<\/p>\n
Sandy Begbie: tighter proposition (pic: DB Media Services)<\/p>\n
The CEO of Scottish Financial Enterprise wants some radical thinking about tax, university tuition and building Team Scotland, says TERRY MURDEN<\/p>\n
It\u2019s the day before the country goes to the polls and Sandy Begbie is nervously wondering if the change of government will mean a change of approach towards the economy. There is a lot at stake and he\u2019s hoping that the new intake, fresh from promising voters the earth, will grasp the need to do things differently. <\/p>\n
As chief executive of Scottish Financial Enterprise he heads an organisation that needs to play the political game on behalf of a hugely important sector. He doesn\u2019t name any particular individual or party, but he\u2019s concerned that those filling the Holyrood benches will continue in their blind pursuit of a socially-driven agenda, focused on more public services the country cannot afford, while sidelining important economic matters. <\/p>\n
\u201cWe have, predominantly, a social justice parliament,\u201d he says. \u201cI\u2019m not saying those issues are not important, but we don\u2019t balance it with time spent debating the economy, attracting investment and jobs.\u201d<\/p>\n
He is, however, prepared to give the new administration the benefit of the doubt. At least for a short while.<\/p>\n
\u201cTo be fair, most parties have said things are going to have to change. Most have talked about public sector reform, most are talking about economic growth. Even the SNP has said we have reached a point on tax where there is not much point in going any further.<\/p>\n
\u201cThere is an acceptance, maybe partly because Reform has shaken up the narrative, that Scotland cannot continue on the track it has been on. Business rates don\u2019t work, we don\u2019t bring in enough investment, we don\u2019t create enough jobs and we have a level of poverty that is unacceptable.<\/p>\n
\u201cAll those things will have to be addressed. To what extent there will be radical change I don\u2019t know but just don\u2019t think we can have another five years of what we have just had.\u201d<\/p>\n
Begbie, 60, is an old hand in finding solutions to transformation conundrums. He\u2019s been a HR director at ScottishPower and Aegon and spent nearly nine years in \u2018people\u2019 roles at Standard Life before taking up his current position in 2020. He thinks the answer to Scotland\u2019s financial squeeze lies in more imaginative use of the levers its has got. Not least on income tax.<\/p>\n
He mentions the \u2018Beckham tax break\u2019, highlighted in a report by former Skyscanner executive Shane Corstorphine last year.<\/p>\n
It urged Scotland to emulate Spain\u2019s success in offering new non-residents a period of lower income tax. It was used to to attract former Manchester United and England international David Beckham to Real Madrid in 2003.<\/p>\n
Non-residents pay just 24% rate on their Spanish income on Spanish-sourced income up to \u20ac600,000 for up to six years compared with a Spanish income tax rate of up to 47%.<\/p>\n
When the Special Expatriate Tax Regime was formally passed in 2005 it became known as the Beckham tax break and it encouraged many entrepreneurs to move to the country, some creating substantial businesses.<\/p>\n
Begbie wants a Beckham tax break for Scotland<\/p>\n
Begbie says Scottish government ministers were approached about setting up a similar scheme. So what was the response?<\/p>\n
\u201cNot interested,\u201d he retorts.<\/p>\n
Begbie worries that the high tax regime will be here to stay, and that ministers will continue to turn a blind eye to the damage being done to the economy.<\/p>\n
\u201cWe need to recognise that the differential in tax is a barrier to attracting senior people and young professionals. <\/p>\n
\u201cThe government says there is no evidence of people leaving [because of higher tax] but the data may be 12 to 18 months out of date. We also know from our research that trying to attract people here is a big challenge. They may not be leaving in big numbers but there is certainly a big challenge attracting them.<\/p>\n
\u201cA law firm, who I won\u2019t name, has two or three partners who work three days a week in Scotland but continue to live down south. Historically, they would have moved here but now they are staying where they are.\u201d<\/p>\n
Likewise, he says the rates system needs a radical overhaul.<\/p>\n
\u201cYou only have to look at Ayr high street where 40% of the shop units are are empty. In places like Melbourne and Hong Kong there are no empty shops and the streets are bursting with people. Why? Because business rates are a fraction of what they are here and retailers an pay their people more.<\/p>\n
\u201cWe have this mindset that tax and regulation is the only solution to every problem. We don\u2019t think creatively.\u201d<\/p>\n
On a broader level, he wants a cross-party consensus on the key industries, with MSPs from all parties working with other stakeholders, the universities and the funding bodies to represent Team Scotland when investors and footloose companies are looking for somewhere to put their money.<\/p>\n
