The curious case of Britain’s ‘missing’ banking jobs

Are Britain’s bankers an endangered species? Almost certainly not. But are they one in decline? Possibly.

The number of bankers in the UK has been shrinking. This June, the number of people working in the financial services and insurance industry fell to its lowest level since September 1987, according to figures from the Office for National Statistics. Not only are City dreams of a deregulatory Big Bang 2.0 reinvigorating the sector receding, employment in the financial services is back to the level of a year after Big Bang 1.0, as capital markets think-tank New Financial points out.

So should this be another source of angst for an already anxious City, displaced this week by Paris as home to Europe’s largest stock market? Maybe.

The first thing is to put the figures in context. Financial services employment never made it back to pre-crisis levels. It’s been hovering around the 1.1mn-1.15mn mark for most of the past decade: in that light, a drop to 1.07mn this June doesn’t seem so bad. It could be temporary. If you use survey data from workers instead of the industry information that is the ONS’s preferred measure, there hasn’t been a drop at all.

Still, taking the preferred measure, there has been a clear decline since the end of 2020. And after holding pretty steady since 2016, the proportion of the workforce employed in the sector did hit a new low of 3 per cent this year.

It’s not entirely clear what’s been driving the slide, except that it does seem peculiar to banking rather than insurance or fund management.

There are a number of potential culprits. Branch closures as consumers shift their banking online is an obvious one. Banks argue that they can redeploy branch staff, and some cuts will come from more general automation. But employee numbers at the big high street banks have hardly been booming. NatWest shed 28 per cent of its workforce — just over 23,000 jobs — between 2016 and 2021 as it coupled a post-crisis retrenchment from investment banking and international operations with branch closures. Lloyds lost 18 per cent, or 12,500 roles.

There are also wider technological changes. Some jobs that were once done in-house by banks will now be done by external tech providers. The expansion of the fintech sector may mean jobs that were once classed as banking roles are now technology ones. Growth in the number of IT roles has far outstripped the decline in financial services.

Then, of course, there’s Brexit. The decline in financial services jobs picked up at the end of 2020, when the UK left the EU’s single market.

The evidence shows that the direct Brexit impact on job numbers was far more limited than assumed at the time of the 2016 referendum. But, as Andrew Pilgrim of EY points out, “job shifts between the EU and UK aren’t over”. It’s more that they’ve become part of business as usual as both evolve as competing jurisdictions for the financial services sector.

New Financial’s analysis indicates that the UK’s decline hasn’t been repeated elsewhere, with financial services jobs growth in the US, Canada, France and Switzerland since mid-2016 (though that’s not been true of Germany, Italy and the Netherlands). With the pandemic muddying employment trends, it is hard to unpick where the UK might be losing out.

The bigger worry, argues William Wright of New Financial, is the divergence between trends in the industry and the wider economy since the end of 2020 — what one might term the “missing” British banking jobs.

Wright estimates that there would be about 91,000 more jobs had growth in financial services employment kept pace with the rest of the UK economy since the Brexit referendum. And, he argues, that matters given that jobs in financial services tend to be better paid than average, with consequences for the country’s tax take.

That disquiet should be eased somewhat by the stellar growth in related professional services industries such as law and accounting. Official figures from the Nomis database show lawyers and accountants now outnumber bankers (though not financial services workers more broadly).

There could be cause for concern if the decline in banking jobs signalled the diminishing standing of the UK’s financial services sector more generally — but that’s a far broader question. More likely, as Sarah Hall of the University of Nottingham suggests, is that the figures “fall into a wider picture of stability in financial services but not rapid growth”. 

Still, that might not offer much comfort to a sector seeking to revitalise itself and re-establish its global pre-eminence.

cat.rutterpooley@ft.com