Productivity in Britain’s financial services sector has fallen significantly since 2009, official figures have revealed.
The level of productivity in financial services, measured by output per hour worked, was higher in the UK than in Germany, Italy, France and the US between 2005 and 2009.
However, since 2009 the sector has been going in reverse, with productivity now only slightly ahead of Germany and behind France, Italy and the US, according to figures published by the Office for National Statistics (ONS).
“In financial services, the UK’s comparative productivity has deteriorated sharply since 2009 and trails France and Italy as well as the US,” the ONS said yesterday after publishing the figures.
“There has been a huge reversal in productivity growth in financial services since 2007. Regulation is one cause of this. Not only have we seen banks required to hold more capital, but consumer-facing aspects of financial services have also been bound up in yet more red tape,” Philip Booth research director at the Institute of Economic Affairs, told City A.M.
“Indeed, the Financial Conduct Authority (FCA) is even over-regulating new, innovative forms of financial services that should have been allowed to flourish and grow without regulation. There is also an indirect effect of financial regulation on productivity.
“With banks required to hold ever-more capital relative to assets, they shrink their assets base. That means weaker lending, less investment and lower productivity.”
For its part, the FCA hit back, defending its record on promoting innovative areas of the financial sector while keeping a close eye on risks.
"We want to ensure that consumers are appropriately protected – but not prevented from investing,” a spokesperson told City A.M.
"We have been careful to listen to feedback from the market and the rules provide consumer protection, whilst allowing businesses to continue to have access to this innovative method of funding."
The FCA has previously said: “We believe there is a place for crowdfunding and peer-to-peer – in making the rules we tried to strike the right balance to ensure we didn’t close off these innovative sources of finance.”