Finance sector aims to prove its true worth

Published on Sunday 9 March 2008 20:47

FINANCIAL services leaders have launched an in-depth study which they expect will establish the growing importance of their industry to the Scottish economy.

Scottish Financial Enterprise (SFE) has commissioned the Fraser of Allander Institute to survey Scotland's banks, insurance providers, life companies and investment managers to asses the impact of their business on the country.

With the support of the Scottish Government, the study will cover SFE's more than 80 members – including the Royal Bank of Scotland and Standard Life – as well as non-members in the financial services industry.

The purpose of the research, which could be published within two months, is to "refine and update" the estimate of the extent the financial sector provides income and employment in Scotland.

There has been a growing debate about the quality of the data available to measure the Scottish economy.

The Scotsman understands that this study is setting out to significantly improve the "structural quality" of the data – in other words, what it tells economists about the Caledonian economy.

Crucially, it aims to calculate a Scottish-wide figure for the key measure of net interest margins – the difference between the interest income produced by an institution's earning from loans and investments and the interest paid to its depositors.

Currently, the Scottish Government's GDP calculations have relied on an estimate of the figure, called the Financial Intermediation Services Indirectly Measured (FISIM).

It is understood that the financial services industry believes that the new calculation will show they make an even greater contribution to the Scottish economy than has so far been estimated.

The industry also hopes to persuade the Scottish Government to use the measure in its calculations of Scotland's GDP.

The move to strengthen the data comes eight years after a previous analysis by Fraser of Allander Institute.

That research, in 2000, showed that the sector in Scotland employed 90,000 people.

However, every job in financial services supported almost one other job elsewhere in Scotland.

The research in 2000 also showed that financial services supported 4.5 billion worth of wages in Scotland, around 11 per cent of all the total.

Last night, Owen Kelly, the new SFE chief executive, confirmed that the research was under way and that he hoped it would be ready in time for a major financial services conference in May.

Kelly said: "This work will update and refine the calculation of how much financial services contributes to Scotland's GDP. Financial services in Scotland are unquestionably a success story.

"We know that the rate of growth for the Scottish financial services industry since 2000 has been greater than for Scottish GDP as a whole and for the UK industry overall.

"But we need to get a clearer and more up-to-date picture of the industry's contribution to growth. Fraser of Allander are very well-respected in this field and they bring a lot of expertise to bear, so they are ideal partners."

He added: We are working closely with Scottish Government.

"We have a common interest in getting the most accurate figures we can, not least so they can feed into official GDP calculations.

"It is already clear that financial services contribute very significantly to the Scottish Government's overarching objective of sustainable economic growth, but let's find out the exact and up-to-date position."