Good morning everyone, and I would like to start by saying how delighted I am to be here in Cardiff on St David’s Day for this important event. It is a pleasure to be here to celebrate the best of Welsh business and to recognise the role of business in developing the Welsh economy. Thank you to ACCA Wales for hosting us.
I speak as the CEO of TheCityUK, the practitioner body that represents the UK-based financial and related professional services industry. Our role is to champion the industry at home and abroad. We work to ensure that the UK remains globally competitive as a place for firms in our industry to locate and grow. A particular focus for us has been how to ensure that the UK continues to be an attractive place to invest, and we have been heavily involved in outlining proposals for EU reform, and in making the case that the UK will be better off in a reformed EU.
Today I would like to talk about the vital contribution that financial and related professional services make to the economy in the UK, and particularly about the role that they play here in Wales. I would also like to touch on the challenges and opportunities, as I see them, that our industry is facing, and suggest how we might ensure its future prosperity for the good of the UK as a whole, and Wales in particular.
I speak at a time when the British people are about to face a once in a generation opportunity to have their say on the UK’s future place in the EU. On the 23 June, we have to decide whether we want the UK to remain in a reformed EU, or whether we want to leave. Today I will make the case that the UK’s membership of the EU is of strategic importance to the financial and related professional services industry, and that continuing membership is thus important for all of our financial futures.
Financial and related professional services as a national asset, driving growth
Across the UK, financial and related professional services play a pivotal role in creating a strong economy. They are of significant benefit not just to London and the South East, but to local economies throughout the UK, very much including the Welsh economy. The industry provides payments systems, enables savings and investment, provides protection from risks, and ensures that the appropriate legal and accounting standards are in place for businesses to function.
As well as providing support functions that underpin all other sectors, financial and related professional services are a major contributor to growth and employment in their own right. Around 2.2 million people are employed by the industry across the UK, representing more than 7% of the working population.
It is a common misconception that most jobs in our industry are based in London. In fact two thirds of people employed by the industry work outside London in centres including, in strict alphabetical order, Birmingham, Bristol, Cardiff, Edinburgh, Glasgow, Leeds and Manchester.
In 2014, the industry contributed £190 billion to the UK economy – accounting for 11.8% of GVA. And the average economic output per worker in financial and related professional services is £87,000 per year, compared to the £52,000 UK average for other sectors. And no region has GVA per worker below £62,000, indicating that high value jobs are spread by the industry throughout the UK.
In terms of future growth, it is important to appreciate that it is unrealistic to expect capital intensive sectors to be a major source of employment. Financial and related professional services, on the other hand, present a major source of skills based and well remunerated employment.
As a result, UK financial services contributed around £66 billion in tax revenue in 2014/15, accounting for 11% of total UK tax receipts. Around 40% of that, getting on to £26 billion, comes from internationally mobile firms which have chosen to base their European operations here in the UK. Indeed, strong foreign companies have invested over £100bn into UK financial companies since the start of 2007, more than in any other sector.
Strong regional centres increase the UK’s global appeal by widening the talent pool and offering growth opportunities for financial and related professional services firms outside London.
So if we want to remain attractive to international investors, we need the industry to be successful not just in London but right across the UK: we need centres such as Cardiff to thrive. And financial and related professional services in Cardiff – and in Wales more broadly – are already thriving.
Financial and related professional services as a success story for Wales
Our industry employs 54,300 people in Wales, and contributes 7.4% of regional GVA. Wales has a growing reputation for providing high quality professional services and support functions, with particular expertise in insurance, technology support, taxation and legal services.
South Wales plays a particularly important role, with financial centres in Cardiff, Swansea and Newport. Between them, these three cities account for over half of the total employment in the sector, with over 22,000 employed in Cardiff alone.
But the financial sector is about more than just South Wales. Jobs are spread across the nation as companies access local talent pools from Aberystwyth to Holyhead, Bangor to Wrexham.
Banks, insurers and lawyers serve towns across Wales via local branches and regional centres, while remaining competitive because of their links with the central hub in the capital.
