Financial centres in UK cities outside London are set to suffer most from Brexit

Although news reports about the impact of Brexit on the UK’s financial services sector have focused almost exclusively on London, a new report from the Centre for Cities claims that the decision to leave the EU will have a disproportionately larger impact on the centres in the UK’s other major cities, which employ two thirds of all people in the sector. The report explores the financial and professional services sectors in cities across the UK, and looks at what the relationships are with London-based firms in these industries. The report by the think tank supported by the City of London Corporation London: The geography of financial services in the capital and beyond looks at how much individual cities across the UK export in services, and what proportion of these services exports came from the financial sector.

Key findings

• Financial services and related professional services play an important role in a number of other cities for jobs, productivity and exports.
• London-headquartered businesses in these sectors accounted for just under 220,000 jobs in other British cities in 2017.
• 40 per cent of all of urban Britain’s finance and related jobs were in a London-based firm.
• The relationships different cities have with London varies, both in terms of their number and their nature. While not everywhere had strong links with London, a number of cities had a large share of financial services jobs in particular in London-headquartered firms.
• These jobs vary in their nature. In cities such as Brighton, Leeds and Bristol (pictured), this large share of jobs tended to be in high-skilled activities.
• Cities such as Sheffield, Sunderland and Swindon also had strong links to the capital, but the types of jobs tended to be lower-skilled activities, suggesting that the jobs they have attracted have tended to be more back-office in their function.
• The report finds that the average productivity of those working in the financial sector is almost double that of the national average (£58,888), ranked at £114,678 in 2016.
• It’s estimated that there are 1.1 million financial services jobs in the UK – two-thirds of these are based outside the capital.

Implications

Both the performance of financial and related services across the country and their links to the sector in the capital show that the fortunes of these activities do not just have implications for London. And so as the UK looks to change its trading relationships with the world, a deal for financial services will be important for a number of cities and not just the capital.

It finds that cities such as Cardiff (81%), Northampton (76%), Leeds (71%) and Edinburgh (69%) rely heavily on finance as their major services exporter. Comparatively the financial sector makes up 41% of London’s entire services exports. Financial services accounted for at least a quarter of total exports in nine of the 63 cities evaluated, including Ipswich (25%), Bristol (26%), and Swindon (34%).

Of the UK’s cities most reliant on financial services exports, more than half voted to leave the European Union in the referendum two years ago*. It is estimated that a third of all UK financial services exports go to the European Union, or approximately 36% of the total. This is followed by the US (21%), Japan (6%) and Canada (1%).

Chief Executive of Centre for Cities Andrew Carter said: “Financial and professional services play an important role in city economies across the UK, so a bad Brexit deal for services will be a bad deal for many cities too. London is well-placed to bounce back from any post-Brexit downturn thanks to its vast labour-market and business base. However, the worry is that many other cities – especially those outside the Greater South East – will struggle to adapt to the potential shocks that might lie ahead. The Government has outlined its plans to take services out of the EU single market. It should not underestimate the damaging impact that this could have on jobs and wages in cities across the UK.”

Policy Chairman of the City of London Corporation Catherine McGuinness said: “The UK’s financial services sector is often associated with London’s iconic skyscrapers, but its reach extends well beyond the Square Mile’s borders. This data makes clear that some of the UK’s major cities rely heavily on financial services, and that a detrimental Brexit deal for the UK’s financial sector will be felt nationwide – not just in the capital. Government outlined enhanced equivalence plans in a Brexit white paper earlier this month. A great deal of ‘enhancements’ would need to be made to the current equivalence regime. The sector is eager to work with Government to clarify how this regime might be expanded to cater to the needs businesses and households on both sides of the Channel.”