Capital 'won't regain lost status' as finance centre of gravity shifts south

Published on Wednesday 11 November 2009 21:47

EDINBURGH is losing its status as a major hub for financial services with the "centre of gravity" shifting to London, MSPs were told yesterday.

In a bleak assessment of the effects of the banking crisis on Scotland, former RBS chief economist Jeremy Peat said the city had already lost much of the benefits of having two major banks headquartered in the capital.

In evidence to the banking inquiry at Holyrood, Mr Peat said the takeover of HBOS by Lloyds had significantly diminished the importance of the city as a financial base.

But he also pointed to his former employer, RBS, which he said was increasingly being run from London. His use of the phrase "centre of gravity" suggests that Mr Peat believes the shift in power is permanent.

"Come what may, we're likely to have lost a great deal of the benefit of having two major head offices – I worry about that," he told members of Holyrood's economy, energy and tourism committee.

Scottish Liberal Democrat leader Tavish Scott said: "Once these headquarter functions go they won't come back. We can only hope that something new can be built in the future."

Senior sources at RBS have told The Scotsman they are increasingly concerned about the number of senior executives who are basing themselves in London, away from the official world headquarters at Gogarburn.

Although RBS officially rotates its board meetings between different offices – and the last one was in Edinburgh – it is being claimed that they are usually held in London.

And one RBS source even harked back to the days of former chief executive Sir Fred Goodwin. "Sir Fred always made sure that board meetings were held in Edinburgh and senior executive spent at least two days a week in Edinburgh," the source said. "That's not the case any more and the trend is the other way."

Mr Peat, who also worked for HM Treasury and the Scottish Office and is now director of economic think tank the David Hume Institute, warned the committee that the result of losing headquarter functions was bad news for the legal, finance, architecture and accountancy sectors.

"It doesn't matter where you choose to live to some extent but what does matter is whether as a result of having a head office here you have a demand for high-quality lawyers, high-quality accountants, architects," Mr Peat said.

"You therefore need top-grade financial services and other business services in Scotland, which starts with meeting demands of RBS and HBOS."

Richard Keen, Dean of the Faculty of Advocates, has already highlighted concerns about the impact on work for lawyers.

"RBS and Lloyds have clearly moved operations to London from Edinburgh," he said. "Inevitably some of the advisory work that was done in Scotland will now shift to London."

The takeover of HBOS by Lloyds – forced through by the UK government, which suspended competition rules to allow the merger – has been fingered as the key event in Edinburgh's demise.

Mr Scott, who led political opposition to the merger, said: "Fewer banks, power sucked to London, competition damaged and a shocking deal for the taxpayer – that's Labour's legacy for Edinburgh."

Edinburgh architect Malcolm Fraser, one of the leading figures in the Merger Action Group, which attempted to challenge the HBOS takeover, said the loss of Edinburgh's status was "an inevitable consequence" of the events of late last year.

"We are seeing a drop of work as a result of what happened," he said. "One area, for example, is the way Lloyds is cutting back on the charitable fund. We had many clients who benefited from that and don't now."

But he said the Scottish Government should now look to the future to find ways of restoring Edinburgh's standing.

He suggested an idea first mooted in The Scotsman of trying to bring the Financial Stability Forum, a international body, from Basle to Edinburgh.

"There is no doubt that Scotland's reputation for financial probity was badly damaged and the Scottish Government should be looking at ideas like this to help restore Edinburgh's standing in the financial world," he said.

Mr Peat's comments have also sparked further questions over whether the Scottish Government is doing enough to protect Scotland's financial sector.

Last week, Scottish Labour leader Iain Gray attacked First Minister Alex Salmond for not taking his role on the Finance Scotland Advisory Board seriously, failing to turn up to a meeting in June and putting off two more so he could attend parties.

But a Scottish Government spokesman said that while the banking sector was experiencing a period of change, the government remained "totally committed" to ensuring as many headquarters functions and jobs remained in Scotland.

He added: "We have also seen the emergence of new players, like Tesco Bank, keen to do business and create welcome new jobs in Scotland. We will continue to support Scotland's financial services industry in adapting to change."

There has been optimism too from Edinburgh City Council's director of economic development, David Anderson. He recently told The Scotsman: "We all felt last year the city was facing an Armageddon moment. But a lot of the people in the financial sector who have left their jobs or been made redundant have been taken on by new companies coming in or expanding, such as Tesco, Virgin and new fund management operations."

RBS declined to comment, but pointed out recent evidence from chief executive Stephen Hester to the same committee, which stated that the bank would continue to be headquartered in Scotland.