Competitiveness report: an 'amber warning’ on attractiveness of UK to financial services companies
Our new Competitiveness Report reveals that an ‘amber warning’ light is now flashing over the attractiveness of the UK as a place to set up and grow a financial services business, with a majority of business location decisions going against the UK. Written in conjunction with McKinsey & Company, the report also highlights the importance of the UK’s position as a gateway to the European single market when attracting companies.
Entitled ‘Driving Competitiveness', the report explores 147 location decisions of financial services firms and shows that although jobs have been lost, fears of an exodus from the UK have proven unfounded. However, the UK now finds itself less attractive than some rival locations for financial services at a time when changes to capital requirements will inevitably reduce equity returns, meaning marginal cost implications will have a greater bearing on location decisions. Of the decisions analysed between 2006 and 2012, 56% were made against the UK and only 25% in favour, with the remaining decisions being put on hold.
With the deterioration starting to have a real impact, we are calling on Government to set out an emphatic vision for the future success of financial and professional services. We want a commitment to include the sector explicitly as an area of focus within knowledge-intensive traded services as part of its industrial strategy, and for Government to articulate the UK’s future position in Europe.
Stuart Popham, Chairman of the TheCityUK’s Competitiveness Steering Group, said: “We can no longer assume that international businesses will want to come or stay in the UK. At a time when our economy should be capturing the maximum possible share of emerging market growth, there are concerns from business over the direction of travel our country is taking with financial services.
“There is positive activity such as the policy on corporate taxes, but on the other hand financial and professional services businesses point to uncertainty of future regulation and access to the right skills. In order for companies to make positive location decisions we must give them confidence in the future and I would encourage Government to create this sense of confidence that the UK is a global hub for financial services with a clear vision of the part it wants the sector to play. Those who make changes to regulation, tax and policy on infrastructure investment must recognise the growing importance their decisions will make for jobs, economic growth and tax revenue as the actors decide where to locate.”
The UK has retained many advantages as a global hub for financial services firms, such as the perceived reputational benefit of being based and regulated in the UK, the strength of its legal framework and the quality of life it offers. In particular, 40% of decision makers cited access to the European Union (EU) as a core reason for choosing the UK over other rivals. Access to the European labour market was also cited as a key benefit.
Although the results of the analysis suggest that the UK will continue to enjoy many of its competitive strengths and so maintain its appeal as global hub for financial services, the report also cautions against complacency. Interviews with decision makers confirmed the prominence of regulation, tax and access to people as key areas of concern.
Chris Cummings, Chief Executive of TheCityUK, commented: “Location decisions are now a standing item on the agenda for Board meetings and the decision to invest in the UK is one that remains in the balance for a number of significantly sized financial services firms we interviewed. Against the backdrop of an extremely challenging economic environment in Europe we must be vigilant. At a time when other parts of the world actively seek to grow their financial services sectors, our Government must focus on those discretionary elements it has some control over. The opportunity is there to ensure that the UK remains the preeminent location for financial services companies, but in order to achieve this Government will need to play a significant role in enhancing the appeal of our economy for financial services companies.
“This not only means we need a carefully considered and more certain regulatory environment, competitive taxation and a real commitment to improvement in the UK’s infrastructure. It also means businesses being confident about our future position in the EU – the single market which so many financial services business here cite as a real draw to being located in the UK.”
The report estimates the impact of a loss in competitiveness in terms of changes in employment. Between 2006 and 2012, in all 22,000 full time job in financial services have been lost as a direct result of relative changes in competitiveness – accounting for a quarter of the reduction in overall financial services headcount. However the report estimates that a further 63,000 jobs were lost as a result in the wider economy, 24,000 in the financial services supply chain and 39,000 as a result of reduced overall spending caused by lower employment.
Follow this link to download the report.