By Vivienne Russell
5 October 2009
The financial services industry’s contribution to the wider economy has been overstated, experts have claimed.
A report from a working group of academics and practitioners, based at the Centre for Research on Socio-Cultural Change at the University of Manchester, has challenged the City’s ‘exaggerated claims’ about the banking industry’s ‘social value’ in terms of revenue and job creation.
While the banking sector paid £203bn in tax in the five years up to 2006/07, this has been more than offset by the cost of the £289bn banking bail-out, the researchers said.
‘In terms of job creation, the finance sector directly employs no more than
1 million workers (mainly in retail) and numbers employed do not increase in the boom years,’ the October 3 report stated.
‘If we add jobs in consultancy, accounting and law sustained by finance, the number of those directly and indirectly employed by finance still accounts for no more than 6.5% of the UK workforce.’
It went on to to criticise the business model of wholesale banking, which tends to concentrate activity in specific areas of the country rather than spreading prosperity throughout the UK.
‘In its present form, finance is a pro-cyclical activity with limited job-creating capacity and a proven ability to disrupt the economy at great cost to the taxpayer,’ the researchers said. ‘Banking delivers little social value and instead operates “for itself”.’
The report criticised the government’s proposals on banking reform as ‘timid’ and at odds with the demand for radical reforms displayed by the public.
It called for greater democratic influence over financial markets. This could be achieved through shrinking the sector by reversing a long-standing policy bias in favour of the finance sector.
A shift from student loans to a graduate tax, for example, would be one way politicians could restrict the financial sector’s activities, the authors argue.
A new kind of regulator should also be introduced for the retail banking sector, drawing on the expertise of small and medium-sized enterprises, trade unions and non-governmental organisations.
‘The regulator would have a broad brief to include extending the range of advice available in high street banks and curbing banking business models that are currently too sales-based,’ the report said.
5 October 2009
The financial services industry’s contribution to the wider economy has been overstated, experts have claimed.
A report from a working group of academics and practitioners, based at the Centre for Research on Socio-Cultural Change at the University of Manchester, has challenged the City’s ‘exaggerated claims’ about the banking industry’s ‘social value’ in terms of revenue and job creation.
While the banking sector paid £203bn in tax in the five years up to 2006/07, this has been more than offset by the cost of the £289bn banking bail-out, the researchers said.
‘In terms of job creation, the finance sector directly employs no more than
1 million workers (mainly in retail) and numbers employed do not increase in the boom years,’ the October 3 report stated.
‘If we add jobs in consultancy, accounting and law sustained by finance, the number of those directly and indirectly employed by finance still accounts for no more than 6.5% of the UK workforce.’
It went on to to criticise the business model of wholesale banking, which tends to concentrate activity in specific areas of the country rather than spreading prosperity throughout the UK.
‘In its present form, finance is a pro-cyclical activity with limited job-creating capacity and a proven ability to disrupt the economy at great cost to the taxpayer,’ the researchers said. ‘Banking delivers little social value and instead operates “for itself”.’
The report criticised the government’s proposals on banking reform as ‘timid’ and at odds with the demand for radical reforms displayed by the public.
It called for greater democratic influence over financial markets. This could be achieved through shrinking the sector by reversing a long-standing policy bias in favour of the finance sector.
A shift from student loans to a graduate tax, for example, would be one way politicians could restrict the financial sector’s activities, the authors argue.
A new kind of regulator should also be introduced for the retail banking sector, drawing on the expertise of small and medium-sized enterprises, trade unions and non-governmental organisations.
‘The regulator would have a broad brief to include extending the range of advice available in high street banks and curbing banking business models that are currently too sales-based,’ the report said.
