Brexit & the City: missing the bigger picture on jobs
September 2017 • Brexit • by William Wright
Brexit could have a significant impact on recruitment and jobs in the City of London – not least by highlighting structural challenges that will have a far bigger impact on the industry in the longer-term
Another week, another set of numbers that send completely contradictory messages about the impact of Brexit on the City of London. This week the recruitment firm Robert Walters said the City had shrugged off concerns over Brexit and that hiring had ‘surged’ 37% in July compared to last year. Meanwhile a rival firm Morgan McKinley published its own research saying recruitment had dropped by 11% over the same period and that the City was ‘haemorrhaging talent’ as a result of Brexit.
The two surveys highlight the dangers of confirmation bias in cherry-picking the data that support your view. But more importantly they both highlight that by viewing everything through the prism of Brexit, you could miss the bigger picture when it comes to the longer term fortunes of the City.
Last month when Robert Walters published data for June showing that recruitment had increased by 17% compared to last year, it was hailed by the likes of Daniel Hannan MEP (a prominent Brexiter), Gerard Lyons (another vocal Brexit supporter who used to advise Boris Johnson on economic affairs when the now Foreign Secretary was Mayor of London), and broadcaster Andrew Neil as more evidence that ‘Project Fear’ was apocalyptic claptrap (and that was a conspiracy by the mainstream media in not reporting it).
It’s hard to draw any firm conclusions from the Robert Walters survey because the dataset is so patchy. It has only published the headline percentage change in hiring for the past three months, and published nothing between August 2015 and June of this year. On the other hand, the Morgan McKinley survey provides a longer-term dataset showing monthly numbers of vacancies in the City going back to July 2015. And on that basis, recruitment in July this year was down by 35% compared with two years ago (from just under 11,000 to about 7,000). Despite a small uptick in the past few months, the number of vacancies has fallen in 10 of the past 13 months since the EU referendum, and the total number of vacancies in the first seven months of this year is down 10% on the same period in 2016.
That makes sense: when firms in the City are grappling with continency plans to relocate staff from the UK to the rest of the EU to ensure they are ready for a ‘worst case’ Brexit, they are likely to put the brakes on their recruitment in London. However, Brexitologists trying to read Brexit boom or Brexit doom into these numbers are chasing their tails.
Let’s start with the ‘Brexit boom’ side of the debate. There is no doubt that Brexit will present some longer-term opportunities for the City, not least by forcing firms to look further afield for business. That said, given that London is already the dominant global financial centre and that nearly two thirds of financial services exports already go outside the EU, it’s hard to see how the EU has held the City back from doing business across the globe.
On the Brexit doom side of the argument, any potential longer-term opportunity has to be offset against the very real short-term disruption of Brexit. The reality is that many firms based in the UK have to relocate some staff to the EU in order to ensure continued access to EU markets. They will move as few roles as they possibly can (they have spent the past 20 years concentrating their activities in London). While the initial numbers are small and some of the headier claims of a mass Brexodus are misleading, our research suggests that something like 10% of London-based activity may have to move in the medium term. That may not sound much, but it’s about 30,000 finance jobs and a similar number in support sectors.
The bigger picture
Beyond Brexit, there are much bigger forces at play. While the long-term outlook for asset management and capital markets activity is rosy, the long-term prospects for people who work in the industry that provides them are not.
The combination of regulation, technology and rising customer expectations is challenging an already challenged industry. Investment banks in Europe are scarcely profitable, and a decade on from the start of the financial crisis they are still grappling with cost-cutting and restructuring. Credit Suisse is cutting another 1,500 jobs in London this year (on top of roughly 2,500 job losses in the UK since 2015). RBS aims to cut 40% of its IT staff in London by 2020, and other firms are already migrating staff from London to Birmingham, Kracow or further afield. And the asset management industry, which has sailed through the past decade with its model virtually untouched, is facing more and more scrutiny.
And that is the real challenge of Brexit for the City: the process of preparing for Brexit has highlighted to many firms how inefficient and expensive it is to have so many support staff who could be based elsewhere taking up space in some of the most expensive real estate in the world. As one senior banker said a few weeks back., once you have seen that you can never unsee it. Brexit will increasingly provide the occasion – if not the cause – for the industry to make radical changes to its structure and business model. Some firms may even use Brexit as cover for this restructuring.
In future, a lot more business will be conducted in the City with far fewer people being paid far less for actually doing it. And that will make the changes in recruitment from one month to the next look like a rounding error.
This articles first appeared in Financial News in August