
larger than any of the UK’s other constituent regions or nations outside of the South East.

Figure 5 GVA by London local authority, 2016, £ mil ion

Source: Office for National Statistics, Gross Value Added (Balanced) by Local Authority

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16

By excluding any intermediate consumption, GVA is a more refined measure of economic
output, accounting only for the value of goods and services produced local y and not any
inputs to production that were made elsewhere. At the borough level, this data is
experimental and limited in scope, however, and is not suitable for deeper investigation.
Instead, the remainder of this section focusses on turnover as a lens with which to examine
the nature of each borough’s micro-businesses.
The turnover data available are produced in bands and therefore the analysis presented
below is heavily rounded and purely indicative5. Nevertheless, Figure 6 shows how the
output of micro-businesses varies across industries and boroughs.

Figure 6 turnover of registered businesses and share of turnover from micro-businesses

Source: ONS Business Population Estimates, Cebr calculations

Wholesale and retail trade is responsible for over a third of turnover in London, but due to
the high level of intermediate consumption, where finished goods are delivered from other
suppliers and sold on by retailers, the sector accounts for just 7% of GVA in London. Micro-
businesses account for a reasonably small share of turnover in wholesale and retail (21%)
compared to industries such as construction, where micro-businesses are estimated to be
responsible for 47% of turnover among all construction businesses registered in London.
The spread of turnover across the London boroughs varies significantly between sectors.
For instance, while the Central boroughs are estimated to be responsible for 99% of all

5 See metholodgical appendix for further details.

17

turnover in mining and quarrying businesses (in London generally HQ activities) this falls to
less than a third for transportation and storage. The same pattern applies for turnover among
micro-businesses, whereby the central zone generates the bulk of the turnover of the most
specialist industries. Manufacturing is more evenly spread, with around a fifth of turnover
estimated in both the West London (23%) and East London (22%) sub-regions.
Figure 7 sub-regional breakdown of micro-business turnover by sector, 2018

Source: Inter Departmental Business Register, Business Register and Employment Survey,
Business Population Estimates, Cebr calculations

18

4  Employment

Employment in London largely tracks the business base and although its distribution will vary
between sectors the average employment intensity in some industries is notably higher than
in others. For instance, while the production industries and utilities have higher levels of
employment per business, these industries are not central to the economy of London and as
a consequence there is very lit le employment in total. Employment per business is highest
in education, as the sector is dominated by large organisations, often in the public sector.
Figure 8 employment in London and level of employment per private sector business, by
industry

Source: Business Register and Employment Survey, Inter Departmental Business Register

The professional and technical services sector is the largest by both employment numbers
and the number of businesses. Over 700,000 employees in the sector are spread across
124,000 private sector businesses, an average of around 6 employees per business. The
lowest average number of employees per business across the sectors was in construction,
with many skil ed tradesmen setting up independently in small registered businesses. The
information and communication sector also features many small consultancies, bringing
down the average number of employees per business.
The sub-regional breakdown is skewed heavily toward central boroughs, with 59% of
employment in the Central sub-region. The Southern sub-region contains the lowest share of
employment at just 8%, although it should be noted that this region is comprised of just five
boroughs. The West and East sub-regions are home to the remaining 18% and 15% of
employment, respectively.

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19

Figure 9 employment by local authority

Source: Business Register and Employment Survey

The nature of employment is also very dif erent between boroughs. The City of London
stands out for the level of employment in knowledge intensive industries6. Three-quarters of
the City’s employment is in a knowledge intensive industry (74%), 25 percentage points
higher than the next borough, Tower Hamlets (49%).

