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Sector Skills Baseline Study

FORFINANCIAL AND PROFESSIONAL SERVICES

Executive Summary2015

Sector Skills Baseline Study FINANCIAL AND PROFESSIONAL SERVICES Executive Summary

1. Introduction

1.1 Context

Lancashire’s Financial and Professional Services (FPS) sector employs around 82,000 people in over 10,200 businesses. Major employers include National Savings and Investments (NS&I), the Co-operative Bank, Guardian Financial Group, and Chesnara Plc. Spatially, there are key employment concentrations in Preston, Blackburn and Fylde. Structurally, it is diverse with many component sub-sectors such as Accountancy, Law, Employment Activities (including employment placement agencies), Real Estate Activities, Office Administrative and Support Activities, as well as Architectural and Engineering Activities (among others). Additionally, many FPS employees work in the finance departments, for example, of larger corporate firms whose main activity falls outside the formal definition of FPS definition.

Lancashire’s Strategic Economic Plan (SEP)1 identifies two key FPS sub-sectors: Business and Financial Services is highlighted as a key employment sector employing

around 40,000 people in ‘services ranging from back-office administration to customer service centres and accounting activities’.2

Business Process Outsourcing is identified as a developing sector; characterised by ‘market specialisms which have the necessary pre-requisites to grow into significant employment and value generating sectors in the future’.3

1.2 Aims and Approach

The aim of the study was to produce a detailed analysis of skills and employment issues for the Financial and Professional Sector in Lancashire and to develop a partnership-based Action Plan to address those issues’4.

The resultant high-level action plan is designed to help shape future FPS related skills policy across Lancashire through until 2021. It draws on a detailed ‘State of the Sector’ evidence report, consultations and meetings with the study’s Steering Group, and two formal stakeholder workshop events with representatives from the sector, policy-makers and sub-regional skills providers5.

1 Lancashire Local Enterprise Partnership (2014) Strategic Economic Plan, available from: http://www.lancashirelep.co.uk/about-us/our-priorities/lancashire-strategic-economic-plan.aspx

2 Lancashire Local Enterprise Partnership (2014) Strategic Economic Plan 3 Lancashire Local Enterprise Partnership (2014) Strategic Economic Plan4 This proposed Action Plan for Lancashire’s FPS sector has been developed in parallel to the Lancashire Employment and

Skills Strategic Framework, and a number of other sector-specific skills action plans (including energy and environmental sector, health, digital and advanced manufacturing).

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2. State of the Sector

2.1 Nature of the Sector in Lancashire

Lancashire’s FPS sector:

Includes around 10,200 firms6.

Accounts for around 82,000 jobs or 13% of Lancashire’s total workforce, compared to a national average of 20%.

Since 2009 has grown more quickly in terms of employment (at a rate of 12% pa) than the national average (9% pa, over the same period).

Is most concentrated spatially in Preston and the northern part of South Ribble, with around 1,200 FPS jobs.

Has its largest employment levels in Legal, Accounting, Employment Activities and Real Estate Activities.

Generates around £5.4bn in Gross Value Added (GVA) each year, and is highly productive: average GVA per employee in the sector is £52,500, compared to £34,000 for Lancashire’s economy as a whole7.

2.2 Profile of the Workforce and Future Demand Signals

Future demand signals

This is a disruptive time for FPS and its sub-sectors as ever tightening regulation, the legacy of the financial crisis, and rapid technological developments are reshaping business models, practices and consumer behaviours.8

The next five years will see new market entrants (e.g. national retailers diversifying into legal services) and ongoing merger and acquisitions driven, in part, by the need for sector businesses to meet the compliance requirements of regulation. To maintain cost efficiency, there will be increasing automation and ‘systematisation’ of routine activity, and a shift from professionals to para-professionals. Apprenticeships will be key to feeding the growth of para-professionals.

5 A Steering Group, set up by Lancashire County Council and comprising key providers and employers across Lancashire’s FPS sector, has been involved throughout the study process to inform and calibrate the work.

6 Source: BRES, 2014. The following bullet points also use BRES data.7 Source: Analysis of data produced by Oxford Economics, 2014.8 UKCES (2012) Sector Skills Assessment for Financial, Insurance and Other Professional Services, available at:

www.gov.uk/government/uploads/system/uploads/attachment_data/file/306501/briefing-paper-ssa12-financial-v2.pdf

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Future demand – UK-wide

UK FPS employment is projected to increase by 1m to 9m people by 2022, a 13% increase on 2012 employment levels according to UKCES.9 This compares to an increase in employment of 1.8m (+23%) in the UK’s FPS sector over the same period according to Oxford Econometrics projections, with employment in the sector rising to a total of 9.8m by 2022.

