Measuring progress
In a challenging global environment, 1 the strengths that Scotland has long had in financial services remain.
The global financial services industry is in a period of significant change and uncertainty, following intensification of the market turbulence that began in autumn 2007.
Like every other financial centre around the world, the financial services industry in Scotland is not immune to global market turmoil, and output has fallen from its peak in 2007. Despite this, output in last quarter of 2008 was 92 per cent higher than at the start of 1998 - a substantially greater percentage increase than the wider Scottish economy average and the Scottish service sector average over the same time.
The extent to which recent falls in output will be reflected in employment across Scotland's financial services industry remains to be seen. Several companies with operations in Scotland have announced intentions to cut staff numbers, although the extent of job losses in Scotland remains unknown.
However, falling output and potential job cuts do not represent the industry-wide picture. Prospects for the future have been buoyed by recent announcements of the expansion and investment plans of several financial services companies in Scotland. For example in March 2009, Tesco Personal Finance announced a major expansion of its UK operations in Edinburgh with the establishment of its HQ at new offices in the Haymarket area and the creation of around 200 new jobs in the next 12 months, while BNP Paribas Securities confirmed in January 2009 its plans to continue recruiting staff to its operations at the International Financial Services District in Glasgow. A recent survey 2 of companies in Scotland's financial services industry found that 22 per cent of companies intend to increase permanent headcount in 2009.
Scotland continues to build on the conditions necessary for future growth. The proportion of graduates in the workforce has increased again this year, while a migration rate that was negative in 1999 is positive for the fourth year in a row, reflecting the continuing attractiveness of the country as a place to live and work. The summary chart below reports the most recent data available to chart the performance of Scotland's financial services industry relative to UK financial services and the Scottish and UK economies as a whole. As can be seen, at the time shown, Scotland's financial services industry outperforms each of these comparators on every measure except earnings, which are higher in the industry at the GB level, 3 and the proportion of graduates in the workforce (where performance is the same as the UK financial services sector, at 33 per cent each). This large pool of high quality graduates is one of the factors that make Scotland an attractive location for financial services.
Figure 1: Summary of performance
1 This section contains data available up to April 2009.
2 Joslin Rowe & Scottish Enterprise (2009) Scottish Financial Services - Recruitment Review 2009. Companies surveyed in November and December 2008. Full report available from: http://www.joslinrowe.com/documents/editorial/140.pdf.
3 For earnings, comparison is with GB.
4 Due to a change in survey methodology in 2007, employment data from 2006 onwards cannot be compared with earlier years. Comparison is with GB financial services and GB economy-wide employment.
Contribution to the economy
The most recent GDP data (for 2008 Q4) show that since the start of 1998, Scotland's financial services industry has almost doubled its output, increasing by 92 per cent in real terms, compared to 86 per cent across UK financial services and 22 per cent across the Scottish economy as a whole over the same period.
Financial services in Scotland accounts for around eight per cent of the country's output. Despite an overall drop in output in year on year terms, the most recent quarter (2008 Q4) shows a positive increase in output over the previous quarter, of 2.2 per cent. This compares to fall in output of 1.7 per cent across the Scottish economy as a whole in the most recent quarter, and positive growth of 0.5 per cent in year on year terms.
Figure 2: Quarterly GDP Index - Scotland - Whole Economy, Financial Services, Services 1998Q1-2008Q4
Employment
It should be noted that while these statistics are the most up-to-date annual statistics available from the ABI, they do not reflect the most recent events of 2008/09. The next published statistics will be available in December 2009.
Employment in Scotland's financial services industry as a whole increased from 90,400 in 2006 5 to 91,600 in 2007. Employment in the Asset Management, Banking, and Life & Pensions sectors increased over the year, however, it appears that employment fell in the General Insurance and Intermediation sectors between 2006 and 2007.
Figure 3: Financial services employment in Scotland by sector 2006-2007
5 Figures for 2006 employment have been revised by the Office for National Statistics ( ONS) following those published last year.
Overall, Scotland's share of GB financial services employment stood at nine per cent over 2006 and 2007. Reflecting the increase in Asset Management employment in 2007, Scotland increased its GB share of this sector over the year, from five to six per cent. Scotland's relative strength in the Life & Pensions sector continues to stand out, with 19 per cent of GB employment in 2006 and 2007.
The latest Joslin Rowe Financial Services Recruitment Survey found that while the percentage of respondents intending to increase headcount in 2009 is down from last year's survey, 22 per cent of companies surveyed intend to increase permanent employment this year - 82 per cent as a result of business growth. However, stating cost savings, company restructurings and caution about the future as reasons, a third of respondents expected to reduce headcount in 2009. Forty-five per cent of companies surveyed expected to keep headcount level throughout 2009.
Figure 4: Financial services employment in Scotland - share of Great Britain total by sector 2006-2007
Earnings
The most recent earnings data shows that median earnings in Scotland's financial services industry remain higher than median earnings averaged across all sectors in Scotland, but below the level for financial services in GB as a whole. Overall, between 2007 and 2008, average salaries in Scotland's financial services industry increased by seven per cent against a rise of four per cent across all sectors in Scotland and six per cent across GB financial services.
The table below also highlights that the financial services industry, in both Scotland and GB as a whole, has more than twice the proportion of the workforce engaged in managerial and senior occupations than the wider workforce average. Administrative, secretarial and sales and customer services occupations also feature more heavily in the financial services industry in both Scotland and GB than across other sectors on average.
