By Dr Laura Davison, Head of Research at the Economic Development Office, City of London Corporation
In this article, I've analysed data on the distribution and location of UK firms and jobs in financial services, highlighting how highly concentrated employment is in large firms, and how concentrated financial services clustering is in particular locations.
Across the UK, there are 1.07 million people employed in financial services and insurance (2016) - 3.1% of UK jobs - with two thirds (66%) of these located outside London. There are 89 thousand UK financial and insurance businesses (2016) - 1.6% of the UK total - of which 21 thousand employ at least one person.
Across the UK, in all sectors most businesses are small - 91% employ fewer than five people. Large businesses - those with 250 or more employees - are rare. Out of a total 5.5 million private sector UK businesses, only 7,200 (0.1%) are large employers - 355 (5%) of these large employers are financial services businesses.
Financial services employment is highly concentrated in these large firms - although they make up only 0.4% by number of UK financial services firms, they account for 72% of the sector’s jobs. Large firms play a much more significant role as employers in financial services than other industries - across all sectors, the equivalent proportion is 40%, and only the utilities industry (68%) comes close to this level of concentration (all other sectors are below 55%).
You can see this difference in the following two charts, where I've plotted the distribution of businesses and jobs by firm size, for the UK overall and for financial services specifically.
You can see from the first chart how similar the spread of firms is by size, for the UK overall and for financial services. But as the second chart shows, in terms of how jobs are distributed across these firms, it’s a very different picture.
It’s particularly noticeable that financial services employment is heavily concentrated in the really large firms - those with more than 500 employees. Across all UK sectors, there are 3 ½ thousand of these firms, of which 210 (6%) are financial services businesses.
These 210 firms account for 67% of the UK’s financial services jobs - the equivalent figure across all UK sectors is 35%.
So, large employers are clearly very significant employers in financial services. But even this high proportion masks some differences within the industry, given the different types of activities it encompasses.
Banks are a substantial sub-sector in financial services, making up around 40% of financial services jobs[1], with insurance being another well-recognised component- nearly 10% of financial services jobs.[2] [3] But the businesses that provide what’s known as ‘auxiliary’ services are also very important. They provide the market infrastructure for transactions to take place, and a range of sales, fund management and advisory services - and together account for around 40% of financial services employment.[4]
As the following chart shows, these don’t all have the same patterns of employment though.[5]
This chart really emphasises just how important the largest firms are for employment in banking and insurance - with 84% of banking jobs in the 80 companies with 500 or more employees, and 81% in the 35 very large insurers and pension funds. By contrast, the auxiliary jobs are much less concentrated - 42% in the 95 very large firms.
It’s also worth noting that the ‘more than 500 employees’ category (the highest category for the Office for National Statistics reporting of firm size) is a little misleading when it comes to financial services. The largest banks – HSBC, Barclays, Lloyds and RBS – each employ tens of thousands of people across the UK.
The financial services industry isn’t just concentrated in a small number of firms, it’s also concentrated in particular geographic locations. ONS have just released their latest analysis looking at how jobs in different sectors are located across the UK, and where they are particularly concentrated – known as the ‘location quotient’.
The map below shows this for financial services.[6] A score above one illustrates a relatively high concentration of jobs; the lower the score, the lower the concentration.
As you can see, a number of areas have high financial services concentrations – eight regions have a score greater than one, including Eastern Scotland, West Yorkshire, and Cheshire. Inner London East (3.14) and Inner London West (3.00) are the highest.
Even within London, there are strong and distinctive geographic concentrations of financial services firms and jobs. Of the 210 very large (500 plus employees) UK financial services firms, 90 are based in London, covering 65% of London’s financial services employment. Around 60 of these firms are based in the City of London, and 15 in Canary Wharf (Tower Hamlets).[7]
To show where London’s financial services jobs are concentrated, I’ve plotted these across London boroughs, using a handy cartogram template from the GLA’s London Datastore.[8] Of London’s 362 thousand financial services jobs, 78% (282 thousand) - are based in the City of London, Tower Hamlets, and Westminster.
Jobs in different sub-sectors are strongly concentrated in particular areas – London’s banking jobs are largely split across the City of London (42%) and Tower Hamlets (31%), while fund management is concentrated in the City of London (46%) and Westminster (40%).
Insurance is the most strikingly concentrated sub-sector, with 74% of London’s jobs located in the City of London (4% in Tower Hamlets, 3% in Westminster). Even within the 1.12 square miles that constitute the City, insurance is tightly clustered in the East, whereas financial services are more evenly spread.
You can see this in the two following maps, which we commissioned as part of a series looking at firm movements and locations (firms in colour moved in the 2012-14 period, those in grey were stable).
Overall, then, you can see just how concentrated financial services employment is, in very large firms and in particular areas, especially in London. London’s financial services cluster is often highlighted as one of its key competitive strengths – with firms in close proximity benefitting from access to a skilled and specialised workforce, ease of knowledge exchange and shared innovation, enhanced reputation and profile, a large customer pool, and the wide range of related professional services that have grown alongside the cluster.
[1] Here when referring to ‘banks’, I've used SIC code 64.1 ‘monetary intermediation’, which also encompasses building societies and credit unions.
[2] Here I’ve used SIC codes 65.1 and 65.2 – insurance and reinsurance.
[3] Business Register and Employment Survey (2015 data, released 2016)
[4] SIC code 66 – ‘Activities auxiliary to financial services and insurance activities’
[5] NB Here I’ve used the overarching SIC codes - 64, 65, 66 respectively – due to data availability at this level
[6] NB draws on 2015 data
[7] NB ONS figures are rounded to the nearest five
[8] Business Register and Employment Survey 2015 data, published 2016.