The north of England relies on its professional and business services (PBS). They are a vital enabler for the North’s ‘prime capabilities’ – those sectors in which the North specialises – and perform important day-to-day functions that keep the wider economy functioning.
Within the North, the professional and business services sector is concentrated in Manchester and Leeds (accounting for almost half of all northern PBS employment). Increasingly, these two cities are complementing one another in terms of their different strengths and acting as a hub for other parts of the North.
However, changes are required: the PBS sector needs to adapt to changes in technology and skills, to ensure that the whole of the North is properly served – either by local firms or those based in Manchester and Leeds – and to provide a northern focus for Brexit negotiations concerning the sector.
The government’s new place-based industrial strategy must unlock this sector’s enabling capabilities.
- The Professional and Business Services Council should revise the sector strategy to account for its different functions in different places, and this should be integrated with northern and local enterprise partnership-level strategies.
- The Department for Business, Energy and Industrial Strategy and the Department for Education should set out a joint strategy for PBS skills, covering careers advice, work experience, and ‘trailblazer’ apprenticeship reforms related to the sector.
- Local enterprise partnerships should support their local education and skills system to develop the skills their local PBS sector needs – especially those that are needed to enable prime capabilities such as health innovation, or advanced manufacturing.
- Local transport authorities and Transport for the North should prioritise sector-specific requirements as part of the transport planning process.
- The PBS sector should be represented on a northern Brexit negotiating committee – as previously recommended by IPPR North – and cooperate on international trade delegations.
- The Professional and Business Services Council should establish a northern professional and business services committee to develop a northern PBS strategy and coordinate between national and local strategies.
The North has great potential. It has a number of prime capabilities and economic assets that can help the country to thrive. The Northern Independent Economic Review has identified four ‘prime capabilities’: advanced manufacturing, digital, energy and health innovation (NIER 2016). The vote for the UK to leave the European Union means the North’s strengths will be more important than ever before: the ‘northern powerhouse’ must succeed.
The PBS sector is an enabling capability in the North. It isn’t a prime capability in its own right but it is vital as an enabler for the wider economy. Alongside logistics and education, it enables prime capabilities to thrive by providing services to these high-growth companies. It also underpins the wider economy and has some small but significant specialisms.
This report takes a deep dive into the North’s PBS sector to investigate how well it performs, by assessing three functions, outlined below.
Function 1: Underpinning the economy
The North’s PBS sector appears to be providing a minimum level of support to business across the North.
- The North as a whole has a similar share of PBS firms to other regions outside London and the key sub-sectors are well represented at this level.
- PBS firms are unevenly spread across the North, with almost half located in Greater Manchester and Leeds City Region alone.
- Some of the more rural areas are lacking local provision, which is often provided instead by some of the major cities.
Function 2: Enabling the North’s prime capabilities
The sector is most important in the way it enables the North’s prime capabilities to function. These sectors appear to be getting the services they need but not always from firms based in the North.
- Advanced manufacturing attracts a high degree of competition from the large professional services firms and from smaller firms for smaller contracts.
- Energy is a tightly regulated sector and tends to be served by specialist, centralised teams based outside of the North, and which have a nationwide focus.
- Health innovation is an area of intense focus for the larger professional services firms, while some smaller firms compete to serve smaller health innovation firms.
- Digital is attracting a great deal of attention from PBS firms of all sizes: companies in the sector can become highly profitable very quickly and benefit from the strategic advice the PBS sector offers.
- Some of the major financial institutions based in the North tend to be served by specialist teams within large PBS organisations.
- Logistics are not the focus of the major firms as they tend to be either multi-national or very small. Our survey indicated that logistics do get significant attention from professionals.
- Education (especially higher education) is the focus of major professional services firms and many have specialist HE teams based in the North who provide services such as auditing the universities and support on big infrastructure projects.
Function 3: Specialising and competing internationally
Parts of the North have a high concentration of PBS and the sector is growing above and beyond national or industry-wide trends in these areas.
