FiSAB Meeting – 22 November 2011
St Andrew’s House, Edinburgh
John Swinney, Cabinet Secretary for Finance & Sustainable Growth (Chair)
Fergus Ewing, Minister for Energy, Enterprise and Tourism
Mark Tennant - JP Morgan and SFE Chair (Industry Deputy Chair)
David Fleming - Unite the Union
Lena Wilson - Scottish Enterprise
Ian Ferguson – Aviva
Magnus Swanson – Maclay, Murray Spens LLP
John Rendall – HSBC
Benny Higgins – Tesco Bank
Andrew McLaughlin – RBS
Philip Grant – Lloyds Banking Group
Mark Little – Barclays Wealth
Sir George Mathewson
Ian Macmillan – JP Morgan
Angus Macpherson – Espirito Santo
Barry Muir – State Street
David Nish – Standard Life
Gary Roberts - HM Treasury (observer)
John Mason - Scottish Government
Aileen McKechnie - Scottish Government
Jim Watson – Finance Sector Jobs Taskforce
Andrew Muir – FarrPoint
Susan Rice – Lloyds Banking Group
Suzanne Henderson (Secretary)
Rt Hon Alex Salmond, First Minister of Scotland
Martin Gilbert – Aberdeen Asset Management
Prof. Seamus McDaid – Universities Scotland
- Welcome and introductions
- The Cabinet Secretary welcomed everyone to the meeting, extending a particular welcome to the new members to FiSAB. He passed on apologies for the First Minister and explained that he would be chairing the meeting in the First Minister’s absence.
- Chair’s Remarks
- The Cabinet Secretary noted the publication of the Programme for Government, the Government Economic Strategy and the Spending Review as significant developments since the previous meeting. These documents are shaping the Scottish Government’s priorities against a background of challenging economic circumstances. The Cabinet Secretary reiterated the Scottish Government’s ongoing focus on the economy, with employment growth and the exploitation of business opportunities at the centre of an adaptable approach to take account of changing economic circumstances. The Government Economic Strategy has continued its focus on key sectors, although concern about the wider economic environment is driving a particular pursuit of investment in employment and business growth.
- The Cabinet Secretary also highlighted the publication of the Independent Commission on Banking’s final report and invited views from members on its implications. He noted that the Scottish Government had broadly welcomed the report but that the continuing success of the banking sector depended to a large degree on how and when the recommendations are implemented. The Cabinet Secretary also noted the Financial Transaction Tax proposals as a significant issue for the financial services industry and invited views from members. Finally, the Cabinet Secretary noted the need for effective co-ordination with the industry as the consideration of constitutional reform progresses.
- Mark Tennant, as industry Deputy Chair, offered his congratulations to ministers on their election victory. On the Independent Commission on Banking report he noted that it had been received quite positively by the banking sector and that it would make resolution easier for domestic banks. Solvency II is causing considerable concern and will pose significant challenges in how pensions will develop. DN responded that links with Europe were vital, particularly on Solvency II. We need to be proactively engaged in influencing these issues.
- PG noted that indicators were showing a dampened effect on SME lending and that the focus should be not on capital requirements but on the long term effects of the dislocation of funding markets. He commented that the stabilisation of the euro will be critical for the UK banks in terms of supporting businesses. LW reported that among Scottish Enterprise’s account managed businesses, 30% of SMEs had tried to access finance and 60% of those had secured it. Scottish Enterprise is trying to better understand why 40% failed to secure funding and why there has been a decline in companies seeking funding. JR suggested that the decline in the numbers of businesses seeking funding is largely driven by uncertainty. The Cabinet Secretary reported that the SG is focused on delivering economic opportunities to boost economic activity. Ministers also wish to support any measures to improve the relationship between banks and the business community. PG commented that there was scope to be more proactive in the bank’s interaction with the Scottish Enterprise account managed companies and to integrate better with partners in engaging with and sustaining SMEs.
- IF raised the issue of risk management and the need to better understand where the risk management culture lies within the industry. GR reiterated the need to engage with European policy makers and to communicate with end users in the industry. The Cabinet Secretary suggested that some of that end user communication could be marshalled through FiSAB. He noted the need for reasoned and considered debate on these issues so that space for discussion is created and cited the Hutton report as a good example of that in practice.
