Three months (already!) into the new year—and the new decade—it seems especially apposite to reflect on the UK-based financial and related professional services industry not just over the last year, but the last decade—because 2020 also happens to mark the 10-year anniversary of TheCityUK.
Established in the wake of the 2008-09 crisis, TheCityUK champions the UK-based financial and related professional services ecosystem: banking, insurance, asset management, financial market infrastructure, and legal, accounting and management consulting services. Although the industry retains some negative connotations for some people, since our inception we have consistently sought to remind policymakers as well as the public that the financial and related professional services industry is a critical part of a strong economy—and that it also makes a direct positive contribution to society, helping people to buy a home, save for the future and insure against risk.
For example, both employment and economic output in the industry have increased over the last
decade, as this chart shows:
But it would be a mistake to think of the financial-services sector as monolithic; trends within the sector have varied considerably. Employment growth of 2.3% overall over the period has been driven by growth in fund management, where employment rose by an annual average of 6%; in contrast, employment in banking and insurance declined over the 2009-2018 period.
The even stronger annual average employment growth in financial and related professional services was, then, driven primarily by professional services. Within this grouping, the accounting sector saw the fastest growth at an annual average rate of 5% over the past decade, followed by management consultancy (4%) and legal services (1%).
Regional variation in employment is also significant. Financial and related professional services employment grew the fastest in the East of England over the past decade—by an annual average of 2.7%, to a total of 174,000 in 2018. It was followed by London (up 2.2% annually, to 777,000) and Northern Ireland (up 1.4% annually, to 35,000). In contrast, the North East, Scotland and the East Midlands all saw annual average declines in the number of people in employment in financial and related professional services.
The UK-based industry was only tangentially involved in many of the defining global financial and economic events and trends of the past ten years—think of the Eurozone sovereign debt crisis of the mid-2010s, the enormous rise in indebtedness, or widespread and persistent stagnation in productivity. In part, this reflects the fact that many of the decade’s flashpoints and defining trends have reflected a resurgence of political risk and the resurgence of geopolitical rather than ‘pure’ economic and financial factors (to the extent that such factors even exist—and one could argue they do not!).
But in other areas, the UK has played a central role in global developments. Green finance is a prominent example of this: more than $10bn worth of green bonds were listed on the London Stock Exchange in 2019, for example. As green finance—and the even broader category of sustainable finance—become more widely understood, the UK-based financial and related professional services industry is well-positioned to play a critical role in the sector’s ongoing development and expansion. For example, the UK still lags other markets in terms of green bond listings; that $10bn figure compares to $20bn for the Luxembourg Stock Exchange (the global leader), for example, and LSE green bond listings also trail those of Euronext Paris. But green bond listings are merely one indicator of green finance market activity, and London provides a rare combination of traditional financial services expertise across the whole financial services ecosystem as well as specialised clusters of green expertise. This expertise extends strongly to related professional services as well; UK-based law firms, for example, are at the forefront of engaging with wider ‘green’ issues like climate risk. These sectoral advantages will be both supported and encouraged by a strong focus by UK government and regulators on these burgeoning topics. For example, the Bank of England is the world’s first central bank to conduct climate-risk stress tests.
Looking ahead to the next ten years, it seems likely that the real value of the industry to the UK will therefore come from increasingly value-added activities—with ‘value’ used in the national-accounts framework sense, but also in the more qualitative sense of helping promote goals and outcomes that society has collectively deemed to be important. The direct employment of millions of people and support of indirect employment of many millions more will of course remain an important contribution. But this subtle shift—in combination with myriad other trends like the continued rapid evolution and application of technology, changing demographics, and a second decade of uncharted territory for monetary policy, to name just a few—indicate that the financial and related professional services industry of 2030 is likely to resemble the industry of 2010 only at its very core.
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