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Continued success
Scotland's financial services industry continues to build on its record of outstanding success and rapid growth over the past decade and remains a key sector in the Scottish economy. In particular, over the period 1998-2007, Gross Domestic Product ( GDP) in the financial services industry in Scotland increased by a greater proportion than in UK financial services overall, or indeed the Scottish and UK economies as a whole. The last year has seen further expansion of the industry in Scotland and despite challenging market conditions, the arrival or expansion of some of the world's leading international companies. Examples include BNP Paribas, Barclays Wealth Management and Morgan Stanley, who view Scotland as a country with the business environment, skills, and opportunities to help their operations grow 1. In addition, recent SFE surveys of the industry in Scotland report that 65% of organisations increased business volumes through 2007. These positive trends are reflected in the Scottish industry's strong and sustained performance against a range of UK and international benchmarks. Median earnings for example in Scottish financial services continue to outpace the average across Scotland and the UK, while the industry also employs a greater proportion of graduates than either the Scottish and UK economies as a whole. Looking forward, it is clear that while business confidence has been understandably affected by recent events in global financial markets, the prospects for the industry in Scotland remain robust with generally positive profit forecasts in early 2008.
Summary
The summary chart reports the Scottish financial services industry's strong performance relative to UK financial services and the Scottish and UK economies as a whole. Figures 1 to 5 provide further detail on each of the performance indicators.
Contribution to the economy
The financial services industry in Scotland contributes around £7 billion to Scottish Gross Domestic Product ( GDP). Since the start of 1998, Scotland's financial services industry has grown by 96%, compared to growth of 22% in the economy as a whole, and 84% across UK financial services as a whole.
More recently, Scotland's financial services industry continued to grow during 2007 but at a more muted annual rate of 2.0% when compared to recent years. Scotland is not isolated from global conditions however and the consecutive declines in the financial industry's output in quarters two and three of 2007 may have been the result of constrained credit conditions in international financial markets. Strong sectoral growth of 4.6% in the fourth quarter of the year, buoyed by the highest ever quarterly growth in Banking, provide encouraging signs of a recovery and a return to trend for the industry as a whole. Indeed, looking forward, Scotland's financial institutions are generally confident about the prospects for the year ahead 4.
FIGURE 1: GDP PERFORMANCE IN FINANCIAL SERVICES 1998-2007Q4
Notes: GDP is measured as Gross Value Added ( GVA)
Employment
Employment in Scotland's financial services industry was estimated at 86,000 in 2006. It should be noted that the Office for National Statistics ( ONS) has made substantial changes to the source of employment statistics (Annual Business Inquiry - ABI/1) over the last year which means that data from previous years are not directly comparable with the latest data for 2006 5.
The 2006 figure for employment in financial services activity in Scotland is however significantly lower than reported in previous years. In addition to the aforementioned methodological changes, the 2006 figure also reflects detailed work between the ONS and financial services industry companies to improve the quality and rigour of employment data within the industry. In particular, the recent changes take account of restructuring within the industry. It should also be noted that some of Scotland's financial services industry companies also have employment in support activities ( e.g.IT, call centres and real estate).
ONS current ABI revision policy means that no figures prior to 2006 will be revised in future publications. While the discontinuities in the data therefore prevent time-series analysis, the changes represent an improved baseline of employment and a more accurate picture of the financial services industry in Scotland.
In addition to those directly employed within financial services, the industry is estimated to also support indirect employment of around 70,000 across a range of other industries in Scotland. As illustrated in Figure 2, Scotland accounts for 8% of employment in financial services across GB, though the share of employment varies across sub-sector. Life and Pensions in particular stands out in Scotland, with 19% of all employment in that sector across GB.
FIGURE 2: FINANCIAL SERVICES EMPLOYMENT IN SCOTLAND - SHARE OF GREAT BRITAIN TOTAL BY SUB-SECTOR, 2006
Scottish financial services employment relative to GB
Figure 3 reports employment levels in each of the financial services sub-sectors in 2006. The chart illustrates the dominance of the Banking sector in Scotland, with 45,100 employees, the equivalent of 52% of financial services employment in Scotland. Life and Pensions employment accounts for 16% of the financial services workforce, while Intermediation employs 14% of all employment within the sector. Asset Management and General Insurance account for 11% and 7% of employment respectively.