Both figures are outweighed by a significant level of replacement demand across the sector nationally (of over 3m) by 202210. This will cover all occupations, particularly at the higher skill levels.

Future demand – Lancashire specific

In Lancashire, the expected increase in the number of FPS jobs in the decade to 2022 varies from 16,000 (or 14%, source: UCKES) to 38,000 (or 32%, source: Oxford Economics). The variation is explained by the slightly different sectoral definitions used to underpin the projections. The expected increases in both cases are, however, outweighed significantly by replacement demand, which is expected to generate 46,000 job opportunities in the FPS sector in Lancashire by 2022. This replacement demand accounts for around 75% of the total requirement for labour between 2012 and 202211.

Replacement demand, therefore, is a critical issue that this Skills Action Plan needs to respond to effectively. Discussions with stakeholders have revealed that inadequate succession planning and an ageing workforce are particularly common within family-owned firms and SMEs, and need tackling.

Table 1: Net employment change and replacement demand by broad occupational groups for the FPS sector in Lancashire, 2012-22

SOC2010 Major GroupsNet change (i.e. ‘new’ demand)

(000s)

Replacement demand12 (000s)

Total requirement

(000s)

% of total requirement

1. Managers & Senior Officials 3.2 5.5 8.7 14%

2. Professional Occupations 6.4 9.6 15.9 26%

3. Associate Professional & Technical Occupations

3.7 7.2 10.9 17%

9 Source: 2014 Working Futures. Working Futures data is available for 75 sub-sectors at the UK level. However, at the Lancashire level, data are only available for 22 sub-sectors. To ensure consistency of analysis, this higher-level definition is used throughout, which includes some sub-sectors that would not be included under the 5-digit SIC definition.

10 Source: UKCES / Cambridge Econometrics (2014) Working Futures11 Data on replacement demand sourced from Cambridge Econometrics projections for UKCES (2014) Working Futures12 The demand for people to replace those workers that leave the labour market, for instance due to retirement.

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SOC2010 Major GroupsNet change (i.e. ‘new’ demand)

(000s)

Replacement demand (000s)

Total requirement

(000s)

% of total requirement

4. Administrative, Clerical & Secretarial Occupations

-0.5 10.8 10.3 16%

5. Skilled Trades Occupations -0.3 1.9 1.6 3%

6. Personal Service Occupations 1.2 1.9 3.1 5%

7. Sales & Customer Service Occupations 1.8 3.6 5.4 9%

8. Transport & Machine Operatives -0.1 1.0 1.0 2%

9. Elementary Occupations 0.7 4.8 5.5 9%

Total 16.1 46.3 62.4 100%

Source: Analysis of UKCES (2014) Working Futures data

The scale and certainty of future demand, by key FPS sub-sectors

As Table 2 shows, there is varied future employment performance at sub-sectoral level with Financial Service activities projected to decline by 2% in Lancashire while Office Administrative and Activities of Head Offices will both grow by 18% against a Lancashire FPS average growth rate of 14% to 2025.

Table 2: Forecast sub-sectoral employment growth (2015-25)FPS sub-sector 2025 employment (000s) 2015-25 %

change

Office Administrative, Office Support 9.9 18%

Activities of Head Offices 9.6 18%

Employment Activities 16.5 17%

Scientific Research & Development 1.3 16%

Real Estate Activities 12.4 16%

Rental & Leasing Activities 4.0 15%

Legal & Accounting Activities 23.9 15%

Other Professional, Scientific 7.9 14%

Architectural & Engineering Activities 10.6 14%

Computer Programming & Information Services Activities 11.0 14%

Advertising & Market Research 2.2 11%

Activities auxiliary to financial services 6.4 5%

Financial service activities 5.1 -2%

Insurance, reinsurance and pension funds 0.6 -4%

FPS 121.4 14%

Source: Analysis of Oxford Economics Forecast data

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The ways in which the expected changes in demand map onto Lancashire’s FPS sector, as summarised in the scorecard, are difficult to quantify, in part because some developments are more certain than others, often related to public policy decisions. We can be relatively certain, however, that cost pressures, the increased use of the Internet, and replacement needs across the sector will have a high impact on future recruitment and skill demands. In the Accountancy sub-sector for example, cloud computing capabilities are already enabling accountants to scrutinise accounts from their office rather than the premises of the business they are auditing. This reduces the benefits of having small, local offices, the current structure of many Lancashire firms, as the same service can be provided remotely.

The other issues depicted in the scorecard are examined in more detail in the separate Evidence Report, which is available from the Lancashire Skills Hub.

As agglomeration effects within the neighbouring cities of Manchester and Liverpool become more important, the ability of Lancashire’s FPS sector to attract and retain highly skilled employees will become less certain, but will have a large influence on the future of the sector.