\u201cScotland only has a handful of businesses that could move the dial on economic growth in the next four or five years,\u201d he says.<\/p>\n
\u201cThat\u2019s not to say we don\u2019t need to invest in new businesses, but the Scottish economy is quite narrow in terms of size and the financial services, energy, life sciences are the industries that have scale and you could say that we have at least a foothold globally that would make investors interested.<\/p>\n
\u201cWhen we looked at economies similar to Scotland that performed particularly well the consistent support of governments gives confidence to investors to invest.<\/p>\n
\u201cIreland has been held up as a good example. Regardless of a change of administration financial services businesses have known there is cross-party support. <\/p>\n
\u201cSo alignment around policy would be helpful. You need that consistency with the whole system aligned behind them.<\/p>\n
\u201cLuxembourg is another good example for financial services, you can get government, regulators, industry, education all in a room to speak to investors with one message and one voice and that tone from the top is hugely important.<\/p>\n
\u201cIn Scotland financial services has not been a focal point. We have had a much different level of engagement.\u201d<\/p>\n
He says the financial services industry is changing because of technology and global pressures and, with the big banks and other significant players diminished by acquisition, it has altered the role that Edinburgh and Glasgow are now performing.<\/p>\n
\u201cWe\u2019ve seen a drift of senior jobs out of Scotland. However, what you are seeing is the US banks and the big UK banks expanding their footprint in Scotland quite significantly. <\/p>\n
\u201cJP Morgan 20 years ago had five people in Scotland and now has 4,500. Blackrock has gone from 900 to 1,400 in Edinburgh, Morgan Stanley has 2,700 in Glasgow and Barclays has grown from a handful of branches to having over 8,000 people.\u201d<\/p>\n
JP Morgan has grown substantially in Scotland<\/p>\n
He explains that as organisations have got bigger they now have people doing global roles from Scotland. This is part of a change in how tier one and tier two financial centres think about themselves. <\/p>\n
\u201cWe are no longer competing with tier one centres like Paris, with their trading floors and currency clearing. The way the industry has shaken out we are competing with Boston, Melbourne, Montreal. We have become one of the \u201cstrategic regional hubs\u201d where operations are consolidated in a number of sties and this is how tier two centres are evolving.<\/p>\n
\u201cA tier 2 centre needs to think about the one or two things it can genuinely compete globally with. We identified asset management and fintech. You have to think about where you can carve out a niche. We have grown fintech from 30 companies in 2018 to 300.<\/p>\n
\u201cWe need to complement what London does. It needs successful tier 2 centres and we are also seeing jobs in tier 1 migrating to tier 2 because of the cost. Barclays didn\u2019t create 8,000 jobs, they moved them.<\/p>\n
\u201cThere are US banks which have a policy of when a job comes up in London they look to see if it can be done in Edinburgh or Glasgow because the pay is lower, people stay for longer and commercial property is cheaper.\u201d<\/p>\n
He says Manchester, Birmingham and others are also fighting for those jobs but their economies are more diverse and they do not have the depth of the ecosystem that exists in Scotland.<\/p>\n
\u201cIt is difficult to replicate what we have got because of our history and a strong mature ecosystem such as professional services firms, universities which are on our doorstep. These big firms will say the number one reason they are here is because we have the talent.\u201d<\/p>\n
It is why SFE has been vocal about the current funding arrangement around the universities, arguing that it is not sustainable and leads to \u201cthe perverse consequence of pushing some of our best talent out of Scotland.\u201d<\/p>\n
The cap on domestic places means Scottish students who cannot get on a course will go elsewhere and the Scottish government\u2019s own analysis shows that two-thirds of those who go south don\u2019t come back.<\/p>\n
\u201cBecause tuition is free, it means Scotland is the only country in Europe, as far as I am aware, where parents cannot pay for their child to go to university in their own country.\u201d<\/p>\n
The need to keep hold of talent and attract investment was the focus of the Global Investment Summit in Edinburgh earlier this year.<\/p>\n
It attracted \u00a3150m of investment and SFE is planning something similar next January focused on scale ups.<\/p>\n
Begbie says that one startling issue that emerged was how a number of investors said they did know about certain things happening in Scotland. <\/p>\n
\u201cWe are bad at selling ourselves,\u201d he says, and laments that investors don\u2019t come to Scotland any more. <\/p>\n
\u201cThey use to have offices in Edinburgh but no longer. They stay in London and our people stay in Scotland.<\/p>\n
\u201cThat comes back to the sector and ministers being on message, selling our story. We must have a tighter proposition.\u201d<\/p>\n
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