A tale of three cities

Chris Cummings, CEO, TheCityUK

I am just back from two days visiting Edinburgh and Glasgow with the Lord Mayor of the City of London. In addition to the civic duties which are the hallmark of these tours, the majority of the time was spent talking to senior individuals in the financial and professional services sector north of the border.

It is often repeated that 70% of jobs in financial services are outside London. It is easy to characterise these as lower-value 'back office' jobs but this visit showed just how wrong that impression is. Edinburgh has a great deal to be proud of in its asset management and life assurance professions. Glasgow has equally impressive credentials. The latest in series of infographics shows just how important and widespread these jobs are.

Of great concern to everyone we met was the need to have a competitive tax environment. While everyone understands it would be unrealistic to expect rates as low as Dubai – they would nonetheless like to see a government commitment to internationally competitive rates for corporation and personal tax.

Regulation continues to be a major focus of attention, with people keen to see the UK take more of a leadership role in responding to, and indeed, setting the regulatory agenda. There was concern that the FSA may be distracted because of the regulatory restructuring.

The third area of discussion was around skills: how can we ensure that schools, universities, government and the sector can work together to ensure we maintain a deep pool of talent in the UK. This is of benefit to domestic employers as well as international firms looking to base their operations in this country.

Underpinning these discussions was a desire to see the industry rebuild its reputation. There was a clear consensus that the sector must respond to the public's lack of faith in financial services.

All of these issues are central to the work of TheCityUK and we have three core objectives designed to address them directly:

• working to restore trust and confidence in the sector
• championing the competitiveness of the sector - focusing on trust, tax, regulation, skills, immigration and trade policy
• promoting the best of financial and professional services around the world. 

Given the recent Scottish elections, and the SNP's success in winning an overall majority, there was a great deal of discussion about what this means for the sector and how the public across the country would respond. Having met Alex Salmond and other politicians during the visit, it is clear that there is still much debate and discussion to be had before a clearer position on independence emerges.

It was clear that the sector is strong and has success stories to be proud of in Scotland. Newer players like Virgin and Tesco complement those who have been longer established such as Standard Life and Aberdeen Asset Management. All made the delegation welcome and had very positive messages that we will promote around the world.

http://www.thecityuk.com/

Markets of opportunity: Kazakhstan

Sir Stephen Wright, Senior Adviser, TheCityUK

Much business attention is focused on the BRIC countries or more accurately now the ‘BRICS’ since the attendance of President Zuma of South Africa alongside leaders from Brazil, Russia and India as guests of Chinese Premier Wen Jiabao at their recent summit meeting at Sanya Island off the coast of China. This is reasonable enough given the huge size and rapid growth of these markets.

But we at TheCityUK are convinced that we must also keep our eyes on the other high-growth markets so that our members are alerted to business opportunities wherever they arise in the global economy. We are currently working to define a list of the top 15 to 20 such ‘second tier’ markets on which we will aim to develop our effort in the future.

One such market is Kazakhstan. After a couple of difficult years during the financial crisis, the Kazakh economy is recovering fast on the back of its large and rapidly growing revenues from oil, gas and minerals. Kazakhstan is the ninth largest country in the world, has the world’s most important new oil field (Kashagan) since the discovery of Prudhoe Bay in the 60s, is the world’s largest producer of uranium and is well endowed with many other minerals resources as well as extensive arable land. GDP growth in 2010 was 7%. Major UK-based companies have significant stakes in the development of Kazakhstan’s resources (UK direct investment more than trebled in the period 2006-2009) and this is backed up by important relationships between leading institutions such as the legal professions and the stock exchanges in both countries. UK exports to Kazakhstan are growing fast and are especially important in services which exceed exports of goods by a margin of more than three to one.

Having recently secured his re-election, President Nazarbayev has shuffled his Ministerial team and is embarking on a further modernisation including a programme labelled ‘Peoples IPOs’ to privatise a significant number of the 400-plus state-owned companies over the next two to three years. This should be a great opportunity for TheCityUK’s member firms among the investment advisory and management community in the UK.

Two weeks ago our Working Group on CIS Markets hosted a meeting for members to review the prospects with the Ambassador of Kazakhstan in London. The Working Group is also collaborating with the Kazakh-British Trade and Industry Council to promote our industry’s offering to decision-makers in Kazakhstan (we may organise an event in the capital Astana in September), and together we are in touch with No. 10 to ensure top-level Ministerial support for the business effort.

