Scotland can be a world leading financial powerhouse to rival London and other global financial services centres.
According to independent experts, an independent Scotland can become one of the top 30 financial services centres in the world.
Carried out by London-based economic research company, Capital Economics, for the business think tank N-56 and published today, the report emphasises the strengths of Scotland’s sector, highlighting that finance was responsible for 8.5% of Scotland’s GDP in 2011 and for 9.6% of UK GDP, and suggests that global growth in sectors such as asset management, already a strong sector in Scotland, will offer a “significant economic opportunity”.
The report also suggests that Scotland could be a force of innovation in use of new technology in the financial sector.
Maeve Johnston, one of Capital Economics’ economists analysing Scottish developments, said: “There are clearly fantastic opportunities for the sector, especially with increasing global demand which includes a greater proportion of individuals entering retirement. The flexibility to adapt to change is therefore absolutely critical.
“There are however also increased challenges, including the role played by new technology and a policy response will be required to ensure that rather than being exposed to radical changes in the sector, Scotland becomes a source of innovation in the use of new technology in the sector.”
Financial services is a major contributor to both employment and GDP in Scotland, and employs more than 84,000 people. It also contributes significantly to Scotland’s export performance: in 2012 Scotland exported £11.2 billion of financial service activities accounting for a third of all service exports and 15% of all goods and services exports, excluding oil and gas. (Source: Financial and Professional Services January 2013 – http://www.thecityuk.com/research/our-work/reports-list/regional-contribution-of-uk-financial-and-professional-services-2013/)
Graeme Blackett, lead author of the Scotland Means Business series of reports being produced by N-56 says this research confirms that the financial services sector can contribute to the aim of N-56, for Scotland to become one of the top five wealthiest countries in the world and says the recommendations provide a basis for the sector to identify and build competitive advantages.
He believes that an ambitious target should be set, for Scotland to become one of the top 30 financial services centres in the world.
“Currently Edinburgh ranks 64th on the Global Financial Services index, a ranking of the competitiveness of financial centres, with Glasgow in 74th place. As a comparison Luxembourg lies in 12th place, with Oslo, Norway in 33rd, and Wellington, New Zealand in 39th, countries smaller than Scotland.”
The opportunities for Scotland’s financial services sector have already been identified by leading financiers, including former RBS chairman Sir George Mathewson, who have voiced their opinions in favour of independence.
Sir George and other leading financiers wrote a letter in support of independence to The Times saying they believed there are certainly opportunities to attract more jobs and investment to Scotland with the powers of independence and significant opportunities in an independent Scotland for financial services. http://www.businessforscotland.co.uk/leading-scottish-financiers-line-up-to-support-independence/
As previously reported by Business for Scotland “There is nothing to suggest that being part of a smaller country hinders a financial services industry. Switzerland, for example, has – in Geneva and Zurich – not one, but two of the world’s Top 10 financial centres. Singapore, with 5 million people, is ranked 4th. Investment is an increasingly global business, where success depends much more on people than on borders.”
Key Policy Recommendations
Key policy proposals highlighted in the Capital Economics’ report include:
- A single regulatory regime, or at the very least a high degree of consistency, benefitting both Scotland and the rest of the UK, whatever the constitutional arrangements, retaining a broadly integrated market. As outlined in the Scottish Government White Paper.
- Maintain competitiveness through a commitment not to introduce taxes that work against the competitiveness of the financial services sector and consider how to foster financial services innovation through a scheme equivalent to research and development tax credits. There should also be a duty for Government to consult with the sector prior to any tax changes and to examine existing tax legislation and rules and remove those that confer little benefit relative to their costs.
- Scottish income and corporation taxes should be set at rates that do not significantly disadvantage companies in Scotland, relative to competing companies elsewhere. This could include a reduction in corporation tax depending on the powers available to the Scottish Government, and a personal tax regime that will help to retain and attract the most highly skilled to work in the sector, especially in fund management.
Promotion of Cluster
- The inward investment proposition should be continued, attracting financial institutions to start up or relocate to Scotland, with boutique asset managers and Asian funds particular opportunities. Including growing companies from emerging economies in Asia and elsewhere.
- Ways to improve intermediate skills, probably through the Apprenticeship scheme and possibly through a Financial Services Challenge Fund. For high-level skills the ability of suitably qualified immigrants from outside the EEA to secure visas needs to be optimised.
- An ageing population both domestically and globally should be seen as an opportunity for the sector in Scotland, driving demand for new financial services products as increasing number of individuals enters retirement, as well as the need for healthcare planning. The report calls for financial services to be flexible and join with universities and the public sector to look at potential new products.
- Scottish universities and research institutes, which are amongst the best in the world, should be invited to bid for funds for a research programme to examine how new technologies may radically alter the outlook for the financial services sector.
- The report also highlighted proposals set out in previous reports from Scotland Means Business, including:
- Favourable tax treatment of headquarter functions to retain company headquarters in Scotland and to attract new companies to set up European or functional headquarters in Scotland specifically.
- The introduction of tax incentives to encourage long-term saving, including the take-up of Scottish Infrastructure Bonds, which could be offered to international bond markets and as domestic savings products.
The opportunities to enhance Scotland’s financial sector and deliver a true competitive advantage are clearly significant, but to take advantage of those opportunities Scotland needs to be independent. There is support for common financial services market and regulation across Scotland and rUK after independence, and it’s important to emphasise that this is in the interests of rUK as much as Scotland.
Scotland needs full job creating powers and fiscal levers to deliver the policy recommendations in this report and to build our financial sector into one of the best in the world.
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