Here is our response to the Industrial Strategy Green paper which was published by the Government to coincide with the International Investment Summit.
The industrial strategy is the UK government’s proposed 10-year plan for the economy. It aims to deliver the certainty and stability businesses need to invest in the high-growth sectors and drive long-term economic growth.
We have responded only to the questions relevant to Progress Together’s values and aims
Q8: Where you identified barriers in response to Question 7 which relate to people and skills (including issues such as delivery of employment support, careers, and skills provision), what UK government policy solutions could best address these?
The Financial Services sector, which has been identified as a high priority, growth-driving sector within this Industrial Strategy consultation, faces a significant skills challenge, specifically in socio-economic diversity. In some financial services firms, as many as 9 in 10 senior roles are held by someone from a higher socioeconomic background (this compares to 5 in 10 CEOs across the economy. The sector also has the largest Class Paygap, almost four times higher than the technology sector, where we are competing for talent.
Closing the class pay gap and improving socioeconomic diversity in the financial services sector would have a significant impact on the growth of the UK economy, by:
- Increasing the social mobility of UK citizens and adding to GDP
In a recent report, Demos’ analysis finds that; ‘the economic impact of all businesses investing significantly in the promotion of social mobility in their workforce would be £19 billion to GDP, generating around £6.8 billion in yearly tax revenues and boosting profits by over £1.8bn a year.’ This builds on research from The Sutton Trust in 2017 which suggests that social mobility is positively related to productivity and that a modest increase in UK social mobility to the western Europe average, could be worth approximately 2% per year to the UK economy.
It is important to note that regulation focused on diversity and inclusion is not a barrier to growth but rather a facilitator of growth, as we can see from a review of other sectors. The Solicitor’s Regulation Authority have been mandating reporting on diversity and inclusion data (including socioeconomic diversity) for nearly ten years and the Social Mobility Employer Index shows that the majority of top performers are law firms. Yet, the legal sector is seeing significant growth, indicating that regulation and the need to collect data has not held firms back.
Suneel Bakhshi, President & CEO, Mizuho International plc
“For the UK to be globally competitive, we must be open to a broad range of talent. While Mizuho and many other employers recognise the business case for greater diversity of thought, including sound decision making, the benefits will only be fully realised if the rest of the sector acts too. Mandating reporting on workforce socio-economic diversity will increase the available talent within the financial services sector, which sits squarely within the regulators’ competitiveness objective.”
- Addressing an urgent skills gap for businesses
o At the Mansion House dinner on 14th November 2024, the Bank of England Governor emphasised the link between growth and labour supply. The Financial Services Skills Commission suggests that 260,000 highly skilled people are expected to leave the financial sector in the next decade, which represents a quarter of the current workforce. Increasing the sector’s ability to recruit and promote talent from all socio-economic backgrounds will allow it to address the skills gap and replace this talent.
Mark Hoban, Chair, Financial Services Skills Commission, (taken from our press release which announced this research):
“The demographics of the UK financial services sector do not reflect society as a whole. This impacts the sector’s ability to relate to a wide range of consumers, sound decision-making, and innovation. As the demand for tech and AI skills rises, companies that embrace diversity will be best positioned to ‘win the war’ for talent. To maintain its global competitiveness and to meet its obligations to society, the sector must improve.”
- Reducing costs and the risk of wasted talent for businesses
Organisations not recruiting those from all socio-economic backgrounds incur costs in the form of increased premiums for a smaller talent pool and the inability to hire the best employees. This is also the case when progressing and promoting employees. Furthermore, workforce attrition leads to high costs; on average £49,000 per employee. This is in addition to lost productivity from training new employees and from employees who are imminently leaving. Employees who don’t feel represented in their workplaces are more likely to leave.
- Impact on gender diversity
Progress Together has data on 200,000 employees across the Financial Services sector. The evidence is clear, the chances of career progression are closely related to an employee’s starting point in life and connections within the industry, not in job performance. This is impacting productivity across the sector.
Women from working class backgrounds are particularly affected. Our report in 2023 found that women from working classs backgrounds progress 21% slower than female peers, but men from working class backgrounds only progress 13% slower than their male peers. If the Chancellor and City Minister are focused on improving gender equality, it is critical that socio-economic barriers are addressed.
- Better Consumer Outcomes
Delivering on socio-economic diversity in Financial Services is an essential enabler for growth in the Industrial Strategy. In addition, it will help deliver better consumer outcomes. Having a leadership that is representative of the UK population increases the ability to relate to vulnerable consumers.
This is highlighted by the CEO of Yorkshire Building Society Susan Allen.
“At Yorkshire Building Society, we recognise that having a wider range of socio-economic backgrounds represented at senior levels enhances outcomes for consumers. This is why we fully support the FCA and PRA’s emphasis on diversity and inclusion. It is important that we are all mindful of the risks associated with a lack of representation and diversity of thought at these senior levels. The legal sector has demonstrated that mandatory diversity and inclusion reporting can coexist with being a thriving, competitive industry. There is no reason financial services can’t achieve the same”.
- Better access to investment
Richard Oldfield, Group Chief Executive at Schroders, a founding partner firm of Progress Together (taken from our press release which launched this research):
“We have seen a significant increase in enquiries from investors about socio-economic diversity in the last 12 months. Importantly, our focus on broadening talent has positively impacted our culture within the firm. Everyone should feel they belong and that they can progress in their careers, regardless of their starting point in life.”
In summary, for the Financial Services sector in the UK to grow and be part of the government’s Growth Mission it must have access to the widest talent pool, hire the best talent, retain and progress that talent, while being able to understand all its customers across all of society, innovate, and avoid group think.
Progress Together is already taking significant action with its members (56 members covering a third of the UK financial services workforce), building substantial datasets to drive insight to guide the best approach. However, to facilitate this we would like UK Government support and encouragement for the sector in doing more.
In its Financing Growth Review (launched pre-election in January 2024) the Labour Party stated that “A Labour government will support the first of its kind guidance on diversity and inclusion for financial services led by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), and consider opportunities for expanding the focus to include socioeconomic diversity.”
The specific interventions we would like to see from the UK government are:
1. Enacting the socioeconomic duty under the Equality Act and making clear that it applies to the Financial Services regulators as public bodies. On the Socio-economic duty the Labour Manifesto said “Labour will ensure no matter whatever your background, you can thrive, and therefore we will enact the socio-economic duty in the Equality Act 2010.”
2. Encouraging the financial services regulators to mandate data collection and reporting on socioeconomic diversity(from firms over 250 employees, as they currently propose for gender and ethnicity). Mandating reporting was included in Labour’s Financing Growth Review, and we encourage the government to hold fast on this view.
3. Active, public communications coming from Ministers and the government that make the case for Financial Services to do more on socioeconomic diversity.
If the Financial Services sector addresses the skills challenges and really does recruit and promote from the best people across all socioeconomic backgrounds, it will grow faster and more sustainably in future.