Figure 5: Median earnings by occupational structure 2008
*Other - includes a wide range of occupations, and in financial services, includes professional occupations such as actuaries and economists.
Column totals may not add to 100% due to rounding.
Source: Annual Survey of Hours & Earnings.
Qualifications
The latest qualifications data show that a third of the workforce in Scotland's financial services industry are graduates - 10 percentage points higher than the average for all sectors in Scotland and on a par with the proportion of graduates at the UK sector level. Taking all those with a qualification at SVQ Level 4 and above into account, Scotland's financial services industry outperforms each of the comparators in the table below, with 45 per cent of the workforce holding a SVQ Level 4 or above, compared to 39 per cent for UK financial services, 38 per cent for Scotland as a whole, and 34 per cent across all sectors in the UK. This confirms Scotland's ability to provide a highly qualified workforce which enhances competitive advantage for the industry and Scotland as a whole.
Figure 6: Qualifications 2008
* Note - this includes those with NVQ level 1 qualifications, other qualifications and no qualifications. Those with unknown qualifications have been removed from the analysis.
Column totals may not sum to totals due to rounding.
Source: LFS 2008 Calendar quarter 2 (April-June).
International and regional benchmarking
Scotland's financial services industry is benchmarked against a set of international and regional comparators across a range of indicators agreed by FiSAB and FiSIG. The significance of Scotland's financial services industry is reflected in a number of key indicators. Across GB, Scottish financial services accounts for the third highest proportion of total employment in the regional economy, and makes the second highest contribution to GVA within the local economy across the UK. Scotland also has the third highest level of financial services exports outwith the country per worker across a group of 29 other comparator nations.
Figure 7: Financial Services Benchmarking
1 2006 for France and Luxembourg.
2 Change in positions is from 2006. Due to a change in methodology, employment data for 2006 onwards cannot be compared with earlier years. No 2007 data for France and Luxembourg therefore only 26 comparators available.
3 Comparison is with position in 2006. Due to a change in methodology in the Annual Business Inquiry, employment data from 2006 onwards is not comparable with earlier years.
4 Change in position from 2000 not possible as employment data from 2006 onwards cannot be compared with any years previous.
5 Data for Scotland is sourced from the SG's Global Connections Survey, for all other countries the source is OECD Trade in Statistics in which data is available in US dollars. In order to ensure data for Scotland is comparable the sterling value of Scottish export data has been converted to US dollars at the same rate as the OECD converted UK data in sterling to US dollars, however it should be noted that comparisons of export values in different years will be affected by currency fluctuations.
6 Change is from 2002.
7 Change in position is from 2006. Due to change in methodology, earnings data from 2006 onwards cannot be compared with earlier years.
8 Change in position is from 2006. Due to a change in methodology, earnings data from 2006 onwards cannot be compared with earlier years.
General business environment benchmarking
Figure 8 provides further indicators of how the wider economic environment in Scotland compares to other industrialised economies. This shows that Scotland's position in a number of key indicators of the country's attractiveness as a place to do business has continued to improve on the position in 2000. A negative net migration rate in 2000 and a position of second from the bottom amongst a range of OECD comparators has turned into a positive net in-migration rate and a ranking of ninth across the same comparator nations. Scotland has also increased its ranking in an important indicator of the available pool of skilled labour - the percentage of graduates in the population - from 14th in 1999 to sixth in 2006. In terms of total entrepreneurial activity, Scotland has risen from last place to 10th across the same comparator countries between 2000 and 2007.
Figure 8: Scotland's general business environment benchmarking
Notes and sources
GDP Index (Figure 2) Scottish Government Quarterly GDP Index 2008Q4.
Employment : Scotland and UK - ONS/Scottish Government - Annual Business Inquiry ( ABI) 2007. International comparators from OECD - employment by activities and status.
Earnings: Scotland and UK - ONS Annual Survey of Hours and Earnings. International comparators - Eurostat Labour Cost database.
Qualifications: Scotland and UK - Labour Force Survey.
Graduates: Labour Force survey and OECD, Education at a Glance.
GVA: Scotland and UK - ONS Regional Accounts. International comparators - Eurostat National Accounts.
Exports: Scotland - Scottish Government Global Connections Survey. International comparators - OECD Statistics on International Trade in Services and OECD Employment by activities and status. Scottish Exports include sales to the rest of the UK. Exports at the sectoral level are not available for other UK regions.
GDP per head of population: OECD - GDP per head of population - US dollars at current purchasing power parities. Figure for Scotland calculated using ratio of Scottish to UKGDP per head from ONS Regional Accounts for UK 2007 (Table 1.1).
Productivity ( GDP per hour worked): OECD International Comparisons of Labour Productivity Levels and ONS Regional Accounts for 2007.
Entrepreneurial Activity: Global Entrepreneurship Monitor ( GEM). The GEM identifies the proportion of working age adults who are either setting up or have been running a business for less than 42 months.
Net Migration: Scotland - GROS Mid-year estimates. OECD (2008) OECD Factbook - net migration rate per 1,000 inhabitants.
9 Change in position is from 1999.
10 Data for Australia, Canada and Germany is for 2006.
11 Change in position is from 1999.