Finance hoovers up all the best graduates, but employment hasn't increased since 1990

Has employment in the UK financial services sector really remained stagnant since 1990? After all, it's been heralded as the one sector that the country really excels at and one that the government has worked hard to protect in the face of increasing pressure from the EU.

There's no doubt that employment in London's financial sector has been hit hard over the past 18 months, but a new report suggests that headcount peaked in 1990, and that job numbers in the City have declined since 2000. The research comes from left-leaning think-tank Institute for Public Policy Research (IPPR) in a report whose over-riding message is a call to for the government to split investment banks from retail divisions.

This, of course, is a familiar argument, but the more interesting parts of the research focus on employment in the financial sector.

"Employment in financial and insurance activities in the UK peaked in 1990 at just over 1.2 million, having increased by 50 per cent over the preceding 12 years. Since then the number of jobs in finance and insurance has fluctuated between 1.1 and 1.2 million, and at the end of the second quarter of 2012 it was in the middle of this range at 1,144,000," it says.

You may wish to take these statistics with a pinch of salt, since the definition of employment in financial services is broad enough to include everything from hedge funds to call centres. However, the report argues that while banking, insurance and pensions employment has declined, jobs in fund management, hedge funds and financial advisory have increased in recent years.

What's more, manager, director, professional and technical employment has increased to 563,000, administrative and secretarial roles have shrunk to 142,000, it says, keeping employment constant. Quite why this is a bad thing is questionable, but as the report is taking aim at 'City' activities, the suggestion is that the financial services industry is all too reliant on London.

The reality is, of course, is that the rise of near shoring has benefited the likes of Scotland, Northern Ireland, Birmingham and other provincial cities, and even front office positions - at Deutsche Bank at least - have started gravitating away from London.

Nonetheless, the IPPR report argues that: "Whether the growth in the share of financial services in the economy is described  as financialisation or the exploitation of a comparative advantage, it has not been accompanied by net job creation. There are fewer jobs in financial services overall now than there were in 1990 and fewer jobs in the City than there were in 2000."

The graduate attraction

Financial services is also, says the IPPR, harming the UK economy by stealing all the best graduates. Investment banking still (by some distance) offers the highest starting salaries to graduates - at an average of £45k, according to High Fliers research - and this has long turned the heads of Britain's best and brightest.

It does admit, however, that the evidence does not support the claim than STEM (science, technology, engineering and mathematics) graduates are disproportionately recruited by financial services firms, but maths students are hired heavily by City institutions, as is expected.

Whether this continues is debatable anyway. Our own research suggests that students are increasing turned off by a career in investment banking (traditionally the largest recruiters of graduates in the financial sector) as the recent scandals have finally started to take their toll.