- Matters arising
- At its previous meeting in February, FiSAB had agreed that there was a lack of cohesion in the provision of microfinance and a need to bring clarity to a complex landscape. MS outlined a research proposal for mapping microfinance in Scotland, which would provide useful information on the nature and the sources of microfinance in Scotland. The research would be carried out by Glasgow Caledonian University and would assess the range and accessibility of microfinance as well as any gaps or overlaps in provision. The research would aim to develop policy proposals for the development of microfinance. MS noted that there seems to be less of a lack of money for microfinance than disparity in what is available and suggested that the mapping exercise could enable efficiencies. He asked FiSAB to consider lending its name to the exercise. MT reported that Prof. Muhammad Yunus would be hosting a breakfast meeting with funders to establish a microfinance initiative in Scotland. It is proposed that there should be a pilot project in Glasgow that might then be rolled out across Scotland.
- AMcL commented that there was a need to follow a process in taking forward this work, noting that the Hunter Centre for Entrepreneurship at Strathclyde University had done some good work on microfinance. He further commented that in terms of the nature of microfinance, a mixture of debt and grant were shown to work well and that something which replicated the Prince’s Scottish Youth Business Trust (PSYBT) would be beneficial. LW noted that wraparound support was vital and as important as financial support. MT clarified that the microfinance initiative to which he had referred had been shown to work well in western as well as developing economies. He agreed that wraparound support was critical, as was community support, and confirmed that the approach was based entirely on debt rather than grant support. The Cabinet Secretary concluded that there was general endorsement among members of the direction of travel but that there was a need to consider next steps further.
Action: MS with AMcL to consider and take forward process and next steps for mapping exercise.
Sector opportunities funding summit
- FiSAB had asked Scottish Enterprise to develop workshop sessions for key sectors, involving banks, insurers, local and central government and business representatives. LW provided an outline of what has now been titled the sector opportunities funding summit. The purpose of the summit is to ensure that Scottish key sector businesses are better able to access financial products; that financial providers are aware of current and future market opportunities and the public and private sectors are aligned to support that process. The event will comprise a plenary session at which the Minister for Energy, Enterprise and Tourism will speak, followed by 7 workshops covering the key sectors (enabling technologies, creative industries, life sciences, tourism, food and drink, renewables and oil and gas). Each facilitated workshop will have around 15 participants including businesses, industry representatives, financial providers and relevant public sector bodies. LW confirmed that Scottish Enterprise is leading the event but that it was being taken forward in partnership with Highlands & Islands Enterprise, Scottish Government and local government. LW noted that this was the beginning of a process that would aid understanding of demand and supply needs associated with investment opportunities. The Cabinet Secretary welcomed the summit and its approach.
- Review of Scotland’s ICT infrastructure
- Andrew Muir of FarrPoint consultants presented the final report of the review of Scotland’s ICT infrastructure. The report was commissioned by Scottish Enterprise and Scottish Financial Enterprise following concerns raised by FiSAB members on the cost and quality of ICT services and the impact that may be having on the growth of Scotland’s financial services industry. The review benchmarked Scottish cities against a number of other European cities in terms of telecommunications and infrastructure, both currently and in the future, and looked at options for improvement. The findings of the review indicate that Scottish cities compared favourably with regard to the range of services available. On costs, Scotland also compared well with other UK cities and second tier European cities, although less well with London and other tier 1 European cities due to the large number of suppliers in these locations.
- The review raised two main challenges: competition in the Scottish market and the potential for a third cable route from Scotland. There are currently 2 main routes from Scotland down the east and west coasts. This is potentially problematic should there be a failure of one route and AM highlighted one example where a bank chose to locate a data centre outside Scotland because of the risks associated with that. The review looked at 4 options for a third route and found that the costs associated with most of these were high. However, the report found that an existing cable through the North Sea could provide a low cost connection to London and Europe.
