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Our 12th annual financial services survey suggests an
air of positivity among the financial services businesses in the
City of London.
In line with the overall improving economic outlook, our survey
results show a feeling of optimism within the financial services
industry, as 62% of respondents believe the UK economy to be either
stable or improved on 12 months ago. However, this is tinged with
caution as there is no anticipation of a return to the booming
times of pre-2008.
Business Confidence
The underlying caution embedded within the financial services
industry is clearly illustrated by nearly two-thirds of our
respondents continuing to believe that London's reputation as a
major financial centre has been damaged by the financial crisis of
the last two years. This sentiment is consistent with last
year's findings, where 62% held the same view.
As with last year, New York is viewed as the biggest threat to
London in terms of being the mainstay for financial services.
However, more revealing is Dubai's fall from grace, with only
2% of respondents regarding Dubai as a threat to London compared to
20% last year. This is no doubt a consequence of recent news
impacting the Dubai economy and its underlying confidence.
On a positive note, 39% of respondents are optimistic about
their business's future prospects, which is a notable shift on
the prior year where 44% of respondents were feeling pessimistic.
This upbeat outlook is reinforced by 94% of respondents reporting
either stable or increased turnover expectations for the next 12
months, which compares favourably to last year's survey result
of 65%.
Despite a general optimistic outlook, the financial services
industry has experienced some difficult challenges in the last two
years and this is expected to continue, at least for the immediate
future. This is revealed through respondents experiencing difficult
trading conditions, which has ultimately hindered growth and
profitability in the last 12 months. For example, 37% of
respondents have experienced a fall in business volume, which is
consistent with 39% reported last year. In addition, 44% and 37% of
respondents have experienced declines in profit margins and
turnover respectively, which compares with 56% and 38% respectively
in last year's survey.
In 2008, businesses generally reported stable headcounts, as
firms looked to make savings elsewhere. However, 2009 proved to be
a year of redundancies, with 39% of respondents revealing a decline
in headcount. Returning to the theme of optimism, 88% of
respondents are hopeful of either maintaining or increasing
headcount in the next 12 months. On a consistent note, 75% of
respondents are also expecting discretionary expenditure to either
remain stable or increase, which compares favourably to last year
when 43% of respondents were expecting a decline.
Expenditure on regulatory compliance is immune to economic
conditions, with 96% of respondents expecting it to be stable or
increase in the next 12 months, which is consistent with the 95%
reported last year.
Tax
Historically, changes in tax legislation have resulted in a
fairly neutral response. However, in light of some noticeable
changes to income tax legislation, 36% of respondents are expecting
this to have a negative impact on their business. Consequently, 35%
of respondents are considering plans in response to these tax
changes, while 34% are looking to change the way they incentivise
employees. Overall, this is consistent with 42% of respondents
believing changes in UK tax legislation will be one of the key
factors impeding business growth.
Changes to VAT legislation have also fallen below people's
radar, with 33% of respondents expecting an increase in
irrecoverable VAT due to the new VAT place of supply rules.
However, not unexpectedly, 86% of respondents believe that the
temporary reduced rate of VAT had no beneficial impact for their
business. The survey asked respondents to select factors they
believe will most affect business growth over the next 12 months.
Of the ten responses available, all bar two received 22% or more of
the vote, reflecting diverse views among respondents, which is in
stark contrast to last year, where the top three responses of
further economic factors, consumer confidence and ability to raise
funds dominated the voting.
The top three factors of this year's survey were: regulation
requirements, changes in UK tax legislation and consumer
confidence. These findings are consistent with industry optimism as
firms become more confident of economic recovery but more concerned
with regulation and legislation restricting the speed and extent to
which this can be achieved. 2010 is expected to be another
challenging year.
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