Members who would like to know more about the opportunities in the coming months to engage with potential partners in Kazakhstan are welcome to subscribe to the Working Group’s information bulletins. Just send us your details with any additional comments of your own in response to this article.

http://www.thecityuk.com/

China and the pursuit of happiness

Sir Stephen Wright, Senior Adviser, TheCityUK

I listened last week to a fascinating presentation by Gang Qin, the urbane and thoughtful No 2 at the Chinese Embassy, on the 12th Five Year Plan for 2011-2015 which was adopted in March by the National People’s Congress in Beijing.

To this listener, with strong memories of now extinct regimes in Eastern Europe, the ‘five year plan’ label conjures up images of artificial central planning and mind-numbing statistics about tractor production and arable yields. But it was very clear from Mr Qin’s remarks that I needed to think again.

The economic programme that Mr Qin was describing has a lot more in common with the thinking of modern Western governments including the UK coalition than with old-fashioned Communist ideology. Indeed, whether deliberately or not, by picking up The Economist’s description of the Five Year Plan as “a blueprint for a happy China”, he drew a direct line back not to Marx or Engels but to Thomas Jefferson and his assertion of the pursuit of happiness as one of the fundamental compulsions that drives all our societies.

And in setting out the aims of the Plan –  e.g. reducing the huge inequalities in China between rich and poor people, urban and rural areas and agrarian and industrial workers; upgrading social services, notably in housing, health and education; focusing on the quality rather than the quantity of growth by reducing the energy intensity and raw material demands of production – the Chinese leadership is also broadening the scope for convergence and collaboration with Western agendas for social and economic development. This must inevitably create opportunities for Western businesses offering innovative solutions to new problems such as carbon reduction, new forms of healthcare or food security for urban populations. And all of these will need innovative forms of financial services to support them, not least in savings, pensions, housing finance and insurance.

Of course, the competitive pressure from Chinese industry will also intensify. They expect to create 45 million new jobs in the next five years, more than the entire UK workforce. But here too they are looking for quality as well as quantity. The Chinese are concerned that at present they are overwhelmingly low-end manufacturers and that even when they can stamp ‘Made in China’ on a high-tech product the share of its value that actually accrues to their economy is very small (e.g. 3% for an iPhone). The Plan calls for Chinese manufacturers to move up the value added scale and they are training the engineers and scientists to do it. Our more high-cost designers, innovators and producers will have to be ever more ingenious to stay ahead.

Experts on China assure me that their Five Year Plans are generally good advance indicators of what actually happens, so this new strategy matters to us as well as them. China is the world’s second largest importer, absorbed a 42% increase in imports from the UK last year (32% from the EU as a whole) and contributed 20% of global growth in 2010. If they succeed in stimulating more domestic demand in their economy we shall all benefit. If they succeed in curbing their extravagant use of energy and other raw materials the pressure of commodity prices on our economies might gradually ease. If they develop their role in global economic governance and their commitment to a rules-based multilateral trading system, the world economy will be safer and more balanced.

At a time when there are so many global challenges to our industry and our economy, I am hopeful that in time we shall be able to score China’s 12th Five Year Plan on the ‘good news’ side of the ledger.

http://www.thecityuk.com/

Financing the Big Society

Chris Cummings, CEO, TheCityUK

I’ve been invited to speak on this topic today at Reform’s ‘Building the Big Society’ event. It’s a vast subject and one in which I believe financial services, and associated professional services are already play a vital role in the communities they serve. This is not just about sponsoring events, supporting local sporting and cultural activities and important community good causes but it's also about helping our staff to use their expertise to make a real difference in society. It is through that service that the sector shows itself as being truly deep-rooted in the everyday lives of people and communities across the country. Too often it is suggested that financial services are not part of the ‘real economy’ – but they are in every part of the real economy and not apart from it. The same is true of civil society and we welcome the Big Society agenda as an opportunity to redress the sense of separation.

There are direct ways financial services can play an important role in contributing to a bigger, stronger society. They can work to invest a greater proportion of assets in social investments, while building the resources and expertise necessary to research and evaluate the opportunities presented by these assets. This will likely lead to the development of new products to open up that opportunity to a broader and better informed community.

Doing so will help toward the need for the industry to change its public perception to one built on the values of integrity, fairness and responsibility. Now is the time for the kind of exciting visions and strategies that can alter this perception and in turn drive forward the Big Society: empowering organisations beyond the state to take social action and in doing so, enabling them to be financially self-sustaining.

The fact that local issues are increasingly important to people is contrasted to the way decisions have been increasingly centralised – this is true in government and commerce. Subsidiarity can mean lots of small companies or it can mean systematically empowering the far reaches of a network. The latter looks more likely to succeed in a world where capital underpins financial strength and, importantly, we need a regulatory structure that allows for this.

