Terry Murden: The worrying symptoms of our painfully slow recovery

Published on Tuesday 17 November 2009 20:16

HOLD fire on the recovery celebrations. Chancellor Alistair Darling may be blowing up balloons in preparation for a new year party to mark the end of the recession, but the Scots will have more than the usual Hogmanay hangover to dampen the mood.

Even when the UK emerges from recession as predicted at the end of the year, there is no guarantee Scotland will follow suit, though the latest report from the Fraser of Allander Institute suggests it will just scrape into positive territory with 0.2 per cent growth in the final quarter.

But, as the authors state, it would be a mistake to conclude that the economy's troubles are over once growth resumes and the recession ends. The Scottish economy is currently at least 8 per cent below where its GDP would have been in the absence of recession.

In short, the Scottish economy has taken a battering, with GDP suffering particularly from the downturn in financial services and property. Its prospects for recovery are hindered by the unwillingness of banks to lend and by Scotland's dependency on public services and its weakened manufacturing base.

There are simply too many people in jobs funded by the taxpayer and not contributing to the nation's output. With not enough people making things, the country cannot even take advantage of the weak pound to sell goods abroad.

If there is one bright note here, it is that the greater flexibility of the Scottish workforce means that it can withstand the impact of the shake-out rather better than in previous downturns.

But the overall picture is one of a country badly in need of some fresh ideas to stimulate activity and a new sense of community. The drift in direction is palpable with nothing of substance emerging from our agencies and government departments.

The banks may like to think they are in recovery mode, but the uncertainty about their own future is spreading to the rest of the business community as decisions shift southwards and relations become strained in a new era of tight money.

The Scottish Government appears at best mindful of an economy in danger of underperforming and at worst negligent of its responsibility to improve the situation.

Losing the place

SIR George Mathewson, former chairman and chief executive of Royal Bank of Scotland, wonders whether it will one day move its headquarters to London.

In truth, the huge London HQ building in Bishopsgate has been a location for some big decisions for a long time. Whether that makes it more important is a moot point.

It's a familiar theme to those who've raised the issue in recent months, including Jeremy Peat, the bank's former chief economist. But RBS is not alone. Before its acquisition by Lloyds, HBOS was showing signs of a London bias – shareholders will recall Andy Hornby, its former chief executive, being beamed by satellite from his office in the City to the bank's AGM in Glasgow.

The issue of headquartered companies is not to be dismissed lightly. HQs provide a location with enormous benefits: they anchor intellectual capital and provide a base for decision-making and investment. They create a talent pool and develop skills in the companies that serve them.

The problem is knowing to what extent they become brass-plate headquarters, as opposed to real ones where the directors turn up for work each day and make decisions that have local importance and involve the local community.

Look at the list of those who "run" Scottish firms but don't live in Scotland and it is evident that Stephen Hester, the RBS chief executive who lives in Oxfordshire, is not alone.

Lynne Peacock, chief executive of Clydesdale Bank, lives on the Kent-Surrey border. Home for Rupert Soames, chief executive of Aggreko, is a farm in Buckinghamshire. Peter Norris, who recently stood down as chief executive officer of Quayle Munro, is based in London.

Nor is this anything new. Bill Allan, former chief executive of telecoms firm Thus, lived in Tonbridge Wells.

They were all commuter bosses, in part reflecting the mobility of modern management. Whether or not it helps or hinders their company is debatable. But I'm told Hester has made more customer visits around Scotland in the past year than Edinburgh-based Sir Fred Goodwin made in a decade.