Still on course after storm

IN THE final part of our series about how the Scottish economy can be grown to help the country find its place again in the global marketplace, Eddie Barnes talks to Philip Grant of Lloyds Banking Group, who believes that Scotland has proved more resilient than most expected as it faces life in the post-crash era

NOT a great time to go round telling people you are a banker. Blamed for causing the economic crisis, taking too many risks, creating “casino capitalism” and now, denying people access to loans when they need it, bankers have certainly made journalists and politicians suddenly feel very good about the honour of their own professions. “I’m very clear we have a big job to do,” says Philip Grant, the top man at Lloyds Banking Group in Scotland, asked about the low public esteem into which his trade is held. “It is a very real issue. It won’t be press releases and advertisements [that turn it around), it will be the day-to-day experience of customers.”

The 46-year-old Scot has been in chair of the banking group’s Scottish Executive Committee for just over a year now, having taken over from his predecessor Archie Kane. He is a career banker, having started work at a branch office of the Bank of Scotland at the age of 17 and then worked his way up, completing an MBA at Strathclyde University. The experience of the 20,000 “colleagues” at Lloyds in Scotland who work for the part nationalised bank is very different to the image of City slickers, he says.

“They are ordinary colleagues doing ordinary things,” he says. As for denying business money, he insists that it would be “naive” for banks like his not to back firms which require cash – only that way will banks themselves prosper as well.

But his subject today is not the controversies over the banking sector, but the state of Scotland as it emerges cautiously from the economic storm which continues to threaten the skies. As one of the country’s top bank managers, it is Mr Grant’s job to assess the prevailing conditions. Is it still the case we should be heading out with umbrellas and storm-proofed cagoules? Or, whisper it, are the green shoots emerging? “I think we are probably right to keep an eye on the macro challenges that face all Western economies. As you go around globally, no part of the global economy doesn’t face some sort of challenge,” he begins. But perhaps it is time to leave the brolly at home. He notes that what the recessionary storm has done is to at show us what can withstand a battering and what can’t. In Scotland, he notes, there’s plenty that has survived. That in itself instils confidence. “It is useful to be positive about some of the indicators around how resilient the Scottish economy has been over the last 12 to 14 months against all these headwinds.” Lloyds’ own research has shown signs of strength. “We have been showing 14 consecutive months of, OK, very modest growth but it has remained growth and that has been backed up by very modest GDP figures. That’s against the toughest of times. I think the UK and particularly the Scottish economy is showing a bit of resilience and particularly in areas that really matter – like job creation. Some of the data we have found would show that they are rising steadily against big headwinds.”

He says that given the shock of 2008, and the near collapse of the economic system, things look better now than we might have expected. “If you look at [unemployment] claimant count over the last year, the surprising thing is, I think, if we had stood here 18 months ago and thought about the impact of the 2008 financial crisis and subsequent detachment in markets and economics that there have been, I think we would have forecast a much more significant impact on employment in Scotland.” That’s not to downplay the crisis for those out of a job. But he says: “I think one of the signs of how surprisingly resilient the economy has been is the fact that it has been more stable, particularly over the last 6-8 months than it might have been the case.”

Financial services he notes “ironically” have been one of those sectors where resilience has come through. From an “overdependency on the main banks”, Scotland’s huge financial services sector has adapted into other areas, such as asset management. He credits both Scottish Financial Enterprise and Scottish Enterprise for support. Given the cheque the sector sends to the Treasury, people should be careful about wishing high finance ill, he adds. “Given the challenges that we have in the economy in sustaining our social model, in investing in the UK, in improving our competitiveness, and improving our infrastructure I think we should think long and hard before we walk away from a sector which is so important and which supports the economy. That’s not a banker’s view. That is a stand-back-and-look-at-it view.”

But the challenge, as everyone knows, is finding more growth and more wealth for a country which, with an ageing population and high welfare expectations, needs ever increasing cash to sustain itself. Here, Mr Grant is far from Panglossian about the country’s position as it emerges into this new post-crash era. “If you want to talk about the future, go on to Google and look at the Chinese students doing engineering, or electrics and increasingly life sciences. We need to develop intellectual capital in our country. We are never going to be a low-cost economy.” There must, he says, be an emphasis on supporting “skills” and “thinking”.

“It is a race for intellectual capital and if we don’t focus, it could race away from us. The world economy is a cruel place. There’s little time for sentiment, and it is all in real time.

“I think one thing that the shocks of the last few years have done, it has made people press the re-set button a little bit.”

“Nobody owes us a living,” he notes. “In this world, you need to be making things or serving other parts of the global economy. Empires have come and gone over time. We know that all too well in the UK.”

The recession has woken people up a bit, he believes. “We have had the smelling salts under our noses. The man in the street is now a little bit more thoughtful that this might not go on for ever. There is a realisation of the sheer cost of the social model in the UK.” Is that luxurious safety net which people in Britain expect sustainable? Yes, he replies, but only if there is the economic growth there to keep it that way – and if it reforms. “You need to earn it. People are very proud of the social model we have in the UK. You can always find ways of making it more effective.” He thinks the idea launched by the UK Government last month to show taxpayers exactly where their tax pounds went, and on what it was spent, will be very interesting indeed. “I think that will be quite an eye opener to people,” he notes.

As for the forthcoming independence debate, Mr Grant has an interesting take on it. First, he thinks, it is helping to focus peoples’ minds on the economic fundamentals in Scotland. That’s positive he says. And he also believes it is doing no harm to the country’s international profile. “There are parts of the world where people are getting interested in Scotland again and there is maybe some advantage in that”.

That international reputation, he believes is still strong; the 19th century “Presbyterian values” of innovation and industry are still recognised, he believes.

So, time to whisper the green shoots phrase? “We have definitely been passing through a period of consolidation for our customers.” Lloyds customers, if they have the cash, have preferred to hold onto it, than invest. “Hunkering down for a few years has been a good thing – all the resilience we talked about has been the beneficiary of that.”

There are signs that is changing. “We are having more positive conversations with customers about investment opportunities. There is a risk that over time that, if the investment cycle doesn’t recommence in a healthy basis in the economy, then we will miss the opportunity to remain competitive.” The growth sectors in the Scottish economy – like renewables – could be ripe for picking, he believes. He’d like to see the country taking advantage of its core strengths.

“There are glass ceilings for growth in Scotland. There are examples in the past where we’ve had emerging strong sectors which have never quite burgeoned into large scale employers. There are some key people who are now trying to push that.”

Maybe in the past, Scottish firms allowed others to take the big risks on growth. “If we are really going to sustain growth over a 10-20 year period for some of these new sectors we need to find a supportive framework between public sector but also between equity funders and banks to help provide a long term approach to these to break these little glass ceilings they come across.”

The message is positive, but realistic. Isn’t that what banking was supposed to be about?

• Philip Grant is chair of the Scottish executive committee of Lloyds Banking Group