There is clearly a need to ensure that all parts of civil society, individual and corporate, contribute and to be seen to be contributing. The financial services sector must step up the good work to bring money and skills to benefit the communities in which they are based. More work is underway than typically portrayed, but there is more to do. At TheCityUK we are seeking to assess this current work and looking to promote further work.

www.thecityuk.com

UK finance sector perspective on EU financial regulation

John Cooke, Chairman, Liberalisation of Trade in Services (LOTIS) Committee, TheCityUK

On 15 March 2011 I was invited to speak at an UKSIF Analyst Seminar on EU Policy. The Seminar addressed relevant EU policy for responsible financial services – current and forthcoming consultations, key legislation as well as drivers for change. It aimed at giving insights on reconciling UK perspectives vs. continental European perspectives. 

Penny Shepherd (Chief Executive, UKSIF) covered the UK perspective on EU policy and identified the areas where the UK and continental Europe tend to differ, and the reasons why, with much financial services regulation moving to the European level, UKSIF is trying to explore and reconcile these differences. Matt Christensen (EUROSIF) covered some of the recent EU policy consultations to which EUROSIF has responded, such as: the Single Market Act, the Securities Law Directive, Corporate Governance in Financial Institutions and Remuneration Policies, and others.

I offered the ‘UK finance sector perspective’ on EU financial regulation – summarised in the blog post below. Rather than offering deep-dive detail into specific fields: it aims to cover some UK perceptions of relevant EU policy for responsible financial services – particularly what I see as some key drivers for change.

Perspectives on Europe

I found it fascinating to read EUROSIF’s “European Socially Responsible Investment (SRI) Study 2010”. For, in terms of global SRI data, it depicts something that seems relatively rare – Europe in the lead. Taking total world SRI in 2008-10 (the national dates vary) as €7,594bn, Europe (2009) accounted for €4,986bn, or nearly two-thirds (66%). The US accounted for well over a quarter (28%), and Canada, Australia and Japan were the most significant within the remaining 6%. I found it very interesting to note also that ‘while methodologies of SRI market studies from the various regional Social Investment Fora are converging, SRI practices can be quite specific from one region to another. As an example, shareholders advocacy, i.e. proposing to sponsor or co-sponsor shareholder resolution(s) based on ESG issues, is specific to the US market, for both cultural and regulatory reasons.’

I will not go into all the considerations that could affect Europe’s performance in the future.  Clearly, these cover global trends, internal EU trends, cultural factors – as already noticed by the EUROSIF Study in relation into US advocacy practices – and (although others will have wiser things to say on this than I have) the global search for yield. But, from my trade in financial services vantage-point, I should like to focus on some of the issues that could bear on how Europe has taken the lead in SRI over the past decade and how European thinking develops in the future.

Many commentators point to the steady growth in SRI, in Europe and elsewhere, despite the impact of the global financial crisis in 2008 and later. It is contended that, even taking account of the sharp deceleration in economic growth during the past year or two, SRI in Europe will probably continue to follow a resilient path overall, whatever variations there may be in different EU member-states. It is even said that the major structural adaptations that are taking place in the financial sector, overhauling a whole range of previously accepted strategies and processes, may actually lead to lead to an even greater variety of more responsible forms of investments. Europe, it is said, “thrives on a crisis” and the true merits of sustainable investing should and will become even clearer when social or environmental crises strike and call for a socially responsible financial response.

Naturally, all of us interested in socially responsible investment hope that this will prove true. I have no firm evidence-base for challenging this point of view. But I just wonder whether it may risk showing a degree of complacency. It could be said, for instance, that SRI grew and flourished – like so many other financial activities – during the long period of financial services expansion up to 2008, on the back of booming economies in so many EU member-states.  If that it so, we are now set for a period of change. 

I do not propose to go into all the specific regulatory changes that have followed, or will follow, the crisis. We all know of the big changes in European and UK regulatory architecture and legislation that spring from the De Larosière Report, the Turner Review, and our own Treasury’s proposals for a New Approach to Financial Regulation. And, in different representative groups, trade associations, and European bodies, we spend a great deal of time discussing them. But I would like to point to some other developments affecting the EU’s future, and that of the UK in it, which in turn could affect the prospects for SRI.

