Banking on financial sector makes city vulnerable

Author: Malcolm Cooper
Date: 17/12/2008
Publication: Yorkshire Post

Financial services are big business in Leeds. The city has the fourth highest number of jobs behind London, Edinburgh and Manchester. In terms of its specialisation in this sector - or the number of jobs as a proportion of total employment - Leeds is third behind Edinburgh and Norwich. With a combination of a highly qualified workforce, decent office space and relatively low business costs, coupled with a good quality of life on offer, Leeds has been extremely successful in attracting business.

In financial and business services together, the city has added 25,800 new jobs since 2001. It now hosts offices of 30 different banks including the headquarters of First Direct and Yorkshire Bank. There is also a supporting cluster of large accounting and law firms like PriceWaterhouseCoopers and DLA Piper.

The success of Leeds, however, means that it is very vulnerable in the current recession. The recession's roots are in the credit crunch, and the credit crunch is still with us. While interest rates have been slashed and £37bn of Government funding injected to recapitalise the banks' battered balance sheets, banks are still not lending to each other or to customers. The recession, in other words, is also a banking crisis, and this spells trouble for all British cities with large financial services sectors.

With the exception of Northern Rock, job losses have so far been largely restricted to the City and Canary Wharf. There are, however, already some early warning signals flashing. Job vacancies in the Leeds financial sector are down 12 per cent year-on-year. In addition, a roundtable discussion we held with senior company representatives last month confirmed that most companies had already introduced a hiring freeze.

The picture is about to get much darker, as evidenced by Santander's recent announcement of redundancies among its recently acquired UK assets, Abbey, Alliance & Leicester, and Bradford & Bingley's savings arm. And much worse is on the way. The biggest problem will be the merger of Lloyds TSB and HBOS. The former employs 70,000 while the latter employs 65,000. Conservative estimates of potential redundancies are put at about 20,000, while the most alarming figure is 40,000. The overall impact of recession on UK financial services employment is a loss of somewhere between 100,000 and 150,000 jobs. This is equivalent to 10 to 15 per cent of the sector's million-strong workforce.

While the City and Canary Wharf will continue to lose jobs, most of the future burden will fall on cities like Leeds. In the city itself, roughly 3,500 people are employed in the HBOS regional office and the Halifax Direct contact centre, while another 500 have jobs in the Lloyds regional office. In addition, the Halifax retail head office in Calderdale, within the Leeds City Region, employs more than 6,000.

Beyond this other offices are likely to feel the squeeze too as banks seek to reduce costs. Headquarters and support staff, the two areas in which Leeds is strongest, are likely to suffer the most. No fewer than 6,500 people in Leeds work in contact centres.

So what will this mean in terms of total jobs lost? This depends to a great extent on the length and severity of the recession. We asked Oxford Economics to prepare forecasts for us on a moderate recession scenario leading to a 1.1 per cent drop in UK growth in 2009, and on a much worse scenario involving a 2.5 per cent fall in growth. These scenarios forecast total job losses in Leeds, up to the end of 2010, of 11,600 in the first case and 28,000 in the second case. Somewhere between 30 per cent and 40 per cent of these losses would occur in the financial and business services sector. This is equivalent to five per cent to 10 per cent of sector employment.

There is only a limited amount that Leeds can do to stem the tide of what is really a national phenomenon.

On the jobs front, the most important step will be for the council and its partners to work closely with employers and Jobcentre Plus to ensure that skilled workers who lose their jobs at HBOS or Lloyds TSB are not lost to Leeds. The council and Leeds City Region would do well to maintain an updated register of vacancies in the city so that the unemployed can be rapidly redeployed.

Even more important for Leeds is to retain its business community so that jobs are still there to go back to when the recession ebbs. The UK financial services sector will go through a massive restructuring which will involve the closure of offices and contact centres across the country.

Leeds must do what it can to ensure that these closures do not happen here. Three other core cities, Liverpool, Sheffield and Newcastle, have lower average wages, lower rental levels and no shortage of new, high-grade office space. They will all be looking for opportunities to profit from industry consolidation. Leeds must play to its strengths: the breadth of the financial services cluster, the quality of the city life on offer, and the depth of its labour pool. Leeds cannot compete on cost alone. There will be no room for complacency during the tough times ahead.

A version of this article first appeared in the Yorkshire Post