Banks could open offshoring floodgates after next election

News Analysis

Banks could open offshoring floodgates after next election

Karl Flinders

If the government changes after the next general election, the part-nationalised banks could be more at ease offshoring IT jobs to meet their tough cost saving targets.

Following the Labour government's taxpayer-funded bailout of several banks, offshoring IT jobs has taken on a political context.

The government has lent banks billions of pounds through buying shares and as a result has part or fully nationalised them. It all began in September 2007 when Northern Rock was nationalised after the government gave it an emergency loan. Since then the government has taken significant stakes in the likes of Royal Bank of Scotland (RBS) and Lloyds TSB.

The banks are all attempting to cut costs to help them save money and repay the government. RBS's dilemma epitomises this. The bank has set itself a target to reduce annual costs by £2.5bn within the next three years. Back-office offshoring is a proven way of cutting costs.

Public opinion is against moving UK jobs abroad and the Labour government's influence on bailed-out banks has ruled out significant new offshoring.

But if the Conservatives win the next election the silent compulsion for banks not to offshore will no longer exist and thousands of jobs could go overseas.

Labour support is lagging 19% behind the Conservatives according to an opinion poll from ComRes.

"The Labour government has nowhere else to go. It is fighting an election and cannot allow UK jobs to go offshore from entities it controls," says Mark Lewis, partner and head of outsourcing at law firm Berwin Leighton Paisner.

"The Conservatives may take a more liberal view of offshoring and will have more time after the election to create a more balanced approach to offshoring."

The Conservative Party says it will not put pressure on the banks. "Our position is that banks need to be allowed to manage their business at arm's length. These decisions are a matter for management not ministers," it says.

Robert Morgan, director at outsourcing consultancy Hamilton Bailey, says if the Conservatives come into power there will be increased outsourcing. "They will want the banks to buy back the shares as soon as possible."

"As a result there will be a greater focus on cutting costs and that will include outsourcing which will include offshoring."

But Bob McDowall, research director at TowerGroup, says whichever party comes into power at the next election will be determined to keep jobs in the UK. "It is political suicide to allow unemployment to rise, and if the Tories allow jobs to go overseas they will probably only win one term in office."

McDowall adds that the next government should hold onto its shares in the banks, rather than sell them back, because their value will increase. "It will then be able to make money from them and lower taxes as a result."

According to research by Roland Berger Strategy Consultants, UK multinationals could offshore up to a third of their jobs as they re-examine the UK as a location amid recession.

"There may be some short-term strategies to look within the UK, but offshoring will accelerate if anything," says partner Tim Mannasseh.

If the Tories do win the election next election, David Cameron's government will have both the mandate and the time to withstand short-term unpopularity. The banks will have to find money somewhere, and offshoring will be an easier decision for them when the government changes. Bailing out the banks was not the Conservatives' decision and the public may be less likely to blame them if part state-owned banks send UK jobs overseas.


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