2.3 Provision in Lancashire

Further and Higher Education specialisms

Lancashire’s education providers offer expertise that is highly relevant to the FPS sector. Local Further and Higher Education (HE and FE)

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provision was generally considered to be high quality by consultees, but it was felt that more could be done to improve co-ordination between firms and these providers. The qualitative evidence suggests that school-level performance is more mixed and that there are some key gaps in relation to private sector provision.

Further Education, and Apprenticeships . . .

In 2013/2014, there were almost 18,700 ‘learner achievements’ in FPS-related subjects13 at FE institutions (on education and training courses, community learning and workplace learning), and 3,000 apprenticeship achievements in FPS-related subjects, across Lancashire14. The annual supply (21,700) far exceeds the anticipated total labour requirement in technical occupations15 in Lancashire’s FPS sector to 2022 (18.3k, equivalent to 1,830 pa), particularly as employers will also look to experienced people to fill these vacancies. These headline figures suggest that the supply of FPS-related skills across Lancashire in volume terms far exceeds demand from the sector locally. However, this estimate is based on an available single year of data, not a trend, and so should be treated with caution.

. . . and Higher Education

570 graduates from HEIs (located anywhere in the UK/abroad) were working for FPS firms based in Lancashire six months after graduation in 2012/13.16 This is based on a survey with a response rate of 69%, so a grossed up estimate of the total number of 2012/13 graduates working for FPS firms in Lancashire is around 830. Of these, 45% also studied in Lancashire (any subject), and 28% studied elsewhere in the North West. Some 39% of the graduates were in Associate Professional and Technical occupations within the FPS sector.

Grossing up the survey responses again, it appears that around 1,740 2012/13 graduates from HEIs based in Lancashire were working in the FPS sector (anywhere in the UK or abroad), with around 370 of these working in Lancashire. However, no trend data is available, so the conclusions drawn below should be considered tentative.

When these figures are compared to the anticipated demand for higher level occupations 17 in Lancashire’s FPS sector (35.5k, equivalent to 3,550 pa), it appears that the volume of graduates recruited by Lancashire’s FPS firms (370 per year) is considerably lower than the level of projected demand through to 2022, even allowing for many of these opportunities 13 Business, Administration and Law, and ICT Practitioners14 Source: ILR Data Cube15 Proxied by SOC 4. Administrative and secretarial; 5. Skilled trades occupations; 7. Sales and customer service; 8. Process,

plant and machine operatives16 Source: Higher Education Statistics Agency (HESA)17 SOC 1. Managers, directors and senior officials; 2. Professional occupations; 3. Associate professional and technical

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requiring experienced hires. Based on these projections, if all of the FPS graduates produced by local HE provision in the sub-region are retained by the County’s FPS sector, this would only cover roughly half of the annual total demand. This implies that there is an opportunity for sub-regional providers to boost the volume of supply, although it is likely that local FPS firms will also need to recruit some graduates from outside the County.

However, it is worth noting that a number of SMEs (particularly within the Accountancy field) are increasingly looking to recruit ‘bright and ambitious school-leavers’ and to support them through professional accredited qualifications, rather than hiring graduates.

The Current Landscape of Wider Support Initiatives

National initiatives

Nationally, a wide array of initiatives are being implemented to address skills issues in FPS and related sectors. These include:

A government pledge to develop alternative routes of entry to the sector, focusing on delivering more Higher Apprenticeships and raising their profile to attract new applicants.18

Activities led by Sector Skills Councils, such as EU Skills’ Talent Bank, and Cogent’s Gold Standard.

Schemes aimed at young people wishing to enter the FPS sector such as the Step Programme, the Mountbatten Institute and the KPMG School Leavers Programme etc.

Local initiatives

Sub-regionally, the Lancashire LEP is leading on a number of important initiatives that relate to the FPS sector agreed through their Growth Deal and European Structural and Investment Fund (ESIF) strategy.

2.4 Critical issues

Table 3 summarises the key skills issues facing the FPS sector in Lancashire. Many of the issues raised in Lancashire are broadly similar to other parts of the UK. So, while national policies/interventions should help Lancashire’s businesses, Lancashire’s FPS sector will face wide competition for people with skills that are in short supply.

18 Growth in Our Business: A Strategy for Professional and Business Services, BIS, 2013

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Table 3: Skills issues, gaps and shortages in Lancashire’s FPS sector

Issue Nature of Challenge

1. Mismatch between supply and demand

When compared against demand projections, data from the latest available Academic Year indicate that Lancashire’s FE institutions are producing an oversupply of FPS qualified students.

