A review of the economic consulting sector in the UK by Cebr to mark Cebr’s 25th anniversary
‘UK revenues from economic consultancy exceed cinema box office takings’
The economic consultancy sector is one of the UK economy’s most dynamic and fast growing and, as we detail below, its revenues are sizeable. In fact, they are equivalent to 9% of the annual value of North Sea oil output[1] and exceed cinema box office takings[2]. Indeed, the industry’s revenues are more than double the advertising revenues of the whole commercial radio sector in the UK[3].
Yet, despite this, the sector often goes unnoticed by those not working in or around it. Here, we review the latest available data from Companies House and show economic consultancy to be an important and growing industry in the UK and a key part of the London economy.
In 2016/17 we estimate that the sector achieved £1.53 billion of sales, up 7.7% on 2015/16. The sector has been growing strongly in recent years. In 2013/14 economic consultancy activity generated sales of £1.11 billion, meaning that over the past three years total sector sales have grown at an average rate of 11.3%. In inflation-adjusted terms this is equivalent to an average growth rate of 9.7% per annum.
Economics consultancies use their specialist knowledge to provide independent expert advice to clients, which can include large corporations, law firms, regulators and government bodies. Though all firms in the sector utilise the tools of economics to help clients, firms vary widely in their focus. For example, while some firms specialise in forecasting macroeconomic variables other provide expert testimony on anti-trust and competition matters.
A notable characteristic of the industry is that work can be generated by a slowdown. This is because economic consultants focus on factors that are often central to the state of the economy, and how they are managed by businesses. This can help counterbalance the cyclical decline in activity. Indeed, anecdotal evidence suggests that during the financial crisis economic consulting activity held up fairly well. Another characteristic of the industry and a key difference to management consultancy is that firms are usually much smaller, employing 10-100 staff. Nonetheless, several economic consultancies have more than one regional office.
We estimate that the sector currently directly employs 7,100 people. For context, consider the following employment figures. In the UK there are:
- 8,000 fishmongers and poultry dressers,
- 9,000 conservation and environmental professionals,
- 11,000 florists,
- and 374,000 people employed across the entirety of the UK’s agriculture, forestry & fishing industry.
The latest available data show that there are 108 UK firms operating either partially or fully in the sector. 44% of these firms are headquartered in London. After London, Oxford and Cambridge are the industry’s most significant centres in the UK, together accounting for around 10% of firms. This is indicative of the industry’s close links with academia and the importance of skilled labour to the economic consulting firms. In conducting the analysis we were unable to identify a city, internationally, with a greater clustering of economic consultancy activity than that seen in London, suggesting the UK capital is a world leader in the sector.
Labour is the sector’s primary input enabling effective management procedures to drive firm-level and industry-level profitability. Our analysis finds that the average value added in the sector is 62% of revenue, making economy consultancy a high value-added industry. Extrapolating, this suggests that the Gross Value Added of economic consulting activities as a whole stood at £951 million in 2016/17, or 0.04% of GDP. This is well above the industry’s weight in employment terms, as it accounts for just 0.00002% of total UK employment.
Our estimates of total industry employment and revenue suggest that the average per capita value of sales in the industry stands at £216,010. This figure hides the wide range of variation seen in this measure though. In fact, average per capita sales range from £46,000 to £833,000. As a result the industry’s top performers put upward pressure the average figure, meaning the mean is well above the median of £156,900. As well as variation in performance, another driver of the observed skewness is the variation in the underlying makeup of the industries different subsectors. For example, economic development consultancies tend to have high average sales per employee but figures for per capita value added profits tend to fall in line with the industry average. For example, DAI Europe – an international economic development consultancy with 155 employees – had average sales per member of staff of £687,000, yet its per capita value added stood at £57,000 – below the median industry value added of £86,000.
The above analysis makes clear that the economic consultancy sector is dynamic, important and growing. As the industry grows it is also becoming increasingly professionalised.
The Society of Business Economists recently rebranded as the Society of Professional Economist and expanded its membership, as it looks to professionalise the industry.
Meanwhile, the Government Economic Service is working with consultancies, including Cebr, to develop an economics apprenticeship scheme, to provide would be economists with a professional certification alongside their degree. These developments make it likely that that the sector will be a valuable one for London and the UK in the years to come.
It is important that the government economic service comes to terms with the existence of this strong commercial sector present in the UK and takes advantage of it rather than fighting against it.
Douglas McWilliams and Christian Jaccarini
Cebr
London
March 2018
[1] In 2016-17, the approximate sales value of oil and gas produced in Scotland is estimated to be £17.5 billion. Source: BEIS
[2] Cinema box office takings in 2017 were £1.38 bn according to box office tracker comScore
[3] £679.1 millions. See: http://www.radiocentre.org/advertising/factsandfigures/commercial-radio-revenues/