The first is polarisation within Europe and, consequently, differing views of what Europe is for. We all got used, in the long boom that preceded the recent crisis, to thinking of the European project as a tide which lifted all boats. We can now see that the crisis has affected European economies differentially, some of the heaviest effects being felt by the weakest. In terms of European ‘solidarity’ – the code-word for transfers between richer and poorer member-states via the ‘Community method’ – there is less of a cake to share round, and more reluctance to share it. We have, I think, to expect that this will lead to a different style of European politics and policies – a move away from what political scientists call ‘value-creating’ politics (i.e. a readiness to share) towards “value-claiming” politics (i.e. a wish to safeguard and to secure advantage).

We are already seeing a particular subset of these questions in the development of the politics of the Eurozone. The long crisis of the Euro, the pressures on Germany to bear the bulk of the burden of resourcing a Euro-stability package, reluctance within the German electorate to do so, the Franco-German Competitiveness Pact (and its internal stresses) together raise two questions with, I would suppose, profound implications for the future of investment within Europe. The first is whether specific policies for Eurozone integration will develop. The second is how much influence the UK, outside the Eurozone, can have on such policies. All this will, I think, lead to uncertainty for the investment sector.

Mapped across these factors are Treaty developments that will affect the EU’s future. The Treaty of Lisbon has profoundly altered the relative roles of the different EU institutions. The European Parliament is its principal beneficiary: MEPs are now able to bargain the powers that they have in so many areas to achieve results in fields where, arguably, they still have no formal influence. For those of us dealing with SRI this could have very beneficial effects: many MEPs are naturally attracted towards SRI. But the effects will only be truly beneficial if MEPs can be brought to see that the socially valuable changes they seek in so many fields can only be achieved if the Union as a whole remains wealth-creating and competitive. That argument has still to be played out and won.

The wider economic background – Europe’s competitive place in the world – is also critical. The EU must follow economic and commercial policies attuned to its advantages in terms of economic scale, growth, employment and competitiveness. This means focusing on services, given that the services sector is now the primary contributor to growth. European private-sector services businesses already contribute more than 55% of EU GDP and account for more than 50% of all EU employment (this rises to 77% for GDP and employment across all public and private sector services). The EU is also the largest exporter and importer of services, with more than 26% of total world trade in services (extra EU). Moreover, 65% of all outward foreign direct investment (FDI) by European businesses (extra-EU) and more than 80% of all FDI coming into the EU is invested into services sectors. With services trade comprising only 28% of EU external trade, there is huge potential scope for expansion, with the promise of enhanced EU competitiveness and prosperity. Yet over recent years international trade in services has remained at only 15-16% of world exports. Only if the EU can expand its business in the fields in which it is most competitive will it be able sustain the huge social costs (and the yields necessary to finance them) that go with an ageing society in a mature economy.

Implications for the UK

For us in UK financial services, all this could have some very particular and specific effects and bring some particular challenges. I will look at two.

The first concerns how EU policies bear on the UK. It is estimated that, if London’s financial services cluster did not exist, EU GDP would suffer an immediate reduction of €33 billion. The true significance of the sector is greater still when related professional and support services are taken into account. In EU discussions of financial services, the UK has always been something of an outlier: we have the largest market in the EU for financial services (no other EU Member State has a financial services sector (wholesale or retail) which is close to being as prominent as that of the UK), and, out of the major EU member-state economies, we are the most dependent on our international financial services market. Unsurprisingly, most other member-states do not share our interests. They – particularly the newer member-states – are much readier than the UK to be ‘policy-takers’, not ‘policy-makers’, in financial services and financial services regulation. Before the crisis this did not matter too much. It now matters a great deal more.

The second concerns the wider task of actually getting our views across to our colleagues in the EU. We need to make a lobbying effort as never before. And lobbying is not something that we in the UK are used to. Our own legislature – which tends to legislate in general terms, granting powers for the executive to exercise – has historically not been lobbied as much as, say, the US Congress. Nor have we needed to lobby in Europe, as long as MEPs were relatively weak and the tendency of EU legislation was towards Directives rather than Regulations. All that is now changing. The changes create a climate in which the UK is not necessarily operating from a position of strength. We are under-represented in the EU institutions in terms of UK nationals in significant roles. We have a government which – as Conservative policy towards the UK Conservative MEPs shows – is lukewarm towards the levers of power in Europe, often thinking adversarially in terms of ‘sovereignty’ and ‘red lines’ rather than in terms of the Realpolitik of how to maximise influence.

