Pay for IT professionals has historically been governed by a North-South divide. Pay in London and the South East is generally the highest with regions like the North East relatively poorly paid by comparison. Since the financial crisis, that trend has reversed. Since 2009 (the first full year of recession) pay for IT professionals in the North of England has narrowed and is now growing four times faster than pay in the South.
Median pay for IT professionals in the North (North West, Yorks & Humber and the North East) jumped by 4 per cent over the past year, from £35,827 to £37,256, while pay in the South (South West, South East, London and East of England) contracted by 0.3 per cent, from £42,356 to £42,205. Since 2009 pay for IT professionals in the North has risen by 13.1 per cent, from £32,941 to £37,256, compared to 6.7 per cent for IT professionals in the South, from £39,552 to £42,205. IT professionals in the North of England now earn on average just 12 per cent less than their Southern counterparts, compared to 17 per cent less in 2009.
The tech sector in London and the South East tends to be heavily reliant on the health of the financial services industry. Pay in financial services was pegged back following the financial crisis as pay freezes were implemented, business volumes fell and banks re-structured. The ripple effect of the downturn in financial services hit pay for IT professionals. A large proportion of IT professionals in London and the surrounding counties are either directly engaged by banks, or work in consultancies whose customers are in the financial sector, so their fortunes tend to rise and fall with the health of the City.
Increase in pay for IT professionals by UK region, 2009-15
While the tech sector in London has boomed, including fintech, pay for IT professionals in these start-ups tends to be significantly lower than large corporates, and a large component of total compensation consists of share options rather than cash. So despite the emergence of so-called Silicon Roundabout in London, the impact of this sector on median pay has been held back by the problems in the financial sector.
It’s worth pointing out that the growth of the digital economy has been quite evenly spread geographically. This is in stark contrast to front and middle office financial services roles, which tend to be almost exclusively London-based. Although London dominates for non-financial tech start-ups, regional cities such as Newcastle and Sunderland in the North East, and Cardiff and Swansea in South Wales, have emerged as regional tech clusters, pushing up demand for IT skills in those localities.
Astonishingly, our research shows that pay for IT professionals based in the North East has risen nine times faster than London over the past year. Pay for IT staff in the North East jumped by 6.4 per cent, from £35,504 to £37,767, compared to London, where pay rose by just 0.7 per cent, from £46,613 to £46,939. IT professionals in the North East are now the highest paid in England outside London and the South East. In 2009, IT workers in the North East were the lowest paid in the country, so that’s an incredible reversal in fortune in quite a short period of time.
Advantages and talent pools
Newcastle and Sunderland are the twin focal points of a dynamic tech cluster in the North East. Newcastle in particular has an established pedigree as a digital hub with Sage, the FTSE-100 software business, headquartered in the city. The North East has a much lower cost base than many other regions, which makes it ideal for start-ups. Tech businesses in the North East have the advantage of being able to spend more on developing their products or services, compared to start-ups in other regions who might have higher staffing and property costs. With five universities in the region, and Sage acting as a magnet for talent, the North East has a high standard of accessible skills, with over 26,000 people now working in digital industries.
Having said that, the surge in start-ups has rapidly drained the local talent pool, which has pushed up pay, taking the North East from the lowest paid region for tech skills in the country to one of the highest. The concern for tech businesses in the North East is that staffing costs are now comparatively expensive. Unless the region can draw in talent from elsewhere, or nurture its own talent, its cost advantage will be eroded. It certainly has the means to produce its own tech talent, and with the region now relatively highly paid, has better hope of retaining people in the region.
The South West has witnessed a similar transformation in its fortunes post-financial crisis. In 2009, the region was the second lowest paid for IT professionals but is now in the top quartile for pay. Again, like the North East, we have seen the emergence of a tech cluster stretching from Bristol to Bath that has been able to take advantage of a comparatively lower cost base. It has recently been reported that Bristol is now the largest tech hub outside London, employing more people in digital industries than Manchester. Bristol has particular strengths in data management and analytics, software development and education technology and has successfully built on the region’s strength in aerospace engineering.
Creating 'Northern powerhouses'
The narrowing of regional pay disparities for full-time employees is anecdotally being mirrored in the contractor market with rates for IT contractors in the North converging on those in the South (The research by Brookson also shows that IT contractors on average earn more than double their fulltime counterparts - £91,520 compared to the UK average of £40,051 for fulltime employees). This convergence is to be welcomed and is long overdue. London still retains some advantages, such as skills and access to capital, but costs are a major disadvantage and tech businesses are not geographically constrained in the same way that many traditional industries were.
The Government remains keen to rebalance the economy post-crisis and create ‘Northern powerhouses’. On the evidence of this data, the tech sector is more than pulling its weight and is contributing to an economic renaissance in many parts of the country.
Martin Hesketh, Managing Director of Brookson