The latest Joslin Rowe Financial Services Recruitment Review suggests that 55% of respondents will be increasing permanent employee numbers during 2008, with 67% of them stating this will be due to business growth. Following a decline in 2006, the number of companies that recruited employees during 2007 increased, with 68% of companies reporting recruitment of permanent staff compared to 56% the previous year.
FIGURE 3: FINANCIAL SERVICES EMPLOYMENT IN SCOTLAND BY SUB-SECTOR, 2006
Notes: Banking - SIC codes 65.11, 65.12, 65.21, 65.22; Life & Pensions - SIC codes 66.01, 66.02; General Insurance - SIC code 66.03; Asset management & Securities Broking - SIC codes 65.23, 67.11, 67.12, 67.13; Intermediation (the activities of IFAs and insurance agents & brokers) - SIC code 67.20.
Earnings
Earnings in financial services in Scotland remained above the Scotland average in 2007. Between 2006 and 2007, full-time median earnings in Scotland's financial services rose by 9% to £28,100. During this time, earnings in Scotland across all sectors and in financial services in GB as a whole each grew by 3%.
FIGURE 4: MEDIAN EARNINGS BY OCCUPATIONAL STRUCTURE 2007 6
Source: Annual Survey of Hours and Earnings 2007.
Notes: *Other includes a wide range of occupations, and in financial services, includes professional occupations such as actuaries and economists.
Qualifications
The qualifications data for 2007 shows that Scotland's financial services industry continues to employ a greater proportion of graduates
(above NVQ level 4) than Scotland and the UK as a whole, although a slightly lesser proportion than UK financial services as a whole. However, including all those with HE at NVQ level 4, Scotland outperforms each of the comparators below. Scotland's financial services industry has increased its proportion of graduates in the workforce by 45% since 1999, which again has outpaced the growth of graduate employment in each of the comparators in Figure 5 below.
FIGURE 5: QUALIFICATIONS 2007
Source: LFS 2007 Calendar quarter 2 (Apr - June).
Notes: * This includes those with NVQ level 1 qualifications, other qualifications and no qualifications. Those with unknown qualifications have been removed from the analysis. Estimates are rounded to the nearest thousand.
International benchmarking
It is essential that Scotland's financial services industry - and the success of the Strategy - is measured against international comparators. As was reported in the 2007 Annual Report, the strength of Scotland's financial services industry is monitored using a range of indicators that were developed by FiSAB and FiSIG. Scotland's financial services industry continues to perform strongly when set against regional and international comparators. In particular, against 29 other countries, Scotland has attained the third highest value of exports per worker, and is second only to London in terms of the share of GVA contributed by financial services within the regional economy. Additional financial services benchmarking measures are set out in Figure 6.
FIGURE 6: FINANCIAL SERVICES BENCHMARKING
Figure 7 provides further indicators of how the wider economic environment in Scotland compares to other industrialised economies. Comparator locations are OECD members and include major economies such as the USA, Japan and Germany. Scotland's performance in terms of GDP per head of population, the percentage of graduates in the population, and net inward migration has been positive since 2000.
FIGURE 7: SCOTLAND'S GENERAL BUSINESS ENVIRONMENT BENCHMARKING
Notes and sources
GDP data from Scottish Government Quarterly GDP Index. GDP per capita from OECD in Figures 2007 and ONS Regional Accounts.
Employment - Annual Business Inquiry ( ABI) Employee Analysis and OECD employment by activities and status.
GVA: ONS Regional Accounts and Eurostat National Accounts.
Qualifications - Labour Force Survey.
Exports: ABI Employee Analysis, Global Connections Survey, 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.
Earnings: ONS Annual Survey of Hours and Earnings and Eurostat Labour Cost database.
Productivity: OECD International Comparisons of Labour Productivity Levels and ONS Productivity 2007. Change in position is from 1999.
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.
Graduates: Labour Force survey and OECD, Education at a Glance, Change in position is from 1999.
Net Migration: OECD (2006) OECD Factbook, GROS Mid-year estimates.
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