6 These are defined in further detail in Section 6

20

Figure 10 employment in knowledge intensive industries, % of total

Source: Business Register and Employment Survey, Cebr calculations

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5  High growth sectors

Although past growth is not always an indicator of future success, the way the business base
in London has changed over the years since the global financial crisis is indicative of two
broad trends. First, a number of sectors were hit especially hard in the downturn and have
more recently been staging a recovery. The second driver of growth is based on structural
changes affecting the nature of the economy. The move towards greener energy, the
increasing use of online shopping and other digital services have all presented opportunities
for new business growth.
The years since 2010 have seen London’s business base, measured by the number of
registered companies, grow by 179,000, to 561,000 in 2018. In total, the business base has
grown by 47%, equivalent to an average annual growth rate of 4.9%. Newham had the
fastest growing business base of all of London’s boroughs, recording average annual growth
of 11.1%. Westminster was the slowest growing (2.6% annually), albeit from a significantly
larger base. The micro-business count grew by 50% between 2010 and 2018 across London
as a whole. Newham’s micro-business count was once again the fastest growing, expanding
by 145% to 12,450 in 2018.
Table 5 shows the top 10 industries according to the growth in the number of micro-business
local units. While the rapid growth in employment placement agencies can be explained by
the strength of the labour market, as the economy has recovered from the economic crisis of
2008, increases in other industries are more likely the result of structural changes in the
economy.
Table 5 fastest growing industries, count of micro-business local units, 2010 - 2018
Number of  Number of  Compound
Industry
micro-
micro-
annual
businesses  businesses
growth
2010
2018
rate
351 : Electric power generation, transmission and
distribution
70
1,245
43.3%
422 : Construction of utility projects
15
135
31.6%
856 : Educational support activities
140
1,070
28.9%
421 : Construction of roads and railways
150
1,075
27.9%
110 : Manufacture of beverages
35
245
27.5%
774 : Leasing of intellectual property and similar
products, except copyrighted works
50
275
23.8%
781 : Activities of employment placement agencies
1,105
6,270
24.2%
559 : Other accommodation
70
270
18.4%
479 : Retail trade not in stores, stalls or markets
2,385
6,810
14.0%
611 : Wired telecommunications activities
80
275
16.7%

The number of business local units in the electric power generation, transmission and
distribution industry grew faster than any other between 2010 and 2018 in London. The
number of micro-businesses expanded by 43.3% per year over the same period. Growth in
this industry is indicative of the declining market share of the major energy suppliers. Ofgem
found that between 2011 and 2019, the combined electricity market share of the six largest
suppliers dropped from nearly 100% to 73%, as smaller suppliers gained up to 27% of the
market by Q1 2019. Although Westminster (415) and the City of London (310) had the
largest number of local units in the industry, Southwark also has a notable cluster, of 90
businesses, in the electricity production industry located in a single MSOA (Southwark 006).

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Growth in retail trade not in stores, stalls or markets is fairly widespread across London,
without a particularly strong trend in any one borough. This is somewhat to be expected as
the opportunities for online retailers, who are included in this category, have expanded over
the last decade. Moreover, among micro-businesses the ability to run a company from, or
close to, home at low cost probably outweighs the benefits of a central location favoured by
some more traditional industries. Of the outer London boroughs, in the category of ‘non-
store’ retail Bromley stands out, with 435 businesses.

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6  Knowledge intensive industries

The Office for National Statistics has categorised certain Standard Industry Classification
(SIC) codes as Knowledge Intensive industries. In 2018, half of all micro-business local units
and a similar proportion (49%) of all businesses in London were classified in SIC codes
producing one of either Knowledge Intensive Market Services (25%), High-tech Knowledge
Intensive services (13%), Knowledge Intensive Financial Services (3%) or Other Knowledge
Intensive Services (9%). A further 0.1% were involved in High technology manufacturing in
the capital.
The City of London had the highest share of Knowledge Intensive micro-businesses in the
business base (69%) of all the London boroughs. The Central sub-region had a 57% share
of Knowledge Intensive micro-businesses. The South (50%) was in line with the London
average, while the East (41%) and West (45%) sub-regions lagged behind.
Figure 11 share of Knowledge Intensive micro-businesses in the business base, 2018