In TheCityUK we are taking an approach which we hope may at least go some way to tackling both these effects and challenges. We are actively seeking to form alliances between UK financial centres and those in other European member-states. One shared vehicle for this is the European Financial Centres Round Table. This brings together representatives from financial capitals and other financial centres across the EU, with the aim of ensuring that we understand each other in terms of our common interests and how we can promote them together. Common action will, we hope, help to identify common interests, reduce the distance between ‘policy-makers’ and ‘policy-takers’, and ease the task of getting our views across. Perhaps this initiative offers openings for UKSIF and EUROSIF as a way of taking common interests forward. I certainly hope so.

www.thecityuk.com

Visit of Angel Gurría (Secretary-General, OECD)

John Cooke, Chairman, TheCityUK’s Liberalisation of Trade in Services (LOTIS) Committee

Wednesday 16 March was the central day in the visit of Mr Angel Gurría, Secretary-General of the Organisation for Economic Cooperation and Development (OECD), parts of it sponsored by TheCityUK. His visit to London – part of year-long programme of events marking OECD’s fiftieth anniversary – enabled him to launch this year’s OECD Survey of the United Kingdom in London and to meet the Prime Minister, the Chancellor of the Exchequer and the Secretary of State for Business, as well as having a breakfast meeting with leaders of some of TheCityUK’s major member-businesses, speaking at a Seminar at the London School of Economics, and attending a Mansion House Reception sponsored by TheCityUK. 

TheCityUK was delighted to play a prominent part in Angel Gurría’s programme, which highlighted the extent of convergent interests between the policy subject-matter at the heart of the OECD’s work and topics on TheCityUK daily agenda.

TheCityUK breakfast, hosted at the Lloyds Banking Group by Sir Win Bischoff (Chairman, TheCityUK Advisory Council) was an opportunity for wide-ranging exchanges between Angel Gurría and other guests on the range of OECD’s activities catalogued in the OECD Yearbook as it celebrated 50 years. Participants included Mark Boleat (Deputy Chairman, City of London Policy & Resources Committee), Lord Brittan (Vice Chairman, UBS), Robert Gray (HSBC, Chairman of TheCityUK Overseas Promotion Committee), Dominic Martin (HM Ambassador to OECD), Sean McGovern (Lloyd’s of London), Andrew Mitchell (Finsbury), Geoffrey Pelham-Lane (Financial Dynamics), Gabriela Ramos (Angel Gurría Chief of Staff), Tony Sims (UK Trade & Investment), Mark Tennant (JP Morgan), Andre Villeneuve (Chairman, International Regulatory Strategy Group) and Philip Warland (Fidelity).

Angel Gurría opened with an overview of OECD’s past and future direction of travel, and his ambitions for the Organisation as it entered its second half-century. He also gave a private preview of some of the OECD Survey’s general conclusions, which tended towards support for the UK government’s post-crisis measures, and a recommendation against changing course, despite the fact that the UK’s medium-term recovery was likely to be sluggish (an OECD viewpoint later underlined in the Financial Times’s comment on the Survey). Subsequent discussion brought out OECD’s distinctive character and authority as an organisation that combined an intergovernmental role with a jealously-guarded reputation for independence of thought. There was agreement that OECD’s special value lay in its ability to bring a comparative approach to bear on policies pursued by governments, not only among its members but also through outreach and peer-pressure among a widening network of associated countries and candidates for membership.

To TheCityUK’s members participating in the discussion, one of the key lessons was the relevance of the OECD to economic policymaking, and the extent to which the type of analysis offered by the OECD was of direct importance to TheCityUK and its members. This was borne out at the morning and afternoon sessions of the subsequent LSE Seminar, jointly organised by the Foreign & Commonwealth Office, LSE, and OECD. The Seminar programme covered a range of linked themes brought together under the general headings ‘OECD at 50: Better Policies for Better Lives’ and ‘Future Global Economic Challenges’. These focused on policies for macroeconomic stability, global growth, and challenges facing those developing appropriate policies for regulating financial services at a global level while maintaining open markets.

A full day of Seminar discussion (attended by the Chairman of TheCityUK’s LOTIS Committee) ranged over Growth, Skills and Jobs, the role of the OECD in policy analysis in these areas, and future global challenges. The Seminar’s morning session was devoted to presentations by Sir Howard Davies (Director, LSE), Angel Gurría and the Secretary of State for Business (Dr Vince Cable), followed by a panel moderated by Martin Wolf (Chief Economics commentator, Financial Times) with contributions from Professor Danny Quah (Professor of Economics, LSE), Pier Carlo Padoan (Deputy Secretary-General and Chief Economist, OECD), Jim O’Neill (Chairman, Goldman Sachs Asset Management International) and David Ramsden (Chief Economist, HM Treasury). All speakers offered insights on the issues inherent in promoting growth, jobs and skills worldwide at a time of uneven global recovery and fiscal constraints in many of the world’s most advanced countries, against the backdrop of a long-term move eastwards for the global economy’s centre of gravity.