By contrast, data also show that Lancashire’s HE institutions are not producing sufficient graduates to meet the demand of the County’s FPS sector, and those graduates that are produced are often lost to other sectors or other geographical locations. Of those graduates who were working in the FPS sector in Lancashire after graduation, regardless of where they studied, 20% studied business and administrative studies and 13% studied law. Graduates from these subjects are thus the most important for Lancashire’s FPS sector to focus on.

2. High levels of replacement demand and

the need for effective succession planning

Across the FPS sector nationally and within Lancashire, the scale of replacement demand is expected to outweigh demand created from new jobs. Within Lancashire, this is particularly true of higher level occupations such as ‘Professional Occupations’.

Qualitative evidence suggests Lancashire’s family-owned and SME FPS firms are insufficiently prepared for handing-over control and ownership over to the next generation. This could lead to micro-businesses closing and jobs being lost when the current generation of owners and senior managers/leaders retire.

The FPS sector in Lancashire must be able to continue its growth through effective succession planning, ensuring that replacements are ‘as good as we are losing.’

3. Rise of Professional Occupations with fewer

Administrative Roles

Forecast data predict that the majority of future demand from Lancashire’s FPS sector will be for higher level occupations. The sector will therefore need to be able to draw on a larger pool of skilled labour if it is to achieve its full potential.

4. Shortages in specialist technical skills

Some high level financial skills have to be imported because they are not currently readily available in Lancashire. This suggests that skills providers may need to develop a more specialised offer to meet the changing requirements of the FPS sector.

Automation through new web and software platforms is helping to strip costs out of transaction interfaces. This has the potential to reduce the need for skilled people in mid-level positions, moving some companies towards an ‘hourglass’ structure.

The rate of technological change is a challenge for workers, particularly older workers, across all sub-sectors.

5. Issues with new entrants

Difficulties in finding new entrants who are ‘work ready’ (i.e. with basic employability skills including general ‘people skills’).

6. Co-ordination and information failures

Lancashire has a strong HE offer for FPS, particularly Lancaster Business School, but these institutions are increasingly focused on maximising revenue income through large numbers of international students.

‘Co-ordination failure’ between firms and FE/HE providers, e.g. about offering internships, forces some local firms to look outside Lancashire for solutions, leading to firms taking more apprentices from outside the county than they might otherwise.

At a wider level, as the range of possible apprenticeship provision grows, not all providers will be able to deliver across the whole spectrum. Providers must therefore become more specialised and tailor provision to the demands of the FPS sector. Greater co-operation between providers in taking a county-wide view of provision will be important in assuring its sustainability.

7. Image issues for the county and FPS within the

county

There is a need to clarify and strengthen the FPS ‘offer’ in Lancashire so that the County can compete more effectively with neighbouring cities over the coming years.

A more vibrant overall Lancashire economy will provide a larger client base for local FPS firms and a more dynamic and sophisticated market. Partners engaged in supporting the development of the local economy need to adopt a pro-business, pro-growth and pro-investment agenda.

There are challenges in retaining FPS mobile, and higher skilled graduates in Lancashire’s FPS sector, and a concern that graduates in particular prefer to move to larger cities for their first job. Lancashire’s quality of life offer means there is scope for ‘returners’ as they settle in to midlife, but competition from elsewhere means this is not guaranteed. The FPS sector must, therefore, be promoted both externally (to attract workers) and internally (to retain them).

8. Workforce profile Feedback from consultees has highlighted the demand for flexible, curious and innovative workers who can drive the growth of the FPS sector.

For the Legal sub-sector in particular, the Milburn Report19 is focusing attention on reducing the ‘barriers to entry’ for those who have not gone down the university route, and trying to ensure the sector becomes less elitist. Workforce diversity is becoming a key issue for some of the FPS

19 Unleashing Aspiration: The Final Report of the Panel on Fair Access to the Professions, Panel on Fair Access to the Professions, 2009. Available from: http://webarchive.nationalarchives.gov.uk/+/http:/www.cabinetoffice.gov.uk/media/227102/fair-access.pdf

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Issue Nature of Challenge

sector’s more sophisticated firms.

9. Intelligence issues

There is a lack of articulation/communication between employers and providers in Lancashire, with difficulties in understanding what employers need in terms of skills.

A need to better track developments (such as skills gaps relating to new technologies) and emerging opportunities, understanding lead times following key decisions or events (from provider and employer perspectives), and responding pro-actively to changing skills needs where appropriate are key areas.

10. Diversity of the Sector

FPS is a diverse sector, not all parts of which are equally important to Lancashire. Currently, Legal and Accounting, Employment Activities and Real Estate Activities are the most important sub-sectors in terms of employment levels.

Looking forwards, Financial Service Activities are predicted to decline by 2% while Office Administrative and Activities of Head Offices will grow by 18%. The skills system will need to adapt and respond accordingly to these structural changes.

Source: SQW research

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