Accountants, as we all know, are not given to exaggeration. So when a partner in a medium-sized firm of chartered accountants describes the prospects for newly qualified accountants as ‘wonderful’, we can assume that the good times are here.
For the class of 97 the equation is simple: the decision by firms to cut the number of students they took on during the economic downturn has led to a shortage of qualified accountants. This is exacerbated by the improved economy: practising firms want to keep the students they have trained and industry and commerce, especially the financial services, are eager to prise away the recently qualified.
It could be argued that firms are guilty of the type of poor business planning which they would be more than pleased to point out to their clients.
The question now is whether a balance in supply and demand can be regained, avoiding the destructive swings.
The table from the English ICA tells its own tale. The number of students entering training contracts peaked in 1988/89 when more than 7,000 people signed up. Three years later, the figures had slumped to below 5,000, reached a low point of under 4,000 in 1993/4 and 1995/6, and is still around the 4,000 level. The numbers entering training contracts with chartered firms have plummeted by 40% and it is clear that the highs won’t be seen again.
Back in the mid-1980s, firms were hiring a staggering one in ten of UK graduates. But when the downturn came those same firms were forced to shed staff and partners. Not surprisingly, firms which downsized dramatically received a great deal of unwanted media attention. This forced a change of tactics: staff were shipped out a few at a time. Those who worked at the time recall the never-ending leaving parties and the Friday afternoon cull which preceded the shindig.
Firms did try to learn from the experience. Joining in the rest of the UK industry’s penchant for business process re-engineering, they examined how they conducted the audit. For many, the result was the end of the traditional pyramid shape of articled clerks or trainees at the bottom and the partner at the top. The pyramid was highly uneconomic – of 15-20 hopeful trainees, one would finally make it to partnership after a decade.
The rest were lost early on in the exam process or as a senior manager in industry when it became clear that partnership would not be on the cards. With increasing competition on audit, tighter margins, the introduction of IT and higher expectations from clients for more value for money, the old audit model broke down.
During the last few years, the pyramid’s base has narrowed. Hand-in-hand with smaller numbers of graduates, firms built on the expectation that those they hired would stay longer. With a strong market the theory that the re-engineered newly qualified would be more loyal than his predecessor is about to be tested.
In the short term, there is only good news for newly qualifieds. Dennis Waxman, managing director of Hays Accountancy Personnel, says: ‘Firms are paying a premium to attract or keep people. In some areas, the inflation in salaries is worse than it was in 1988 and 1989.’
But behind every silver lining there is a black cloud. Aside from headlines of pay packages for newly qualifieds reaching #40,000 a year, Waxman thinks that the trend of spiraling salaries poses important questions about employers’ long-term recruitment plans. He believes that organisations cannot continue to fund rises beyond inflation. Instead, they will turn to older professionals and qualified accountants from other professional bodies.
Employers recognise they must invest in training. Waxman says: ‘Firms are developing training and seeking to keep staff by offering overseas postings, positions in specialist groups or secondments.’
According to Maurice Fitzpatrick, economist and tax partner with medium-sized firm Chantrey Vellacott, the employment market has been good for the last few years. The accountancy sector has recovered strongly from the unemployment levels of the early 1990s and returned to its norm of around 2.5%. He says that newly qualifieds must be aware of the general prevailing economic conditions, but emphasises that the accountancy qualification is highly valued.
When sterling appreciated by more than 20% during the 1979-1981 recession the UK lost two million of its ten million manufacturing jobs. Fitzpatrick predicts that the current strength of sterling could see off another 600,000 jobs. In the late 1970s, manufacturers were worst hit, but the victims this time are likely to be in the banking and finance sector. ‘Many of the areas in which qualified accountants work compete in the global market,’ he says.
James Wheeler, MD of temporary recruitment consultants Hewitson-Walker, said: ‘The next economic downturn will happen before the present newly qualifieds reach 30. They have to make themselves indispensable and use the good times to develop wide skills.’
The skills he has in mind include the ability to think strategically, excellent IT skills and deep knowledge – what Wheeler calls a specialist generalist. The alternative is to develop a specialisation which is indispensable whatever the economic conditions.
Despite general economic fears, Waxman is convinced that the current high demand for newly qualifieds differs from its predecessors. ‘New skills have appeared and accounting has become far more specialised by sector, systems and projects.’
The doubt behind the current boom, expressed by Waxman among others, is that the industry is trapped in a cycle of overpaying for newly qualifieds, reducing numbers when work dries up, then overpaying when things pick up.
In other words, no-one really knows if this current party will end in tears again.