Reindustrialise, but back the strength we already have

Mike Buckley and Becca Armstrong

The new government wants to revive industry and pull power and growth out of London and back into the regions. It is right about the problem. For decades growth pooled in London and the South East while industrial towns were hollowed out, and the case for rebalancing is now about as close to consensus as British politics gets. Make things again, spread good jobs across the country, rebuild the places that were left behind.

That is only half the story. Reindustrialisation done well is the work of a decade or more. Sites, skills, supply chains and investment all take years to build. Andy Burnham has taken a significant stride towards that goal this week, with his pivot to technical and skills education from age 14. In the meantime the jobs that services provide, many of which are appropriate for today’s NEETs (young people not in employment, education or training) are here today. If rebalancing means good jobs spread across the country, services will carry much of the load while new industry – and newly learned skills – grow. Services are a strength we already have, and one we can make use of while ensuring we build for a more diverse, sustainable future.. 

Britain is a services superpower, the world's second largest services exporter behind only the United States. That is not a detail at the edge of the growth debate. It is one of our biggest existing assets, and unlike a new factory it does not have to be built. It is here, it is earning, and it employs people in towns and cities the length of the country.

Financial services sit at the centre of that picture, and they are badly misunderstood. The headlines are bankers' bonuses and City salaries. The reality is more than 2.5 million people working in financial and related professional services, two thirds of them outside London. Twenty three towns and cities across the UK each have more than 10,000 people working in the sector. Manchester, Birmingham, Edinburgh, Bristol, Leeds, Cardiff and Belfast each host more than 20,000, and the North West alone hosts almost 300,000, making it the industry's second largest region after London. In more than seven of every ten parliamentary constituencies, at least a thousand residents work in financial services. Over the past decade the sector added more than 326,000 jobs, over half of them outside the capital. Of the £174 billion it exported in 2023, nearly half was earned outside London.

Very few of these people are the high earners of the headlines. Most are administrators, analysts, advisers and IT staff, ordinary people in good jobs that put money into high streets from Belfast to Bournemouth. 

The sector is often cited as one of the most at risk from AI. In reality, while some financial services employment is at risk from AI, other roles are likely to be protected, while new roles will be created as the transition occurs. The nature of work will change, but the sector’s ability to offer high quality, high skilled employment at scale will not. 

The sector matters even to people who will never work in it, because financial services are not just an industry. They provide essential plumbing which enables every other industry to function. Every mortgage, every pension, every insured shop and factory, every small business loan runs through them. If growth is to come from dynamic new firms, and much of it will have to, those firms need capital, and this is the sector that supplies it. When the plumbing works, businesses across the country get the investment they need to grow. When it is fragmented and expensive, the cost lands not on the banks but on the firms and households that depend on them. The sector also pays for much of what the state does. In 2023 financial and professional services contributed over £110 billion in tax, almost an eighth of everything the Exchequer collects, and produced £12 of every £100 of UK output, a bigger share than in any other G7 economy.

Rebalancing should mean valuing this work too. Reindustrialisation and a thriving services economy are not alternatives. We can do both: rebuild our capacity to make things, and grow a services strength that already spreads jobs and tax revenue across the country.

So how do we protect and grow these jobs? One of the largest levers sits in plain sight, in our relationship with the European Union.

Since Brexit, new barriers between the UK and EU financial sectors have raised the cost and complexity of doing business across the Channel, and activity has drifted, slowly but steadily, to competing centres on the continent. Our new report, UK-EU Financial Services: A Practical Agenda for Growth and Competitiveness, sets out the consequences, and they fall on both sides. Fragmentation makes both markets less efficient and less competitive, not against each other but against the real competition, the United States. Both sides are now quietly scaling back investment in each other's economies, capital that could be funding infrastructure, innovation and the green transition at exactly the moment both need it.

This is a sector British governments have long said matters, and is one of the eight priority sectors in the industrial strategy. A year ago the Leeds Reforms set a target of doubling net financial services exports by 2035, an ambition worth keeping. But it cannot be met at home. It needs better access to overseas markets, above all the EU, still the largest external market the sector sells to. That is the gap, and the ten year plan now being drawn up is the place to close it.

The formal routes, meanwhile, are closing. This year's TCA review was treated as satisfied by the wider reset, and both sides chose to supplement the treaty with targeted agreements on food, climate, energy and youth mobility. Financial services was not among them. The next comprehensive review is due in 2031, and the postponed UK-EU summit still has no date. For now, cooperation outside the treaty is the only route open, which makes the informal tools the only ones available.

None of this is fixed, and the Commission is not a lone voice in saying so. UK Finance published its own roadmap for UK-EU financial services in June, asking for much of what our report recommends. Our asks require no treaty change and no return to the single market.

Give the regulatory dialogue teeth. The UK and EU agreed structured regulatory cooperation in 2020. It has met five times, most recently in March, yet produced almost nothing, because nobody sets its agenda and nobody reports on its results. Add an industry led dialogue that can propose agenda items, and require joint reporting to the Treasury Select Committee and the European Parliament's economic affairs committee. Accountability is what turns a talking shop into a work programme.

Open memoranda of understanding where both sides gain. Fintech and sustainable finance are the obvious candidates: high growth, few vested interests, and areas where UK innovation and EU standard setting complement each other rather than compete. Then add the technical ground next to the sector, such as professional qualifications, energy derivatives and cybersecurity.

Protect what we already have. The EU renewed UK data adequacy last December, out to 2031, but the decision is revocable and under continuous monitoring, so UK reforms on data and AI need to stay compatible with EU standards. Clearing equivalence expires in June 2028. The conversation about what follows should start now, not in 2027.

All of this needs urgency. Firms are adapting to a fragmented market, and once those adaptations are set they are very hard to undo.

This is not a contest between London and Frankfurt or Paris. Done well, closer cooperation makes European finance more competitive as a whole, and London and the continent's own centres both gain. For Britain, it protects hundreds of thousands of skilled jobs in the towns and cities that never feature in the story we tell about "the City", and creates new ones which can be taken up by the NEETs of today and the newly trained young people of tomorrow. 

Rebalancing the economy is the right goal, and a government that made its name in the North knows what neglect costs. To get there, back all our strengths: the industry we want to revive, and the good jobs already spread across the country.