The Seminar’s afternoon session was angled towards LSE’s student body and looked to the future, dealing with the forward challenges of global economic governance and OECD’s role in supporting global intergovernmental cooperation. A welcoming address by Sir Howard Davies was followed by presentations by Siddharth George (LSE Economist) on future socio-economic challenges (case-studies in South-East Asia governance) and Jonathan Coppel (Economic Adviser to Angel Gurría) on structural reform and convergent global policies to secure it. There was then a panel moderated by Maiting Zhuang (LSE) with contributions from Gabriela Ramos (Chief of Staff to Angel Gurría), Joe Grice (Chief Economist, UK Office of National Statistics), Dr John Llewellyn (Llewellyn Consulting) and Professor Keith Smith (Director of Science & Innovation, BIS).  There were concluding addresses from Angel Gurría and Dominic Martin (UK Ambassador to OECD).

The day concluded with a Mansion House Reception hosted by the Lord Mayor Locum Tenens (Sir David Howard) and TheCityUK’s Chief Executive (Chris Cummings). This brought together participants who had contributed to the programme throughout the day amend enabled Angel Gurría to outline OECD’s past and future role to a wider City audience.

It will take time to digest all the messages and action points from this rich and varied programme. For TheCityUK, however, Angel Gurría’s visit was significant in adding to the range of opportunities that exist for ensuring that the voice of UK financial and professional services is heard and that our members’ views are known at the international level. The special value of OECD lies in its quality as a resource for policymakers and for all those needing accurate, evidence-based comparative data as a basis for understanding economic needs and tools for addressing them. 

OECD’s work is not done in some kind of academic isolation: the organisation actively seeks and welcomes the views of outside bodies. TheCityUK has already been involved in some specialised areas of OECD work on trade policy and the evaluation of barriers to trade in financial services, where the LOTIS Committee Chairman has attended OECD Expert Groups. But the visit made clear that there would be room for TheCityUK to take a much wider interest in OECD’s work. One approach would be for TheCityUK to be more involved in the activities of OECD’s Business & Industry Advisory Committee (BIAC) which makes an input across a broad range of OECD business. But linkages with OECD are a two-way business: as well as ensuring that our thinking is known to OECD, we also need to ensure that OECD’s work – and the current OECD Survey of the UK Economy is only one example – receives the attention that it deserves from TheCityUK and its members. TheCityUK will make these tasks part of its forward programme over the coming months.

Positive pointers for financial markets in 2011

Duncan McKenzie, Head of Research, TheCityUK

The UK economic environment has been overshadowed by the snow-affected preliminary GDP estimate for the fourth quarter of 2010, not to mention scaling back of public expenditure. The full picture for UK growth in Q4 is yet to be revealed, but other recent evidence in the financial sector is more positive:

Business volumes up

The CBI/PwC survey indicated that growth in financial services was sustained in Q4 for the sixth survey in succession with firms expecting growth to be sustained during the first quarter of 2011.

Recovery in employment
Pointers to improvements in the general picture for employment come from three different sources:

• At the national level UK financial services has begun to show an upturn: rising by 17,000 to 1,014,000 in the six months to Q3 having dropped by 93,000 during 2009 to a trough of 997,000 in Q1 2010.
• City job vacancies in London experienced a seasonal decline in the final quarter, but over the year as a whole City vacancies picked up from a low point of 42,000 in 2009 to over 61,000 in 2010. Encouragingly, Morgan McKinley survey found that confidence was improving amongst employers and appetite for hiring was on the rise. A further increase to 80,000 therefore seems to be on the cards for 2011. A peak of 114,000 vacancies was reached in 2007.
• Newly employed FSA approved people saw a 15% rise to 3,901 in Q4 from 3,402 in Q3, the first quarterly rise of any significance since before the recession. 

Growing FSA authorisations of firms
The number of new firms authorised by the FSA has doubled from a low point of 174 to 353 between the fourth quarters of 2009 and 2010. Authorisations are on track to return in the second half of 2011 to average quarterly figure of 460 prevailing before the financial crisis. Growth has included FSA authorisations of foreign companies: these totalled 62 for all of 2009 and reached 49 in the first half of 2010 alone.

Strong trade surplus
While the financial services trade surplus has come down from the heights of £46bn in 2008 and £40bn in 2009, it is likely to have reached £36bn in 2010 – still the largest contributor to the current account of the balance of payments and offsetting close to half the goods deficit of £80bn.