Cardiff acts as a gateway into the rest of Wales, just as London is a great shop window attracting businesses to the rest of the UK.
What makes the UK attractive
So what is it that makes the UK, and Wales in particular, such an attractive place for business investors? The UK’s position as the number one global financial centre is the result of some historic bases of competitive advantage and some more modern ones. I’ll deal with the historic ones now, as they tend to apply at the UK level, and then talk about the modern ones in relation to Wales.
Why has the UK found itself in the position of hosting the world’s leading financial centre and can we rely on these advantages to last? Let’s consider the reasons.
Firstly, time zone. It is true that we find ourselves in this very fortuitous time zone, part way between America and Asia.
I’m not sure we should take credit for towing our small island into this part of the Atlantic though! But more worryingly, while the time zone is right for some business, it’s exactly wrong for the strengthening trade South/South trade corridors. Business done in LATAM, Russia and Asia sees us in exactly the wrong place.
Secondly, language. English has become the default business language, thanks to American hegemony.
The classicists in the room will quickly remind me that Latin was the lingua franca for far longer than English has been the business language, so can we rely on this to offer any real advantage?
Thirdly, rule of law. This is perhaps one of our greatest gifts to the world as the “Law of England and Wales” and its great common law traditions have brought contract certainty. Indeed, half the world’s commercial contracts are written under English & Welsh Law, earning the Treasury around £3bn in export earnings last year.
Fourthly, openness to investment and foreign ownership. I am often quizzed by policymakers and business people in other countries on why the UK refuses to mark certain firms and indeed entire sectors as strategic assets. Other countries adopt different attitudes and bar foreign investment and ownership of their industries. I can only say that this openness allows us to make in-roads when negotiating to liberalise other markets and in take-over deals elsewhere. It’s hugely important to our reputation as a trading nation.
And finally, culture and lifestyle. These factors are often under-estimated but actually having things to do in the evening and at weekends is hugely important for attracting foreign direct investment.
For valuable employees to want to move their lives to another country, they need access to an enjoyable lifestyle outside work – art galleries, theatres, concerts, and of course great sporting occasions like the Six Nations all count. We shouldn’t underestimate the draw of the Principality Stadium!
These advantages have served us well, but they aren’t enough to ensure our continued prosperity. The great Venetian Bankers probably thought their position was unassailable as they stood at the middle of the cross-roads of European trade. But fortunes can change, which is why we must remain agile.
What makes Wales attractive
For me, beyond these historic advantages, the most important of the modern bases of competitive advantage is enduring political support.
Looking at examples around the UK of where regions and nations have been successful in attracting investment from financial or professional service firms it is clear that there are some common themes.
Key factors for a location’s attractiveness are affordability, availability of skilled staff, great business accommodation, solid infrastructure (meaning good transport, including easy access to other UK centres and international destinations and good communication links), quality of life and, of course, the “X Factor” of local political support.
Major firms don’t make foreign direct investment decisions lightly. They want to invest in a location that is committed, over the long term, to working in partnership with the business community. That message comes from policymakers. And I can think of nowhere where political support for business is stronger than in Wales.
The Welsh Government has shown a solid commitment to developing the economy here, as evidenced by the fabulous regeneration of Cardiff Bay, the development of the Central Cardiff Enterprise Zone, and of course IXCardiff, which is increasing regional resilience and promoting international connectivity in the world of data.
The launch of South Wales as a Financial Centre of Excellence in November last year is also proof of the strength of the government’s commitment to the industry here. Backed by Edwina Hart, Minister for Business, Enterprise, Technology and Science, Alun Cairns, Parliamentary Under Secretary of State of Wales, and Harriett Baldwin, Economic Secretary to the Treasury, this programme will see the Welsh offer promoted by UK Trade and Investment’s posts across the globe.
All this, added to the incredible source of local talent. As visiting professor at the University of South Wales, I have first-hand experience of that. Nearly 40% of students enrolled in Welsh universities are on courses connected to the industry, and that puts Wales in a very strong position for attracting investment in financial and related professional services.
Unlocking barriers to growth in Wales
So, the industry is a significant national asset, and financial centres such as Wales are a vital part of the UK offer, helping to attract international investment and boost the UK economy.