- In summary, AM concluded that there are no significant differences in ICT services and costs among Scottish cities and no barriers to investment in Scotland. Improvements should be made, however to the marketing and promotion of Scotland’s ICT capabilities. Further consideration also needs to be given to the development of next generation broadband and high speed mobile capability. Scottish Enterprise has commissioned further mapping work to help enhance its promotion efforts.
- LW responded by confirming that the third route from Scotland through the existing cable is commercially available and is an almost no cost option. The Cabinet Secretary noted that the findings of the report provided us with a strong competitive position but only if those could be disseminated more widely. LW confirmed that the report could be shared and suggested that Scottish Enterprise produce a more readily usable summary.
Action: LW to provide a summarised version of the FarrPoint report for wider dissemination.
- Low Carbon Economy
- LW opened the discussion by stating that as well as the climate change rationale, there are clear economic and investment opportunities associated with the low carbon economy. The recent Spending Review also provides a clear commitment to a low carbon economy. Leadership and collaboration is key to delivering the objectives around low carbon and, at their recent meeting, Industry Advisory Group Chairs, including MT, considered issues around the transition to a low carbon economy in their respective sectors. LW acknowledged that financial services is not seen as a particularly high carbon industry but nevertheless it does have a clear role to play, particularly in the provision of finance for low carbon opportunities. Scotland’s ambitious targets will allow us to exploit considerable opportunities globally. LW explained that renewables accounts for around a third of low carbon opportunities and there is a strong pipeline of projects, especially in inward investment but there are also significant opportunities in other sectors. LW provided examples in construction, waste and water. The scale of these opportunities is in terms of billions of pounds and many of these companies will be customers of FiSAB members’ organisations.
- Susan Rice continued by outlining the 2020 Climate Group, which operates a numbers of sub-groups, including the finance sub-group, which SR chairs and that comprises industry, academic and government representatives. It focuses on infrastructure matters. Another group looks at supply chain and investment issues. SR explained that finance providers are becoming increasingly interested in renewables technologies. However, different funders have different approaches to risk and SR emphasised the importance of potential funders understanding the risk profile of projects and taking into consideration their own appetite for risk. SR also raised the Basel III and Solvency II regulations and indicated that the requirements these imposed would have implications for funding decisions. She noted the importance of public sector support for these opportunities and cited the efforts to secure the Green Investment Bank headquarters in Edinburgh. SR indicated that it would be helpful to know what other finance providers, aside from the banks, were participating in these types of investments and how low carbon economy investment opportunities could be pushed up the priority list within organisations when it comes to internal competition among propositions for funding.
- JR asked if the sector opportunities funding summit would take account of these issues. LW confirmed that there would be plenty of scope at the summit to consider them. IF suggested that consideration could be given to what more could be done to secure asset and liability protection. MT noted the opportunities in biodigestion projects on farms where presently there are very few providers in Scotland but potentially considerable green benefits. The Minister reported that the Scottish Government has done a lot of work on the low carbon economy and that he saw government’s main role as securing public support and removing barriers to investment. As part of that, Scottish Government is actively engaging with European and UK Government counterparts. The Minister noted that activity in renewables, carbon capture and storage, energy efficiency and demand reduction is crucial if Scotland is to meet its targets. Long term capital investment is needed to support this activity.
- ML asked if FiSAB members might be able to assist in the bid to secure the Green Investment Bank (GIB) in Scotland. SR noted the importance of having a single, co-ordinated voice and agreed that FiSAB support would be valuable. LW suggested that endorsement from FiSAB in discussion with officials on the GIB would be beneficial. AMacp reported that the GIB process has been enhanced and extended and that funding is needed to formulate a proper bid. He noted that formal bids from the other potential locations were being managed professionally through consultants and he suggested that FiSAB members’ organisations may wish to consider contributing to developing a more robust proposition for Edinburgh. He expressed concern that GIB staff were starting to be recruited in London and that an elongated timescale presented a concern as that recruitment continues. GR noted that these initiatives presented an opportunity to kill the myth that a low carbon agenda would stifle opportunity and growth and to highlight the support that such activity commanded.