Tightening office market in central London
Despite concerns about the long-term competitiveness of the capital, central London has remained a popular location for firms with office take up rising steadily through 2009. A number of major firms, such as J. P. Morgan and Bloomberg, have made major long-term commitments in 2010. Along with rising demand shortage of new supply has played a part but vacancy rates have nonetheless declined to 7% in the City of London and Docklands by the end of 2010.      

Rising IPOs
Following two years in the doldrums, IPOs at the London Stock Exchange totalled over £10bn in 2010. 

Increase in foreign exchange trading
Forex trading was up in the six months to October with the UK’s global share edging up to just over 37%.

These indicators provide positive pointers for the UK economy as a whole given that the financial sector has a pivotal role in supporting business, people and government in the process of economic recovery.

Follow this link to view TheCityUK City Indicators Bulletin Q1 2011.

Celebrate the birthday of the pound in your pocket

Chris Cummings, CEO, TheCityUK

Today marks the 40th anniversary of the introduction of decimalisation in the UK. We bade a fond farewell to pounds, shillings and pence and entered into a new world where, suddenly, there were 100 pennies in a new pound.

Our political leaders had decided that it was time to respond to change. If we were going to trade more easily with our European neighbours a more modern currency was necessary. We had already dropped the ‘10 Bob Note’, left the Guinea behind, and the notion that the meaning of "I promise to pay the bearer the sum of five pounds" actually was an amount in silver or gold was lost long ago. Recognising that the world was changing, it became necessary to change our currency.

Now, this is not an argument for or against joining the Euro – it is a reflection that when circumstances change so should our response. That when global shifts occur we can hang onto ideas, such as the Gold Standard, or we can move with the times and seek a new basis on which to be profitable.

We all know that the business world is changing. The rise of the Asian Markets becomes clearer everyday – it was only yesterday in fact when the Chinese economy was officially recognised as being the second biggest in the world (having surpassed the UK in 2005). The UK has traditionally enjoyed the prestige and profit of being a world leading financial capital. Indeed, we have been the place where ‘the world comes to do business with the world’. In part because of our imperial heritage and, then, because we were the home of the capital markets.

We developed a range of expertise that saw the growth of ‘the cluster’: the business phenomenon that brought together world class investment bankers, underwriters, lawyers, accountants, actuaries, dealers, indeed every type of financial and professional advisory business needed to launch, grow, buy and sell a business of whatever type. A unique ability clustered within a ‘square mile’ and with a talent pool that was so deep it could be drawn from across the nation. London's success has bred a national asset of a sector – employing over 1m people most of whom are outside the M25.

So it is useful on the day we changed our currency to realise that for future success we may need to modernise other parts of our business and policy thinking too. We live in an increasingly competitive and global world where we cannot rely on past glories. Other nations are building their financial services industries and all are targeting London's cluster to ‘salami slice’ the most juicy parts away. In this global war of attraction the UK is slow to respond – and even slower to act. The game is ours to lose.

Due to the financial crisis we have seen taxes rise, the regulatory approach intensify, and a culture which has celebrated innovation and entrepreneurship weaken. While this is an understandable response, we must not let reaction become retribution. Financial services are a major employer, as is the professional services sector. In fact, between the two they employ almost 1 in 10 of the UK population. At a time of cut backs and savings it is necessary to save every job we can.

The industry has been much reformed since the crisis. The wave of UK, European and global regulation enacted since 2008 must now be implemented and its effects measured before we go further. The UK has led the way in tightening regulatory sanctions against firms and while this has been an understandable response, we cannot continue to act in isolation. These are global issues that must be approached in a coordinated international manner. Not to do so will weaken our ability to compete, endanger jobs, and reduce our nation’s growth prospects.

40 years ago the UK took a brave step to change one of the key things at defines a nation state: its currency. It was a step that harked back to the days of Drake and Raleigh when our nation was built on trade and the desire to find new markets. Today's world offers less obvious adventure, but the need for a global ability to compete has never been greater. It is time to put the nation's interest first again and make sure we can be as competitive as others are determined to be.

www.thecityuk.com

The Rise of the Dragon – China becomes the second largest economy

Stuart Popham, Chairman of TheCityUK

Figures from Japan published this week bow to the inevitable, that China has now overtaken them to become the world’s second largest economy, only behind the US.

The inexorable rise of China has been witnessed for years, overtaking the UK in 2005 and Germany in 2007, China is set to overtake the US as the leading world economy within the next decade.

