Scotland has been known as a successful centre of financial services for centuries but its history may lead some people to think it is a sleepy, traditional market dominated by ageing actuaries.
This is far from the modern reality and the Scottish Government – formerly the Scottish Executive – and industry is working together to ensure financial services remains a vibrant sector.
The most recent figures from Scottish Financial Enterprise, the independent organisation representing the industry, reveal the sector generates £7bn – more than 7 per cent – of Scottish GDP. It accounts for 10 per cent of Scottish jobs, employing more than 108,000 people directly and about 100,000 more in support services.
Scotland is the second-biggest financial centre in the UK after London and more than £580bn of funds are managed from the country.
Four of the country’s s top 10 biggest companies are in financial services – The Royal Bank of Scotland, HBOS, Standard Life and Scottish Widows. And RBS is set to get even bigger now ABN Amro shareholders have accepted the takeover bid from its consortium.
There is also a feelgood factor in Scotland’s life insurance sector, with senior players holding influential positions in trade bodies. Scottish Widows chief executive Archie Kane is chairman of the Association of British Insurers, Trevor Matthews, Standard Life Assurance chief executive is vice president of the CII and Aegon UK’s chief executive Otto Thoresen is chairing a Treasury taskforce on generic financial advice.
John Campbell, chairman of SFE and senior managing director of State Street, said: “Since 2000, financial services in Scotland has grown at some 55 per cent, compared with a figure of 13 per cent for the rest of the Scottish economy. Financial services north of the border is also outpacing UK economy as a whole.”
Scotland, of course, went through a massive political shake-up when Labour lost control in the election in May. First Minister Jack McConnell was replaced by the Scottish Nationalist Party’s Alex Salmond.
Change can leave people feeling unsettled so it is not surprising there was some concern over SNP’s plans for financial services – especially if Scotland does eventually become fully independent.
Most people in the industry believed Scottish Labour had done a relatively good job while in power despite many issues – such as taxation and regulation – being centrally controlled from London. But commentators seem optimistic about SNP’s commitment to continuing this work.
Alan Murray, head of pubic affairs at Standard Life, said: “In the same way the previous government did, SNP recognises the role the financial sector has to play in the Scottish economy.”
If anything, SNP may be keener to move faster. The First Minister went to Brussels to meet Charlie McCreevy, European Union commissioner for internal markets, within a very short time of taking up power. This is an illustration of the importance he places financial services and its regulation.
The SNP clearly supports the Financial Services Advisory Board (FiSAB) created in March to deliver “A Strategy for Financial Services in Scotland” and the Financial Services Implementation Group (FiSIG), chaired by Standard Life’s Murray.
Salmond is now part of the FiSAB board, replacing Jack McConnell. He asked John Swinney, Cabinet Minister for Finance and Sustainable Growth, and Jim Mather, Enterprise Minister, to join him. They have a strong financial background, with Salmond having worked for Royal Bank of Scotland and Swinney for Scottish Amicable.
Swinney said: “Financial services are a real driving force for the Scottish economy. The industry demonstrates the huge potential we have at our disposal. The skills, dedication and reliability of the workforce here in Scotland are second to none. We have already attracted numerous global companies to locate there and then expand their operations in Scotland. And we are seen as one of the premier financial services locations, not just in Europe but the world.
“But we could do even better. Given more economic tools at our disposal – such as the ability to lower corporation tax – the financial services industry, like the whole of the Scottish economy, could achieve even more.”
The first meeting of FiSAB, involving the new Government was on 3 September and the feeling seemed to be generally optimistic.
“As you can imagine, at that meeting there was a lot of discussion about the recent credit problems. Everyone very much felt Scotland has a history of being cautious,” said Campbell, who is also FiSAB industry deputy chairman. “Our exposure to the credit crunch was likely to be very limited and may actually play to our strengths. Scottish banks are strong and we could potentially win business out of the volatility in the market.”
A big question going forward will be whether the new Government presses for further devolved powers from Westminster and what the consequences of this would be.
The SNP issued a National Conversation White Paper in the summer and that suggests a number of areas where it is looking for more powers. This includes regulation of the financial services sector and an examination of whether this will continue to fall within the remit of the FSA.
According to Lesley McPherson, spokeswoman for Aegon UK, the industry likes the idea that the new Government is taking it seriously.
She said: “The Scottish Government doesn’t have power to effect much in terms of product or taxation legislation. A lot of laws that govern how products can be developed and market conditions come from Westminster. But what the Scottish Government can do is create good climate for business. This includes developing transport and infrastructure, such as better rail links between the economic centres of Glasgow and Edinburgh.”
Financial services skills and education are also a priority for FiSAB and a lot of work has been done to improve links between schools, colleges, universities and companies.
For once, it seems that being small has its advantages and Scotland is able to hit above its weight compared with the big boys in London.
Murray said: “One of the benefits we have in Scotland is we are a relatively small economy. It’s much easier for the sector, Scottish ministers, Government and trade unions to work together to develop cohesive strategy for the sector in Scotland. You could never get this in England as the sector is too big and diverse. This is one area where size does genuinely benefit.”