Source: Inter Departmental Business Register

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7 Business rates data

Using data supplied by London Councils we investigated the relationship between the
business base in each borough and the number of properties liable for business rates. The
analysis was completed down to the MSOA level and considered all rateable property
excluding those that could obviously never be occupied by a business such as advertising
rights, ATMs and Ministry of Defence property.
Across London there were 0.48 rateable properties on average per local unit suggesting that
even among registered businesses, many either do not occupy a purpose-built commercial
property or operate out of a shared workspace. For smaller firms in industries such as
construction or consulting the project/client-based nature of work might render a permanent
office space useless as the physical location of work changes from week to week. Large
businesses are more likely to need a permanent base for their staff, regardless of the
industry.
This phenomenon is apparent from the negative correlation (see Figure 4) between the
share of micro-businesses and the number of rateable properties per business in an MSOA.
The fact that a number of MSOAs have more rateable properties than businesses indicates
either that i) there is a high rate of vacancy in the area or ii) the larger businesses are spread
out across several separate properties. In practical terms this could relate to multiple floors
of an office block, for example, if the Valuation Office Agency has valued those parts of a
building separately.

Figure 12: Share of micro-businesses and rateable properties per business by MSOA

The central London boroughs, which are generally home to larger businesses are therefore
likely to have more rateable properties per business. Tower Hamlets has the highest ratio at
0.68 and this is most likely driven by the very dense office space in Canary Wharf which is
well suited to large firms. Harrow, which is home to the highest proportion of micro-
businesses, also has the fewest rateable properties per business at 0.31.

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Figure 13: Number of rateable properties per registered business

Source: London councils, Inter Departmental Business Register, Cebr calculations

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Maps contain public sector information licensed under the Open Government Licence v3.0.

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8  Summary

London’s business base is highly diverse and provides a home for everything from global
leaders in financial services to hundreds of thousands of micro-business. While some of
these are so-called ‘lifestyle’ businesses or nimble sub-contractors providing niche expertise,
others are seeking to expand into the global leaders of tomorrow.
Each of the capital’s boroughs has its own industrial strengths. Outside of central London
industries tend to be highly clustered into specific areas of business activity while other
areas are more residential – without a detailed understanding of the business base there is a
risk that the nature of these clusters remains hidden. Indeed, as the nature of commerce
changes and businesses move online the prevalence of very small companies that may not
work out of formal commercial properties means some clusters may have otherwise gone
unnoticed. Furthermore, the extent to which some boroughs have seen the development of
successful clusters in particular industries may have lessons for others as they identify their
own opportunities for growth.
This report and the associated data shed light onto these clusters and draw attention to the
areas of business strength within and between boroughs. By presenting a single shared
evidence base for comparison it is hoped that policy makers are provided with a useful tool
for building a strategy to support the continued development of London’s business base.

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9  Appendix 1: Methodology

Business counts data
In establishing the business base this analysis makes extensive use of the Inter-
Departmental Business Register (IDBR). An extract compiled from the data records the
number of enterprises that were live at a reference date in March each year. Extracts
were taken by employment size band, detailed industry (2,3 and 5-digit SIC2007) and
legal status. These were collected at various geographies including UK, London, local
authority district and London’s Middle Super Output Area (MSOAs) from NOMIS.
Analysis was conducted at the level of the enterprise and the local unit. Enterprises can
be thought of as the overall business, made up of all the individual sites or workplaces. It
is defined as the smallest combination of legal units (generally based on VAT and/or
PAYE records) that has a certain degree of autonomy within an enterprise group. A local
unit is an individual site (for example a factory or shop) associated with an enterprise. It
can also be referred to as a workplace.

Employment
The level of employment was estimated using data from two separate surveys: the
Annual Survey of Hours and Earnings (ASHE) and the Business Register and
Employment Survey (BRES).
An estimate of the number of resident employees by borough was take from ASHE. This
data was combined with the number of businesses to assess the relative importance of
the local workforce to the business base.
The total level of employment by industry and borough was established from BRES.

