Recent media reports might have you thinking that banks will move out of Scotland if there is a Yes vote in the independence referendum. But even a cursory glance at what these banks have actually said makes it clear that they will not be leaving. The Royal Bank of Scotland and Lloyds TSB have been the focus of reports which – once analysed – pose little, if any, threat to employees, operations or customers.
Reports proliferated that Lloyds TSB will move its headquarters to London. This is an odd statement since Lloyds has had its HQ in London for more than 100 years. What Lloyds said was that it was moving its legal entity status to London, that this was merely a legal procedure and “there would be no immediate changes or issues”.
The perpetuation of the idea that the Royal Bank of Scotland would be leaving too led its CEO Ross McEwan to issue a letter to staff saying, while it would “re-domicile the bank’s holding company”, there was “no intention to move operations or jobs”.
Clydesdale Bank, which is part of National Australia Bank, has also confirmed its commitment to Scotland regardless of the outcome of the vote. Chief executive David Thorburn stated there is no threat to jobs, operations or customers: “We have strong roots in Scotland and we remain fully committed to our customers, staff and the communities in which we operate.” For Clydesdale Bank, a change to legal structures has no impact on the “vast majority” of the bank’s staff. Glasgow will continue as the main operational centre.
Other financial giants have also stated there is no issue. The chief executive of Scotland’s biggest asset manager, Aberdeen Asset Manager, this year the new owner of Scottish Widows Partnership, said Scotland would be prosperous regardless of the outcome of the referendum vote.
We’ve been here before
This kind of scaremongering is nothing new in the debates over Scottish independence. In 1997, in the run up to the referendum on Scottish devolution, the Scotsman newspaper published the views of the then head of Scottish Widows bank. He said Widows’ business would be damaged by devolution for Scotland and selling financial products to markets elsewhere would become difficult. No such thing happened. Widows successfully continued its operations in Scotland employing some 3,000 people while enjoying, it says, “being one of the most seriously considered brands for life, pensions and investment products”.
The move of a legal domicile involves completing some paperwork and putting up a name plate. Companies are cheap to create and register so it’s not as if banks have gone to any massive expense and put any serious money behind these changes, which are most likely related to tax planning and retaining the Bank of England as lender of last resort in the event of a currency union not being available – something that at least one senior government minister has dismissed.
Plus, legal residence is not an indicator of where or to which jurisdiction corporation tax is paid. The location of economic activity is just as important a driver of where corporations pay their tax.
Size doesn’t matter
The financial sector is an important sector in the Scottish economy. The idea that this is a handicap, as has been stated by some advocating a No vote, is laughable when we see what other countries have achieved. And these countries even managed to avoid a banking crisis, unlike the UK. The Global Financial Centres Index, a ranking of the competitiveness of financial centres round the world, places Edinburgh 64th and Glasgow at 74th place. But Luxembourg is in 12th place, while Oslo, Norway is 33rd and Wellington, New Zealand is 39th.
Country size does not affect the success of the financial services industries in these small countries. They are are smaller than Scotland, yet have capitalised on their financial services capabilities in a way that Scotland cannot while long-term fiscal and other policy is set in, and largely for, the giant that is London.
Flexibility to adapt to change is an advantage of smaller countries which have, like Luxembourg, exploited this extensively taking the positive impact on jobs, tax take, revenue and the economy: Luxembourg has the highest GDP wealth per capita in the world. Norway is second, followed by other small countries: Switzerland, Austria, Sweden, and Denmark. We have to ask why financial services companies are happy to operate in successful countries like Luxembourg and Norway yet would, as it is claimed, be “leaving” an independent Scotland.
There’s a lot of noise surrounding this highly political issue. A look beyond superficial reporting on the idea of banks leaving Scotland shows a different view – not least from what the banks say themselves, but also from what other small countries manage to achieve in terms of their financial services. Despite Scotland’s successes to date, there is the possibility of doing even better should Scotland become independent.