Not all doom and gloom for Britain's bankers

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Angus McCrone By Angus McCrone

27 July 2015

A reduced overall headcount, tighter regulation and the need to keep a lower public profile have been offset by a relatively healthy remuneration package and rising opportunities for those with the right skills, writes Angus McCrone.

To put it mildly, the last eight years have not been a great time to be a banker.

In places such as Iceland and Ireland, the word has sometimes acquired an extra "s" and "t" to make "bankster", when featured in public debate.

It has not been quite as poisonous here for the pinstriped legions, although Chancellor George Osborne announced a £900m tax raid on the banks in his April Budget, on top of existing levies, and Boris Johnson accused Ed Miliband during the general election campaign of having a "crazed desire to punish bankers".

And then there's the share accounted for by British banks of the £130bn of fines levied on the sector internationally, for everything from Libor fixing to the mis-selling of payment protection insurance.

Those who work in banks in the City and other UK financial centres have responded by keeping a lower profile than before the financial crisis, while getting on with their jobs.

Predictably, there are fewer of them. More surprisingly, except for those of conspiratorial mind, those bankers still in work appear to have been doing relatively well in salary terms over the last few years.

The government's labour market statistics show that the number of people employed in "finance and insurance activities" rose from 1,164,000 at the start of 1997 to a peak of 1,312,000 in the final quarter of 2007. Since then, it has shrunk by 132,000, or 10 per cent.

In other words, the total is almost back to where it was 18 years ago. That is a period in which an extraordinary 4.8m jobs have been created across the whole of the UK economy, with education contributing 1.2m of those, health and social work 1.3m, and professional, scientific and technical services 680,000.

On pay, finance and insurance workers enjoyed a near-25 per cent bounce in basic salaries between 2008 and 2014, and although bonuses were down nearly 20 per cent, overall compensation was up 11 per cent. In the same period, overall pay in the whole economy rose 9 per cent.

That shift from annual windfalls to basic salary makes sense, given the former Labour government's 50 per cent tax on bank bonuses in 2009 and 2010, more recent attempts by the European Union to cap bonuses, and general media hostility to bumper pay-outs. But why has finance sector pay outperformed salaries in the rest of the economy?

One reason could be a relatively innocuous one – that in the early part of the economic cycle, when stock markets anticipate the gains in profits to come, the finance sector tends to earn rising advisory fees and trading commissions. It is later in the cycle when other sectors – such as health, education and construction – start to get the 'catch-up' increases in wages.

Optimists might point out that the market is seeing the growth in 'challenger banks', and that these are taking on more staff. Metro Bank, for instance, has grown from zero to 1,700 staff since 2010. Virgin Money had grown to having 2,984 employees by the end of last year.

Another reason could be that, despite the job cutbacks at lenders such as Royal Bank of Scotland (headcount down from 199,500 to 109,000 since 2008) and Barclays (down from 161,000 to 139,000), particular skills remain in short supply and banks have no alternative but to pay for them. In 2014, RBS still had 110 employees who earned more than £1m each, and Barclays 359.

Some of these skills in short supply are likely to be in the areas of regulation and compliance. If so, part of this growth in demand is due to the authorities' attempts to put the banks on a tighter leash.

A final reason could be that the underlying issue that caused the fuss over bankers' pay in the last decade still exists – a lack of competition in important areas of finance such as retail and investment banking, insurance and fund management – reflecting high barriers to entry and the power of the established brand names.

The same combination – weak employment but firm salaries – may persist for the next year or two, as banks continue to struggle with the new regulatory burden. At the same time, they may delay investment decisions in the UK as they wait for the result of the country's 'in-out' referendum on European Union membership.

Angus McCrone is a freelance business journalist. This article first appeared in the August 2015 edition of The CA.

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