Turnover
Extracts from the IDBR provide counts of the number of enterprises by turnover size
band and industry. The midpoint of these turnover bands and the business counts in
each industry (3 digit SIC code) are used to generate a total turnover estimate for each
of those industries across London. Using the estimates from BRES of employment by 3-
digit SIC code a London average turnover per employee in each industry is estimated.
Using the Business Population Estimates dataset for 2018, the level of employment per
business in London can be broken down by sector and employment size band.
Multiplying together the average employment by sector for private sector (micro)-
businesses, the average turnover by industry and industry business counts by borough
from the IDBR produces an estimate of the total turnover by borough and industry.
Note: The use of averages, midpoints and rounded business counts means the borough
turnover estimates are indicative at best. Using the Business Population Estimates
dataset for 2018, the average turnover per business in London was broken down by
sector to produce London-wide turnover values. Comparison against the borough totals
showed the extent of any over or underestimate. The ratio between the borough-wide
and London-wide estimates was used to scale-up the results at the borough level.

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Business rates
Business rates data were provided by London councils. After removing those categories
of property that were clearly unrelated to businesses e.g. advertising rights, ATMs and
Ministry of Defence property the postcodes of the properties were used to aggregate
counts of rateable property and rateable values by Middle Super Output Area (MSOA).

Revealed Comparative Advantage
The Revealed Comparative Advantage score is a variant on a location quotient based on
the business count data. The first stage in calculating the location quotient for industry i
in local authority j is to divide the number of businesses in that industry in the area by the
national total business count for the industry:
(1) (𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖
𝑛𝑛
𝑖𝑖𝑖𝑖/ ∑𝑖𝑖=1 𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖)
This value is divided by the local authority’s share of all businesses across all industries:
(2) (𝑏𝑏𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑏𝑏𝑖𝑖𝑖𝑖𝑏𝑏𝑖𝑖
𝑛𝑛,𝑚𝑚
𝑖𝑖/ ∑𝑖𝑖,𝑖𝑖=1 𝑏𝑏𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑏𝑏𝑖𝑖𝑖𝑖𝑏𝑏𝑖𝑖𝑖𝑖𝑖𝑖)
The location quotient score is (1) divided by (2) and a location quotient greater than 1
indicates a Revealed Comparative Advantage (RCA). Each industry and local authority
combination with a location quotient greater than 1 is given a RCA score of 1 and
everything else a score of 0.
To calculate a final complexity score each industry receives a ‘ubiquity weighting. This
weighting is calculated as the inverse of the sum of all local authorities with an RCA
score of 1 in that industry. For the maintenance and repair of motor vehicles, where 260
local authorities have an RCA score of 1, the ubiquity weighting is 1/260 = 0.004. For
reinsurance where only the City of London has an RCA score of 1, the ubiquity weighting
is 1/1 = 1.
The complexity score the is sum of the weighted RCA scores.

Geographical cluster scores
A business cluster can also be defined as a geographic concentration of related
businesses in a particular field. There are numerous famous business clusters around
London such as the tailors situated on Savil e Row or the jewellery shops in Hatton
Gardens. Aside from identifying comparative advantage across the borough as a whole a
geographical cluster score was also developed to find specific locations within the
borough’s boundaries where industries were clustered.
The cluster scores included in the accompanying data are calculated using the
proportion of businesses with the same 5-digit SIC code operating in the same MSOA,
divided by the sum of all the businesses with the same 5-digit SIC codes across the
borough. The final cluster score is the variance between these proportions across
MSOAs, weighted by the share of all businesses in a borough within that SIC code. The
higher the score, the more geographically concentrated the business cluster.
For instance, while there is a cluster of ‘Retail sale of clothing in specialised stores’ in the
Westminster 013 MSOA, the home of Savil e Row, the cluster score is 0.291, compared
to a score of 1.132 for the cluster of ‘Barristers at law’ in Westminster 018. The reason
for the discrepancy is that the very tight concentration of Barristers in chambers around

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Temple is not replicated in other locations across the borough, while other businesses in
the specialist clothing retailers category are spread across Westminster and not solely
the tailors at Savile Row.
Note: The clusters identified here are produced on the basis of data collected at the
MSOA level and therefore a cluster spanning multiple MSOAs may not score highly
using this methodology.

London
Councils

59½
Southwark
Street
London
SE1
0AL
www.londoncouncils.gov.uk


Publication date: December 2019

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