Sandy Begbie: tighter proposition (pic: DB Media Services)
The CEO of Scottish Financial Enterprise wants some radical thinking about tax, university tuition and building Team Scotland, says TERRY MURDEN
It’s 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’s hoping that the new intake, fresh from promising voters the earth, will grasp the need to do things differently.
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’t name any particular individual or party, but he’s 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.
“We have, predominantly, a social justice parliament,” he says. “I’m not saying those issues are not important, but we don’t balance it with time spent debating the economy, attracting investment and jobs.”
The fiscal situation – a £5 billion hole in the public finances by the end of the decade – has been barely mentioned, but cuts lie ahead for the new government.
“To be fair, most parties have said things are going to have to change,” says Begbie. “Whoever wins the election wil face some big challenges around tax and spending.
“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.
“There 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’t work, we don’t bring in enough investment, we don’t create enough jobs and we have a level of poverty that is unacceptable.
“All those things will have to be addressed. To what extent there will be radical change I don’t know, but I just don’t think we can have another five years of what we have just had.”
Begbie, 60, is an old hand in finding solutions to transformation conundrums. He’s been a HR director at ScottishPower and Aegon and spent nearly nine years in ‘people’ roles at Standard Life before taking up his current position in 2020. He thinks the answer to Scotland’s financial squeeze lies in more imaginative use of the levers it has got. Not least on income tax.
He mentions the ‘Beckham tax break’, highlighted in a report by former Skyscanner executive Shane Corstorphine last year.
It urged Scotland to emulate Spain’s 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.
Non-residents pay just 24% rate on their Spanish income on Spanish-sourced income up to €600,000 for up to six years compared with a Spanish income tax rate of up to 47%.
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.
Begbie wants a Beckham tax break for Scotland
Begbie says Scottish government ministers were approached about setting up a similar scheme. So what was the response?
“Not interested,” he retorts.
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.
“We need to recognise that the differential in tax is a barrier to attracting senior people and young professionals.
“The 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 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.
“A law firm, who I won’t 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.”
Likewise, he says the rates system needs a radical overhaul, with eye-watering revaluations forcing some business owners to consider shutting down.
“You 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 can pay their people more.
“We have this mindset that higher tax and regulation is the only solution to every problem. We don’t think creatively.”
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.
“Scotland only has a handful of businesses that could move the dial on economic growth in the next four or five years,” he says.
“That’s not to say we don’t 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.
“When we looked at economies similar to Scotland that performed particularly well the consistent support of governments gives confidence to investors to invest.
“Ireland has been held up as a good example. Regardless of a change of administration financial services businesses have known there is cross-party support.
“So alignment around policy would be helpful. You need that consistency with the whole system aligned behind them.
“Luxembourg 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.
“In Scotland financial services has not been a focal point. We have had a much different level of engagement.”
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.
“We’ve 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.
“JP 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.”
JP Morgan has grown substantially in Scotland
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.
“We 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 “strategic regional hubs” where operations are consolidated in a number of sites and this is how tier two centres are evolving.
“A tier 2 centre needs to think about the one or two things it can genuinely compete with globally. 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.
“We 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’t create 8,000 jobs, they moved them.
“There 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.”
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.
“It 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.”
It is why SFE has been vocal about the current funding arrangement around the universities, arguing that it is not sustainable and leads to “the perverse consequence of pushing some of our best talent out of Scotland.”
The cap on domestic places means Scottish students who cannot get on a course will go elsewhere and the Scottish government’s own analysis shows that two-thirds of those who go south don’t come back.
“Because 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.”
The need to keep hold of talent and attract investment was the focus of the Global Investment Summit in Edinburgh earlier this year.
It attracted £150m of investment and SFE is planning something similar next January focused on scale ups.
Begbie says that one startling issue that emerged was how a number of investors said they did know about certain things happening in Scotland.
“We are bad at selling ourselves,” he says, and laments that investors don’t come to Scotland any more.
“They use to have offices in Edinburgh but no longer. They stay in London and our people stay in Scotland.
“That comes back to the sector and ministers being on message, selling our story. We must have a tighter proposition.”
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