'Uncertainty' concern for Scottish finance sector, says Jeremy Peat

RBS sign Image copyright Reuters

A senior figure in the finance sector has warned that firms could move their legal headquarters out of Scotland due to continued uncertainty over independence.

Jeremy Peat has compiled a new study of Scotland's financial sector.

He said more should be done to retain highly-skilled, highly-paid jobs, even if the registered HQs are shifted.

That requires Scotland to have competitive tax rates, with good telecom and airline links, he argued.

He also proposed better integration with universities to support skills and innovation.

Legal headquarters

Mr Peat said the Scottish government should pledge to retain the current regulation of the sector from London, pointing out that it was worth nearly £20bn to the economy in 2011.

He compiled the study as a visiting professor at Strathclyde University. He brings experience on the Competition Commission and the board of Scottish Enterprise, the government development agency.

He wrote: "During the run-up to the referendum, most financial services companies will have considered very carefully their options in the event of a 'Yes' vote."

Having had discussions with senior representatives of companies in the industry, Mr Peat went on: "It is clear that no bank or financial institution of any scale operating across the UK and elsewhere would continue to operate from a legal headquarters in Scotland."

He said this was due to uncertainty over currency, regulation, legal risks and the need for a central bank.

Mr Peat added: "There has been no end to the constitutional uncertainty" and financial firms are concerned also about the prospect of UK voters choosing to leave the European Union.

"Those companies which decided that leaving Scotland (in terms of legal headquarters) was the best option in the event of a 'Yes' vote may decide that the state of uncertainties is such that it still makes business sense to consider moving HQs even after a 'No' vote.

"It is worth remembering the 'Montreal effect'. After the referendum on independence for Quebec in 1995, which also yielded a 'No' vote, the Bank of Montreal moved its HQ to Toronto."

Mr Peat suggested that the twin uncertainties over Scottish independence and EU membership could be an incentive for the more international firms to move out of the UK, for instance to Ireland.

He proposed the Scottish government should guarantee financial firms that regulation will remain "a UK function for the foreseeable future". He said finance firms will also look for reassurance about tax levels in Scotland.

The study concludes that the focus on retaining highly-skilled, highly-paid jobs should look to the asset management sector, where Scotland already has a good reputation and large firms include Aberdeen Asset Management and Standard Life Investments.

Such jobs are important for the impact they have throughout the economy, in adding value and supporting other jobs.

The former member of the Competition Commission also warned that his former employers at Royal Bank of Scotland, along with the Bank of Scotland, are too dominant in the market for lending to small and medium-scale enterprises (SMEs).

As part of the current inquiry into banking, he said the Competition and Markets Authority should look at the dominance of these two banks on Scottish SMEs in particular, and not treat the Scottish market only as part of the UK one.

The study concedes that headquarters control of RBS and Bank of Scotland has already effectively left Scotland.

'Real strength'

Scottish Finance Secretary John Swinney has blamed any uncertainty around the financial sector on the Conservative government's proposal for an in-out referendum on the UK's membership of the European Union.

Mr Swinney also said he was "happy to reaffirm" the Scottish government's commitment to financial regulation being UK-wide.

He told BBC Radio Scotland's Good Morning Scotland programme: "The points Jeremy Peat makes about common regulation are points we made during the referendum campaign, where our proposal was that we should work to maintain our financial services market across these islands.

"I have told business leaders the Scottish government, and for my part the Scottish National Party, would be firm supporters of maintaining the United Kingdom's membership of the European Union.

"We don't support the holding of a referendum on this question which we think would be damaging to the sector and damaging to the Scottish economy as a whole.

"So much of the regulation that applies to the financial sector in Scotland doesn't emanate from London. About 70% of it emanates from the European Union.

"We see the advantages of Scotland being a full participant in the European markets and what the EU referendum threatens to do is to jeopardise that direct relationship between Scottish companies and European markets."

More on this story