- The Cabinet Secretary concluded the discussion by noting the helpful contribution that the 2020 Climate Group made to reinforcing the Scottish Government commitment with industry backing. The opportunity is huge and he noted the First Minister’s commitment to the low carbon economy but how the elements are marshalled together, including funding mechanisms, requires careful consideration. The Cabinet Secretary noted the potential impact of Basel III and Solvency II on this kind of activity and noted this as a very practical example of the effects of these policies. He asked AMacp to take a critical look at the Scottish GIB proposition and to challenge it where necessary. Finally, the Cabinet Secretary reported that the UK Government had accepted the proposal to make half of the £206m surplus available to the Scottish Government and that half of the £103m would be put into the GIB, providing another strong reason to support the GIB being located in Edinburgh.
Action: Angus Macpherson to examine the Scottish proposition for the Green Investment Bank and to provide critical comment on that with a view to potential endorsement from FiSAB.
- Banking strategy and the refresh of the Financial Services Strategy
- The Cabinet Secretary outlined the purpose of the banking strategy as being to support the reconnection of the banks to the Scottish people, to enable the Scottish Government to help improve relationships with personal and business customers and to continue the commentary on securing access to finance. The roundtable discussion with the banks on 17 October, which was very positive, was focused on the latter and formed part of the strategy. The Cabinet Secretary also expressed the view that the time was right to consider updating the current Financial Services Strategy and he suggested the formation of smaller sub-groups of FiSAB to work with officials on both strategies. Members agreed.
Action: Secretariat to work with sub-groups of FiSAB to look at the development of banking strategy and a refresh of the Financial Services Strategy.
- Financial Services Skills Gateway
- Ian Macmillan provided an update on the work of the Skills Gateway on behalf of David Thorburn, Chair of the Employers Council. Work has focused on 4 priorities: the Gateway web; collaboration with education; employability and future demand. The Minister for Skills and Learning launched the Gateway website, re:think, in October, which attracted positive media attention. The website is a key source of information for financial services careers and the marketing plan, developed with Skills Development Scotland, is progressing well (there have already been more than 4000 visits to re:think).
- In terms of collaboration with education, this work is focused on promoting careers opportunities across the financial services industry and challenging negative perceptions about financial services jobs. The employability strand is working on a number of areas of concern highlighted by financial services employers: poor attitudes and behaviours; mismatched expectations between recruits and employers; improved interview techniques and attendance; written and oral communication skills; numeracy skills. Approaches have been made to schools, further and higher education institutions since research has indicated that there is little emphasis on a structured approach to addressing these issues in education and that many attitudes and behaviours become entrenched at an early age. IM indicated that there may be a need for some political support and for some influential champions within sectors to front some practical work in this area. In the meantime, the Employers Council is meeting in February with university Vice-Principals, a similar meeting will be held with colleges and work is currently being taken forward with schools on Curriculum 4.
- On future demand, IM reported that the survey of demand being undertaken indicated that there remained a need for certain specialist and technical roles but that addressing the requirement for soft skills is also very important. IM concluded the update by encouraging members to visit the Gateway website and to put their weight behind the efforts to address employability.
- BM reported that in his experience while there are challenges in Scotland in terms of behaviours and attitudes, these were more severe south of the border. He commented that where companies may wish to move operations, for example from London to Scotland, there was an issue in matching the demand and supply of the required skills. PG observed that many call centre staff have further and higher education qualifications in roles which would normally be considered as administrative. Companies may need to understand better what talent and resource already existed internally when seeking to fill posts in order to develop staff within the organisation. IF highlighted the initiative in Perthshire where Aviva engages with schools to offer professional qualifications in the insurance sector as an alternative to a degree and a direct route to a career in financial services. The Cabinet Secretary agreed that the employability issue is fundamental and noted that there was a need to ensure that the various interventions should be properly joined up. He observed that there was plenty of activity on employability but this was not being reflected in feedback from employers and that he would reinforce the point to his colleagues in education, particularly in relation to colleges and universities and the approach to employability.
