The sector employs some 1.2 million employees, 4% of the UK workforce, and produces more than 8% of the country's Gross Domestic Product (GDP). Banking accounts for 61% of employment, while insurance accounts for only 7% and auxiliary services for 32% of the workforce.

Since 2000, and despite strong output growth, employment growth in UK financial services has been weak when compared with other countries, notably the US. This is due to strong productivity gains, which the sector has achieved through increased efficiency. UK financial services have been at the forefront in cutting costs, including employment costs, when compared with the other countries.

More than 87,000 jobs have been affected by restructuring since 2002, most of them in retail banking and insurance. Distribution and administration, including the offshoring of customer services, IT and HR, are the focal areas for restructuring job losses.

The demand for skilled staff (particularly professionals and specialists) is derived from demand for their product and is consequently highly volatile. In 2004, the nominal market value of the sector’s skills inventory increased by a net £3.7 billion. Unskilled labour and staff with intermediate-level skills are most likely to be lost.

Sources: FSSC The Skills Bill: Analysis of Skills Needs in UK Financial Services 2007, FSSC The view from Europe: Productivity and change in UK financial services 2007, EU KLEMS Database 2007 and ONS Labour Force Survey 2007

Source: ONS Labour Force Survey 2007

For more data on employment in the financial services sub-sector and predicted annual growth in employment see:

There are approximately 9,600 VAT registered financial services firms in the UK, operating more than 34,000 establishments. The majority of firms (97%) are small or medium-sized (SMEs), including nearly 50,000 self-employed individuals. Employment, however, is dominated by a handful of large employers, most notably the high street retail banks.

Sources: FSSC The Skills Bill: Analysis of Skills Needs in UK Financial Services 2007 and ONS UK Business: Activity, Size and Location 2007

For more data on organisations in the sector see:

The financial services sector produces more than 8% of all UK output, 25% of the UK's total services exports, 26% of all corporate tax and 12.5% of all PAYE income tax. Banking accounts for 71% of the sector's output, while insurance accounts for 17% and auxiliary services for 13%.

Sources: EU KLEMS database 2008, ONS The Pink Book 2007, FSSC UK Financial Services: Five Years Forward 2006 and ONS Change to contribution by industry to gross value added between 1992 and 2004

For more data on the economic profile of the sector see:

Currently, some 7% of all financial services staff are not considered proficient at their roles. However, only 83% of all employers feel the need to improve skills among their employees.

Employers’ concerns are mostly centered on the soft skills, attitude and commitment that complement technical knowledge to deliver value.

Source: FSSC The Skills Bill: Analysis of Skills Needs in UK Financial Service 2007

For more data on skills gaps, deficiencies and shortages in the sector see:

Incidence of vacancies is low relative to total employment partly because the sector has a relatively small percentage of part-time and temporary workers, but also because productivity gains enable employers to increase output without corresponding increases in headcount.

Almost one fifth of all job openings across the UK are proving hard-to-fill.  Moreover, 12% of all vacancies cannot be filled due to skills shortages.

Demand for financial services workers is cyclical and the labour market cannot always keep up, but there is also a widespread perception that the talent pool is not growing nearly fast enough. This shortage increases competition among employers, many of whom prefer to poach staff rather than develop their own. The result is steep increases in earnings and incentive pay.

Sources: FSSC The Skills Bill: Analysis of Skills Needs in UK Financial Services 2007, Jobcentre Plus statistics 2007 and FSSC Employer Skills Survey 2006

For number of vacancies in the sector see:

Over the next few years, the main drivers of growth in financial services will be:

• Demographics: An increasingly wealthy and ageing global population
• Technology: Productivity gains through the application of IT-enabled process and product innovation
• Regulation: Principles-based regulation introducing both flexibility and uncertainty
• Competition and structural change: Consolidation and process or product innovation
• Cost control: Outsourcing, offshoring or cessation of lower value-added tasks
• Skills: Boosting productivity by improving the skills of the workforce.

Geographically, those areas that have established strong financial services clusters will reap the rewards of specialisation and capture the largest share of growth in both output and employment.

Information technology and compliance requirements will, over the next few years, continue to be the most significant determinants of productivity. Skills are a mid-ranking factor among the drivers of productivity, although in the wholesale sectors and in investment and fund management, technical skills will be the most important contributors.

Growth will be led by asset management and auxiliary activities, and generate mostly new sales, customer service, professional and managerial jobs.

By 2010, direct employment is expected to grow by just short of 1% annually, even though real output will grow by 3.7%, which represents a 2.9% annual growth in output per employee. This will be achieved partly by upskilling the workforce, which, according to FSSC calculations, could affect more than 12,500 jobs by 2010. With around 10,100 new jobs created per year, the sector will need 53,000 to 65,000 new entrants annually in order to fill these roles and replace retiring staff.

Sources: FSSC The Skills Bill: An agenda for the industry 2007, FSSC The Skills Bill: Analysis of Skills Needs in UK Financial Services 2007, FSSC The view from Europe: Productivity and change in UK financial services 2007, Working Futures 2004-2014 and FSSC UK Financial Services: Five Years Forward 2006