But there are still barriers to growth. Wales can do even more to attract business investors. Better international links – in particular direct links to Brussels – would be hugely valuable. Also, for the capital city to generate economic growth that is sustainable, it should seek to cultivate an area of specialism – one that will really set it apart from its competitors. Trying to be all things to all people makes the inward investment offer less attractive, especially in an industry as broad as financial services. Cardiff already has a world-class reputation for financial technology. Given that, and the heavy presence of data management and gaming businesses in the city, FinTech could be a good option. It is also recognised for its strong legal talent, so it could develop a speciality in regulatory compliance.
Benefits of EU membership to the UK
Of course, business also needs the right wider structures in which to operate. The UK is currently the financial centre of Europe, and benefits significantly from being so. And to build on my early comments, perhaps it is worth briefly reminding ourselves of the benefits of the UK being in a reformed EU.
The creation and development of the EU’s Single Market over the last 20 years has reinforced London’s long established position as the world’s leading international finance centre. Despite the fact that the European Single Market in services has not yet been completed, the UK has reaped great benefits from its ability to access it, in particular through financial and other services’ trade and investment. At £72 billion in 2014, the UK’s financial and related professional services’ trade surplus was larger than the combined surplus of all other net exporting industries in the UK. And the EU is the most important destination for UK exports of financial services, generating a trade surplus for the UK of £18.5 billion.
EU membership has benefited us by creating the conditions to both expand UK exports and attract foreign direct investment, particularly in financial and business services. Through its membership of the EU, the UK serves as the ‘gateway’ to a Single Market of 500 million people, the world’s largest consumer market. Between 2004 and 2014, £581 billion was invested into the UK by foreign businesses, putting it in a prime position as a leading country in attracting FDI. More than half of this came from outside the EU, with access to the Single Market being a prime motivator for investment decisions.
If the hundreds of foreign businesses currently located here were to reconsider their location in the event of a possible Brexit, the potential impact on the UK economy, including the Welsh economy, could be considerable. While Brexit might not be ruinous to our economy, it would most likely lead to a loss of jobs and faltering economic growth.
The EU referendum and reforming the EU to boost prosperity
But the UK’s membership of the EU is, of course, about to be put to a vote in the forthcoming referendum. Deciding whether to vote to leave or to remain is of course a personal one. It’s not our place to tell people how to vote, but we have a role in explaining the consequences of the referendum outcomes and helping them to reach an informed decision. And in fact, our research shows that 57% of the public are interested in hearing the views of business leaders on this issue – over and above party leaders, family and friends, and employers.
When we conducted a survey of the decision makers in our member firms, 84% said that they wanted the UK to remain in the EU. 90% said that exit from the Single Market and the EU would damage UK competitiveness. Only 4% said that we should leave the EU.
So our EU membership plays a significant role in our competitive advantage, but reform of the EU is necessary and urgent. If people in the UK, and across Europe more broadly, are to be convinced that the EU can really stimulate economic growth and protect living standards, a reforming zeal must be evident. And competitiveness must be put at the heart of the EU. With the right reforms businesses can thrive, creating jobs and driving economic growth right across the UK – including right here in Wales.
Analysis of the PM’s reform deal
The Prime Minister, after some intense negotiation, has now agreed a reform deal with the EU ahead of the referendum. In my view, this deal lays solid foundations on which to build a stronger EU – one that will protect and strengthen the Single Market, help to make the EU more competitive, more outward looking and ultimately work better for all its Member States. For me, it is key that the Prime Minister’s call for a renewed focus on competitiveness has been accepted. The renewed commitment to strengthening the Single Market is also fundamentally important, as is the safeguarding of the interests of non-eurozone Member States and the securing of the UK’s position outside “ever closer union”.
If we can get EU reform right, as I believe we can, then maintaining our EU membership will be centrally important to ensuring that the UK continues to be able to compete internationally, and attract the investment needed for our economic prosperity. In my view, the continued success of business in Wales depends upon it.
Thank you, and happy St David’s Day.