Kelly: politicians are risking prosperity

Published on Sunday 10 February 2008 20:38

HE MAY be fluent in Mandarin, but Owen Kelly is not as inscrutable as the Chinese. The new head of Scottish Financial Enterprise may use diplomatic language but his meaning is clear.

Kelly has sent out a strong message to politicians north and south of the Border: their actions are endangering one of Scotland's most important industries.

With the weight of SFE members such as Royal Bank of Scotland and Standard Life behind him, Kelly is warning politicians that four areas of policy are putting Scotland's future prosperity at risk. They are:

&#149 The continued debate within all political parties over the constitution

&#149 The perceived disincentive to recruiting senior executives arising out of the SNP Government's local income tax proposal

&#149 The UK government's changes to capital gains tax

&#149 The size of the public sector.

In his first major interview since taking up the post of chief executive last month, Kelly stresses that SFE can help inform public debate.

"The perspective that a successful financial service industry can bring to public debate is a valuable one – hard-headed, rigorous, realistic, internationalised. There is a public value in that," he says.

His role is to ensure that politicians provide "the economic conditions that allow an industry like ours to thrive, and not just succeed but internationally excel". That requires "constant vigilance".

And although it is only "early days", the SNP's proposal for a local income tax is troubling him and his members.

"It's not obvious to me how that can be said to be hugely helpful to attracting top talent to Scotland," Kelly says.

"Anything that starts to look like we have people in Scotland working in Scotland paying either more tax or a different kind of tax to the rest of the UK is a differentiation that is an added complication – let me put it as mildly as that – to the business of promoting, selling Scotland and attracting people to come and live and work here.

"I have concerns about implementation costs, about the long-term impact on the appeal of Scotland in contrast to its immediate competing geographic neighbours."

He clearly means England. Asked if he is being too diplomatic, Kelly laughs. "You sound surprised," he says. But then he adds that the starting point has to be whether local income tax makes Scotland more internationally competitive. "If you just pose that question, it is not at all obvious to me that it does."

He turns his attention to the constitutional debate, many in business see the constitutional debate as a distracting obsession of the Scottish political classes.

The SNP Government has embarked on its "national conversation" aimed at making the case for independence.

Labour, the Liberal Democrats and the Tories have joined together to set up a constitutional commission to look at more powers for Holyrood.

As a civil servant in the devolved administration for the past eight years, Kelly has witnessed these debates at first hand.

"Some of the debate I have observed politically recently when we have been talking about constitutional change – in any party – has been very introspective."

To reinforce his point he says "I mean this" before adding: "I think it has been very introspective and I think the perspective the industry should bring to this is an outward-facing international perspective.

"You have to ask the question, what is more pressing: to talk and think about how we can compete more effectively in Europe and internationally or to think about how we take our own decisions internally?"

He says he will "watch with great interest the national conversation and the emerging cross-party constitutional commission" and he looks forward to discussing those issues.

"But I wonder, is that really the ball we should be keeping our eye on?" he asks.

Are these debates a distraction? There is a long pause. "Given what is going on at the moment, I think we should all turn our eyes outwards perhaps more than we sometimes do," Kelly says.

So there is, then, a continuing wariness of constitutional change in the industry?

"I think that anything that either actually or in terms of perception erects barriers or makes business more difficult across boundaries has got to be unwelcome to an internationalised industry like ours."

Kelly says it is his job to keep that point "uppermost in the minds of people who might be adopting political positions".

And independence? In 1999 when devolution was introduced no-one knew who would form the new government and what its policies would be. Kelly says the same would apply were Scotland ever to become independent.

"Any uncertainty at that level is something businesses have to be a little bit wary of, because it is a level of uncertainly that does not currently exist," he says.

So much for the Scottish Government. What of Westminster?

It is, Kelly says, "a great thing" to have Scottish Chancellor in Alistair Darling. It "gives Scotland an empathy at the very, very heart of the UK government machine".

But that is not enough. Capital gains tax and Labour's approach to "non-doms" sends the wrong signals, Kelly says.

Capital gains tax "has not been well handled". He says: "We have had a bit of pulling back by the Treasury but I don't think it looked very good.

"Even on issues like non-domiciled residents, I come back to my point of principle. Ask the question: does a decision contribute to the international competitiveness of the UK and by extension Scotland? Well, it's hard to see."

He adds a warning: "I hope that the recent decisions on tax changes don't presage a shift towards imposing more burdens, more disincentives to the wealth- creators who can make a difference to the economy, particularly in financial services."

And Kelly has a final point, for now at least, for the politicians – on the size of the public sector

"It is well-evidenced that the public sector is a disproportionately large element in the Scottish economy," he says.

"If we are going to free up business and allow the best talent and resources to feed into the process of international competition in a globally competitive market, any moves to reduce the size of the public sector as a proportion of GDP would be welcome, because it will help competitiveness."

So that is it: the Kelly agenda. The agenda of one of Scotland's most successful industries. Diplomatically but forcefully put. The question is how the politicians will respond.

SURPRISE MOVE

OWEN Kelly left his post as director of communications at the Scottish Government to take up the position of chief executive at Scottish Financial Enterprise.

A career civil servant, often tipped as a future permanent secretary, Kelly's move surprised many of his colleagues.

However, his experience makes him well qualified in the key area of influencing Scottish, UK and European governments.

A fluent Mandarin speaker, Kelly, 44, joined the civil service in 1987.

His postings included stints at HM Customs and Excise and, in the old Scottish Office, working on the controversial poll tax.

Kelly served as principal private secretary to Jack McConnell, the former first minister. He also worked for Locate In Scotland in Tokyo for two years.

ONE OF THE MOST POWERFUL LOBBYING BODIES

SCOTTISH Financial Enterprise represents both the "big beasts" and the smaller players in Scotland's financial services industry.

Royal Bank of Scotland, Standard Life, Bank of Scotland, Lloyds TSB Scotland and Scottish Widows are among the high-profile members.

Another powerful voice that pays its SFE dues is the Bank of England.

Established in 1986, the organisation "supports and represents the interests of Scotland's financial services industry".

SFE's member companies span all sectors of the industry – banks and building societies; general insurance, life assurance and pensions; investment management; asset servicing; corporate finance and broking services; and professional advisers.

SFE says that its more than 80 members employ upwards of 70 per cent of the 108,000 people directly working in financial services.

The industry accounts for more than 7 per cent of Scotland's GDP, and has been one of the fastest growing sectors of the Scottish economy.

As the body representing this crucial industry, SFE is potentially one of the most powerful lobbying organisations in Scotland.

But since the departure after four years in the chief executive's job of Amanda Harvie, pictured, last June, the organisation has not had a full-time leader.

Harvie's successor, Andrew Silverman, left last August for health reasons, leaving Gordon Arthur, the former director of corporate affairs at Standard Life, running the organisation.

New chief executive Owen Kelly's task is to increase SFE's influence with government, expand the membership and build the organisation's public profile.