Pathfinders to the Parliament

FINANCIAL SECTOR PATHFINDER

Introduction

The Financial Sector Pathfinder Group was chaired by Mike Ross of Scottish Widows. The report is based on consultations with the board of Scottish Financial Enterprise (which represents all parts of the sector - banks, insurance companies investment managers, corporate financiers, stockbrokers, lawyers and accountants) a number of individuals and companies and the STUC and trade unions active in this sector.

A major contributor to Scotland

The size, diversity and strength of its financial services sector marks out Scotland from any other region of the UK and puts it ahead in international ranking tables of many European capital cities. More than £200 billion in pensions, savings and investments from around the world are managed from Scotland and the banks hold total assets of more than a further £100 billion.

Finance is at the same time a traditional industry - Scotland has been managing money for over 300 years - and a modern and innovative one, ahead of many of its competitors in product development, management and the use of advanced computing and telecommunications.

The sector consists of banks, insurance companies, investment managers, and corporate finance houses, supported by corporate lawyers, accountants and consultants. Together they provide direct employment for 100,000 people and many tens of thousands more in service and support companies. Each year Scottish finance houses provide careers for a high proportion of the qualified school leavers and graduates leaving the education system.

The success of the sector is shown by the growth of the companies which are managed and controlled from Scotland and the number of new companies moving into Scotland from England, the US and other countries.

The sector aids the economy not only by providing employment and income, but also through the tens of millions of pounds it contributes each year to community and social programmes and to sponsorship of the arts, sports and entertainment.

Thriving in a competitive world

Scotland alone could not support a financial sector of this size. About 90 per cent of the customers of the life assurance companies are outside the country and a similar proportion of the new business of our two largest banks is in England, Europe or North America. Much of the wealth those exports generate is brought back to Scotland.

But whether the business is inside or outside Scotland, it has to be won against fierce competition, often from very much larger organisations. To maintain its leading place in the market it is vital that Scotland continues to be competitive - in terms of costs and skills. If it loses ground to other locations, jobs will very quickly be lost to companies based in England or abroad. Unlike many industries, people can move very easily to jobs in other parts of the world as their key assets are professional qualifications and experience.

The opening up of markets, which still has a long way to go in Europe for much of the sector (particularly in savings products), provides opportunity for expansion - and language skills will be important in this respect - but also provides threats given the structural nature of the market within the United Kingdom.

A Partnership with the Scottish Parliament

The Scottish financial sector intends to work with the new Parliament and the Scottish Executive to ensure that the country remains an internationally respected financial centre. These are the areas to which it would like the Parliament to pay special attention.

Stability and continuity

When customers entrust their pensions, savings or investments to a bank, insurance company or investment institution, they do so for a long period - often decades. Financial services products are not tangible in the sense that most consumer products are. Consequently, customers place great trust in the institutions to keep their investments secure and to make them increase in value. This trust or confidence needs to be sustained and that can only be achieved against a background of certainty and stability. Parliament and the private sector have a part to play in this and the Scottish financial sector will work with the Parliament to create the conditions under which jobs and prosperity can continue to grow. It is desirable that the Parliament sets out a clear vision for the future. In particular, we draw attention to the fact that, within Europe, the United Kingdom remains the largest single market for most companies in the sector, with a common language and fiscal and regulatory regime (through the reserved powers). The Parliament needs to act in a way that will enhance opportunities within that marketplace.

Education and training

Scotland's biggest competitive advantage is the skill of its people. It is vital that standards continue to rise in schools, further and higher education. The financial sector will do whatever it can to help the Parliament achieve this.

Young people entering the adult world need to be financially aware, so that they can manage their own financial affairs and take advantage of the job opportunities available in the financial sector. Several companies are already working with teachers and the education authorities to develop courses and the sector, through its representative body, Scottish Financial Enterprise, would be willing to help introduce these into every school.

Further and higher education also have an important role to play in offering courses which would distinguish Scotland as a centre of excellence for financial and business learning. It is only as such a centre of excellence that the sector will continue to prosper. The Parliament should encourage Scottish universities to work together and to call on the expertise of the professional institutes in designing relevant courses. It will be very important to ensure cohesion in this respect as well as to ensure that education is delivered both effectively and efficiently.

Ministerial responsibilities

Scotland is a modern economy. Two-thirds of the workforce is employed in services, of which finance is a leading part. High value services, created in Scotland and sold in other parts of the UK and abroad, are driving much of the growth in the economy.

It is important that this is recognised when executive responsibilities are allocated. We would advocate the designation of a Minister for Financial Services, Business and Industry and that this post be filled by someone with business experience who understands the background and issues. The present Scottish Industry Department should also be renamed to reflect the changed nature of the Scottish economy.

Education is too important to be combined with other responsibilities and should have a Minister and department of its own.

Transport and communications

Good communications are essential for the continued expansion of business in Scotland. The Parliament should use its own powers to improve and integrate road, rail and telecommunications links within Scotland and abroad.

The Parliament should lobby Westminster and Brussels to bring more competition into air services within the UK and from Scotland to Europe. In particular, airport taxes unfairly disadvantage companies headquartered outside London. The Parliament should lobby Westminster to reduce or remove them.

Taxes and business rates

The Parliament should consult widely before varying taxes or sanctioning increases in business rates, to assess their likely impact on growth and jobs, especially where there is likely to be a heavy administrative cost in implementing a change.

The maintenance of a "level playing field" across the UK is vital to the competitiveness of Scottish companies and therefore to jobs. Taxes should be harmonised with the remainder of the UK.

Local government and planning

It is important that there is consistency of approach between the Parliament and local authorities, particularly over planning and other infrastructure issues which could impact on business expansion.

Strong links between the Parliament and local authorities are vital and it should be understood that decisions at local level on planning or transport issues can have national implications. Telecommunications has given employers a wide choice of locations and jobs will be lost from Scotland if measures to encourage investment nationally are thwarted at local level.

Law

The Scottish Parliament will provide an opportunity to revise and modernise areas of Scottish law which have fallen behind those of England and other countries. However, it is important that law reform achieves a consistency of approach with the rest of the UK and with Europe. This could involve the Parliament not just in changing the law of Scotland, but sometimes in lobbying Westminster or Brussels to seek changes in UK or European law.

The financial sector welcomes the Parliament's intention to involve non-politicians in pre-legislative scrutiny and is eager to help.