- Leeds City Region performs strongly: it specialises in rental and leasing activities, financial service activities (except insurance and pension funding) and activities auxiliary to these. Employment activities, rental and leasing activities and activities auxiliary to financial services and insurance activities have grown disproportionately there.
- Greater Manchester also has a significant strength in the sector: it is specialised in a range of activities related to insurance, legal and accounting activities. Legal and accounting activities have grown disproportionately there.
- The area of Cheshire and Warrington is far smaller than the two cities described above but is specialised due to its financial service activities (except insurance and pension funding), which are clustered around the towns of Wilmslow and Knutsford. Cheshire and Warrington also has a large and growing concentration of legal and accounting activities.
- The North accounts for 15.5 per cent of exports in insurance and pension services and 13.8 per cent of UK financial services. Northern firms use London as a ‘shop window’ to cut deals with international clients. The North also has some small niche specialisms, such as maritime insurance.
While the PBS sector in the North is thriving and presents many opportunities, it needs to tackle three distinct challenges.
- The sector skills challenge. Technology is fundamentally changing the nature of work. Employees are now tending to focus more on business strategy and advice, rather than audit and compliance, which is becoming far more automated.
- The spatial challenge. The wider economy and the North’s prime sectors rely on PBS to function but the sector is centralising on Leeds and Manchester.
- The international challenge. Brexit means short-term uncertainty for the UK, and – while some firms may benefit – in general the long-term effects are likely to be challenging. The PBS sector will have to thrive if it is to provide jobs or enable the wider economy to restructure.
Building on this analysis, we group our recommendations within three main categories: strategic, enabling and institutional.
At a strategic level, action needs to be taken at different geographical scales in order to ensure the professional and business services sector can thrive.
- The national sector strategy, led by the PBS Council, needs to be reviewed in light of the government’s place-based industrial strategy (when this has been produced). Such a review must have much greater focus on regional strengths and weaknesses in relation to the various ‘functions’ of the sector and adopt a clear place-based approach.
- A northern professional and business services council (see below) should be established and tasked with developing a northern PBS strategy, bringing together local enterprise partnership-level priorities within the overarching national sector strategy.
- Local enterprise partnerships – together with combined authorities and mayors, where they exist – should develop clear strategic priorities for the PBS sector and support these businesses to perform their basic enabling functions.
- At a business level, all firms should develop clear plans for addressing the technological, skills and Brexit challenges facing the sector; where needed, growth hubs should either provide advice directly, or bring in that advice from other firms in the PBS sector.
There are several actions that need to be taken in order to support and enable the PBS sector, not least concerning skills, connectivity and international trade.
- The Department for Business, Energy and Industrial Strategy (BEIS) and Department for Education (DfE) should set out a joint strategy for PBS skills, which dovetails with BEIS industrial strategy and harnesses the education assets of DfE. This would cover careers advice, work experience and ‘trailblazer’ apprenticeships related to the sector.
- Local enterprise partnerships should identify the specific skills their local PBS sector needs in general, but especially the skills they need to enable local prime capabilities to grow. They should then facilitate collaboration between business leaders and further and higher education institutions (especially business schools) in order to support a responsive education system and a proactive approach to graduate retention.
- Local transport authorities and Transport for the North should prioritise sector-specific requirements as part of the transport planning process. This should include:
- local transport authorities developing strategic transport plans to support PBS clusters, particularly outside city centres, and
- Transport for the North prioritising initiatives to broaden connections between northern cities to expand the highly-skilled northern labour pool.
- The Brexit negotiations should be more inclusive of the sector and not simply rely on PBS representation through the City of London. The sector should therefore be represented on a northern Brexit negotiating committee (a body previously proposed by IPPR North).
- The Department for International Trade should work closely with a northern professional and business services council (see below), and build on the government’s ‘centres of excellence’ approach, to ensure that the strengths of the northern PBS sector are clearly represented in trade delegations and other regional promotion.
The PBS Council should establish a northern professional and business services council to complement its activities in the North. This council should: set out a vision for the North’s PBS sector; resolve challenges specific to the North (especially around transport); take joint responsibility for advancing northern ‘centres of excellence’; and coordinate between national sector and industrial strategy development and local priorities.