Although this rise does not reflect a new trend, we can still learn from Japan’s announcement today. Firstly, I recall the huge numbers of friends and colleagues who rushed to learn Japanese in the 80’s and 90’s. Schools proudly added Japanese to their curriculums to ensure the next generation was match fit in anticipation of the endlessly Rising Sun. Yet, ten or twenty years on, it is Chinese that would surely prove the more useful language given the country’s inimitable rise as an economic powerhouse.

This underlines the need for the UK to improve how it anticipates the skills required to thrive in the future and maintain its competitiveness on a global stage. Nowhere is this more critical than in the financial services sector. I fear we think skills that guaranteed the UK’s dominance previously, along with the scale and heritage of our past will translate into future success. This is a worrying and dangerous view when in reality, there is no room for complacency in today’s global economy, characterised by the rise of new economic powers.

The UK must also anticipate, proactively plan and react faster to embrace these new realities. The ONS has today published its Monthly Review of External Trade for December 2010. It tells a very clear story – the US is our number one trading partner with 14.9% of trade exports, yet China lies at 9th with 2.4% of exports. The world’s second largest economy is less of a market for UK skills than Germany, The Irish Republic, Spain and Italy.

I have been going to China four times a year for the last few years, attending business and wider trade delegations like that of the Prime Minister last year. The opportunity for UK skills is breathtaking with support for UK businesses from the likes of the China Britain Business Council providing a valuable platform to showcase these. Today’s trade figures highlight how we are missing developing new markets that could drive jobs and growth in the UK.

I suspect both thoughts are connected – we must develop the skills that our trading partners will value in the future, and we must look to use those skills more globally than ever before.

One other thing I see in the ONS numbers today is that the trade for goods and services combined was in deficit in December by £4.8 billion; while trade in services alone was in surplus to £4.4 billion. With the UK’s strength in areas such as financial services and its reputation for innovation, it is all the more vital that we concentrate on building our reputation for these skills abroad, rather than undermining them at home.

www.thecityuk.com

Playing to the strengths of our cluster advantage

Chris Cummings, CEO, TheCityUK

Last quarter's growth figures were disapointing and point to a slow and bumpy recovery rather than a pleasant glide path back to prosperity.

With the Government looking to save £80bn in the life of this Parliament it is useful to consider the role of the financial services sector, which benefited the Treasury by £50bn in the last year alone.

The sector is a national employer. Over 1m people are employed in financial services, with two-thirds based outside of London. This is a sector of scale. Few other industries employ one in twenty of the working population.

Too often financial services jobs get discussed as being about 'bankers in the City'. The truth is that the sector employs people right across the country. These are people doing valuable work helping people to save for the future, protect their families, and grow their businesses. Every day the industry pays out £173m in pension benefits - that's more than the Government.

The UK benefits from something called 'the cluster'. Over decades, with London as the shop window, the UK has been the place to come and do business. Like the 'tech cluster' in Silicon Valley, a unique gathering of innovative international firms have grown up here. From accountants to solicitors, from actuaries to underwriters, from brokers to reinsurance firms, from financial PR specialists to corporate advisers, London and the whole of the UK has developed a set of skills that is unrivalled. It is often said that it takes 18 different types of firms to enable an organisation to list its shares on the stock exchange – all of these firms and skill sets can be found in abundance across the UK.

It is for this reason that international financial services firms make their homes here. So against this backdrop, should we continue to punish today's financial services sector for the poor lending decisions that contributed to the recession? Public sentiment suggests this topic remains current and that some in society would be happy to see these international firms leave. Oddly, some commentators fail to mention that many of the international firms they pillory didn't actually cost the taxpayer a penny. Indeed, these firms are only based in the UK because it makes business sense to them and the UK has benefited from their decisions: J.P. Morgan is the biggest employer in Dorset, Deutsche Bank employs thousands in Birmingham, Citi is a major employer in Belfast, and the list goes on.

If these jobs were judged a necessary cost to rebalance the economy and the international firms were lost, what would be the cost? A major part of the cluster would be removed and the 'gravity' that holds it together would be weakened.

It's worth noting that apart from the 1m jobs in financial services, the professional services community also makes up another million people. Our advisory and business services sector is so strong because of the rich legacy we've enjoyed – created for the UK by far sighted entrepreneurs and built up over 100 years. We risk losing that heritage within a decade, not by deliberate action but by neglect and misjudgement.

At a time when others are being so welcoming to our financial services and related professional services sector, we should pause and ask why. Why is it that they want the jobs, tax and social contribution that we seem so keen to expel? It would be foolhardy indeed to turn away the very sector that can help the UK recover just at a time when others are trying to capture it. This is a competitive world and we must not lose our competitive advantages – let alone drive them away.

Find out more about TheCityUK at www.thecityuk.com