Investment bankers are rarely compared to football stars. But when the West Midlands mayor, Andy Street, formally welcomed Goldman Sachs to Birmingham this month, he likened their arrival to one of the summer’s big transfer moves.
“I hope this isn’t inappropriate,” he said, addressing a crowd of Goldman staff gathered at the city’s newly refurbished Grand Hotel. “I think you probably are the Cristiano Ronaldo moment. You’re the big one to secure.”
Street’s team courted the Wall Street bank for months after hearing they were looking for their first office outside London back in September 2019. Two years later, Goldman has hired nearly 100 staff in Birmingham – mostly engineers, legal, accounting and HR staff – which will serve as the international headquarters for a new, and still secret, “global digital business” to be revealed by early 2023.
A growing number of professional service firms, including banks, have been looking outside London as they grow, partly to cut labour, property and service costs that continue to rise in the capital. Birmingham has already managed to win over HSBC’s ringfenced consumer bank, which employs 4,000 people locally, as well as Deutsche Bank, the accounting giants KPMG and PwC, and BT, which said this month it was expanding its presence in the UK’s second city with plans to hire another 1,000 staff.
However, despite having 22 universities within an hour’s commute of the city, Birmingham – which is based in a region best known for manufacturing – has struggled with the chicken-and-egg issue of wanting to retain professional talent, but not having enough lucrative jobs to attract skilled staff.
The UK’s hyper-centralised economy, focused on London and the south-east, has left it lagging behind countries like France, Germany and the US, which have well-established second-tier cities that have helped to offset economic imbalances within their borders. It has made it harder for places like Birmingham to grow as quickly, or attract as many businesses, that might otherwise look to London first, despite Boris Johnson’s “levelling up” agenda.
While Birmingham boasts more than 1.1 million residents, the proportion of people working in skilled and professional services – categorised as “knowledge-intensive business services” – is about 11%, compared with 24% in London, according to the Centre for Cities thinktank. On that measure, “Birmingham is not really performing very well at this point”, Kathrin Enenkel, one of the thinktank’s senior analysts, said.
That has made attracting skilled, professional services companies a priority for the Midlands mayor. “We’ve got to have these high-paid jobs,” Street told the Guardian. And like recruiting a star footballer, there are hopes Goldman’s arrival could attract other major players to Birmingham.
“We know that companies, particularly those like Goldman Sachs, are clustering next to each other”, Enenkel said. “So it could be that the presence of Goldman Sachs will attract similar businesses, and then maybe Birmingham will become more attractive for graduates who want to settle there.”
That narrative conveniently fits the government’s “levelling up” agenda, with the prime minister having promised to raise the level of income in the regions, given the gaping chasm on health, productivity and skills between greater London and other areas of the UK. Although the government has revealed two pots of funding, including a £4.8bn purse to support high street regeneration, and plans to create a new Treasury campus in Darlington, Johnson’s team have yet to reveal any flagship policies to address the gap.
Richard Gnodde, chief executive of Goldman’s international business, says the bank received no incentives from Johnson’s government when deciding where to base its new venture. “This is our decision, it makes sense for us and it’s very convenient that it ties in with what the government’s trying to achieve”, Gnodde said.
That did not stop Street’s team from making their pitch. Street admits that the costs between regional cities is not a strong selling point, given the variation outside London is minimal. However, he seems to have sold Gnodde on the untapped potential of local engineers and other digitally skilled employees coming from rival firms and local universities. The city’s airport, as well as its proximity to London and the north, helps, even with the completion of HS2 several years away.
But, like many cities across the UK, the Covid crisis is still threatening Birmingham’s economic prospects. The city’s unemployment rate was last recorded at 8%, according to the Office for National Statistics. That is the second-highest unemployment rate for a local authority in the UK, behind Barking and Dagenham. Meanwhile, Birmingham has the highest number of people on furlough in the country, at 30,400. That record is partly due to its size, but still amounts to 7% of the local workforce, which is above the UK average of 5%, according to HMRC data.
With furlough set to end this week, Paul Forrest, a director at the West Midlands Economic Forum, is calling for a re-skilling commitment to support local workers. “There’s a lot of people that aren’t going to be re-employed in, say, hospitality sectors, but aren’t fully equipped to enter the production sector of the economy,” he said. “So we need to look at some serious training schemes to offset that.”
Street agreed. “There could be more cash devolved to help us deal with the whole question of skills and qualifications, which actually – I think – is the long-term determinant of whether we will level up.”
That could prove critical, with the mayor claiming that there is already a “big pipeline” of financial services firms eyeing Birmingham and the broader region for their next location.
However, Street is keeping his cards close to his chest. “If a company of Goldman’s calibre has examined all the options and has endorsed us, that sends a message to the market about who might as well.”