- On skills issues, IM said that in order to remain competitive, Scotland would need to stay ahead of the curve rather than relying on its heritage. DN reported that some countries have a more prescriptive approach to matching skills demand and supply. He stated that a minimum level of skills was required. The Cabinet Secretary commented that any such requirement would need to be matched with choice. GR indicated that the situation may not be all bad and that many people are emerging from education that have the required skills but not being offered the necessary talent management. There is scope for more mentoring in schools and more work experience and he questioned whether the private sector was matching the investment being made by government in these areas. DN commented that the level of youth unemployment will require active interventions to engage young people and to help them gain the qualifications that companies require as well as the aspiration to achieve that. The Cabinet Secretary added that it was a Scottish Government commitment that every 16-19 year old will be offered a training or employment opportunity.
- Finance Sector Jobs Taskforce
- Jim Watson, Chair of the Finance Sector Jobs Taskforce, provided an update on the work of the Taskforce but began by outlining its purpose for the benefit of new FiSAB members. The Taskforce was established in 2009 to mitigate financial services job losses. It was designed to co-ordinate the public sector response and to provide a resource that companies could tap into by improving the understanding of what services were on offer. The Taskforce has worked with a variety of companies and can offer a range of services, including job matching, support for careers fairs, CV preparation, job counselling and mock interviews etc. JW reported that the past few months have been quiet in terms of job losses and so the take-up of the Taskforce’s services has reduced, although the partners are still working with a number of companies experiencing job losses. The Cabinet Secretary observed that the situation in financial services seemed to have returned broadly to where it was in 2008/09. He noted that managing redeployment and job matching etc had had a significant impact in terms of mitigating job losses. DF reported that 140,000 financial services jobs had been lost in the UK and that there remained a need to provide these services. He noted that the impact of the Independent Commission on Banking’s recommended reforms had still to be determined and that some of the pronouncements around these without proper consideration of the impact were unhelpful. The Cabinet Secretary agreed and noted that there was danger of the narrative around banking potentially prejudicing the whole financial services industry.
- Current Issues
Early Intervention Forum
- The Minister reported that he had instigated this work to address the situation where some businesses, which were otherwise profitable, had a good order book and a good management team were nevertheless failing. Effort needed to be made, for example, to ensure that HMRC was encouraged to use its ‘Time to Pay’ discretion more frequently. The Minister felt that too little time was devoted to preventing company closures as opposed to starting up or growing businesses. He noted that the key was in acting early enough and that for a number of reasons it was very difficult for companies in distress to seek support before it was too late. The early intervention forum was intended to look at what could be done practically to provide a mechanism for advice and support to viable companies in distress on a confidential basis. JM informed members that a meeting had taken place in the previous week involving a range of relevant bodies. There had been general agreement on the need for prevention before intervention. In order to create a safe environment in which companies are supported to return to health, there will be a network of named individuals who can contact each other on a confidential basis and among whom there is personal trust. Given the important role of HMRC in detecting the early signs of company distress, a Memorandum of Understanding will be developed between HMRC and the Scottish Government to improve interaction between the organisations. The Business Gateway will host a meeting with the banks to improve linkages with small companies which are not Scottish Enterprise account managed.
- ML noted that there hadn’t been many company mergers during the crisis and suggested that perhaps the early intervention forum could help with bringing companies together to minimise company failure and job losses. The Cabinet Secretary commented that this should be part of the discussion. MS agreed that early intervention was crucial. He had recently been involved in advising a company that had been saved and suggested more should be made of such success stories to encourage others to seek early support. PG said that the role of the banks shouldn’t be underestimated in providing solutions. Sharing experiences between banks is helpful as these tend not to be cases that are publicised.
Action – Secretariat to provide FiSAB members with members’ contact details.
- GR noted that there is a lot of European legislation coming through which has the potential to damage growth in the industry. He highlighted the importance for companies to look at the opportunities to engage with Europe at both a political and industry level. GM agreed and noted particularly that the timing of new capital requirements was very unhelpful. In recognition of the potential threat to growth, we must continue to work very closely with EU policy makers to ensure that the implications of any proposed changes, including in relation to Basel III, are fully understood. LW reported that Scotland Europa was available to assist in engagement with Europe.
- The Cabinet Secretary closed the meeting by thanking all the members for their attendance and contributions. He indicated that the next meeting was likely to scheduled for April/May.
Action: Secretariat to include an item on the regulatory and legislative environment on the agenda for the next meeting of FiSAB.