The Strategy for the Financial Services Industry in Scotland

Eighth Annual ReportApril 2012 – March 2013

People Profile Infrastructure

Current members of FiSAB are:Rt Hon Alex Salmond MSP – First Minister of Scotland – FiSAB Chair

John Swinney MSP – Cabinet Secretary for Finance, Employment and Sustainable Growth

Fergus Ewing MSP – Minister for Energy, Enterprise and Tourism

Ewan Brown CBE – Chairman, Scottish Financial Enterprise – FiSAB Industry Deputy Chair

Mary Alexander – Deputy Regional Secretary, Unite the Union

Catherine Burnet – Partner, Financial Services, KPMG

Ian Ferguson – Director of Underwriting, Aviva

Martin Gilbert – Chief Executive, Aberdeen Asset Management PLC

Philip Grant – Chairman, Scottish Executive Committee, Lloyds Banking Group

Benny Higgins – Chief Executive Officer, Tesco Bank

Jim Lindsay – Former Chief Executive, Airdrie Savings Bank

Mark Little – Managing Director, Scotland & Northern Ireland, Barclays Wealth

Prof Seamus McDaid – Universities Scotland

Dr Andrew McLaughlin – Head of Communications and Group Chief Economist, Royal Bank of Scotland

Angus Macpherson – Head of Investment Banking, ES Noble & Company

Sir George Mathewson – Advisor

John Mason – Director of Business, Scottish Government

Barry Muir – Senior Vice President and Chief Operating Officer, State Street

David Nish – Chief Executive, Standard Life

Dr Lena Wilson – Chief Executive, Scottish Enterprise

Observer from HM Treasury

The implementation of the Strategy is co-ordinated by the Financial Services Implementation Group (FiSIG). FiSIG’s membership reflects that of the FiSAB partnership. Current members are: Owen Kelly, Scottish Financial Enterprise; Liz Cairns, Unite the Union; Sam Walker, Aberdeen Asset Management; Ewan McCulloch, Lloyds Banking Group; Peter Gordon, Barclays Wealth; Stephen Boyle, Royal Bank of Scotland; Duncan McFadzean, ES Noble & Company; Roddy Macdonald, Scottish Government; Suzanne Henderson, Scottish Government; Sharon Donnelly, Scottish Government; Julie Stuart, Scottish Government; Karen Payne, Scottish Government; Jeanette Patrizio, State Street; Jeff Newton, Standard Life; Andy McDonald, Scottish Enterprise; and Ian Hanson, Skills Development Scotland.

Scottish Government officials provide secretariat support to both FiSAB and FiSIG. The minutes of FiSAB meetings (available at www.scotland.gov.uk/financialservices) outline the strategic oversight and direction provided by the Board, this report highlights the practical outputs.

Thanks are given to: Paul Hughes, Scottish Enterprise; Paul Neill, Scottish Development International; Douglas McCheyne, Scottish Development International; James Trimble, Scottish Government; Lorraine King, Scottish Government; Robert Heggie, Scottish Government; Peter Irving, Scottish Government; Paul Scobbie, Scottish Government and Lynsey McKean, Scottish Government.

The Financial Services Advisory Board (FiSAB) is the custodian and advocate of the Strategy for the Financial Services Industry in Scotland.

The Financial Services Advisory Board (FiSAB), a collaboration between the financial services industry, trade unions, the Scottish Government (SG), Scottish Enterprise (SE) and Universities Scotland, is the custodian and advocate of the Strategy for the Financial Services Industry in Scotland (the Strategy).

In leading the development of the Strategy in 2003, the Financial Services Strategy Group (FSSG), comprising industry leaders, trade unions, government and the wider public sector, formed a unique and equal partnership to define the environment which would ensure that Scotland remains home to an innovative, competitive and thriving financial services industry. The Strategy, launched in March 2005, was the culmination of this work.

In recognition of the change in economic circumstances since the Strategy was published, a refresh of the Strategy is currently underway. The refresh will build on the existing Strategy and reflect the opportunities and threats currently facing the industry in Scotland.

FiSAB is supported by the Financial Services Implementation Group (FiSIG) which coordinates the implementation of the Strategy. Strategy Annual Reports have been published since 2006 and provide a summary of achievements in delivering Strategy objectives, comparative data on the progress made by the industry in Scotland and an outline of plans for future years. They have also proven to be a successful platform to publicise not only the Strategy, but also Scotland’s position as a leading financial services centre.

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ISBN: 978-1-78256-950-3

The Scottish GovernmentSt Andrew’s HouseEdinburghEH1 3DG

Produced for the Scottish Government by APS Group ScotlandDPPAS18750 (12/13)

Published by the Scottish Government, December 2013

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contents Forewords 4-5 Executive Summary 7 People 8 Current Status 8 Planning Ahead 8 Case Study 9 Profile 10 Current Status 10 Planning Ahead 11 Case Study 11 Infrastructure 12 Current Status 12 Planning Ahead 12 Case Study 13 Sector Trends and Benchmarking 14 Contribution to the Economy 15 Employment 16 Earnings and Occupations 17 Qualifications 18 International and Regional Benchmarking 19 General Business Environment Benchmarking 20

The Strategy for the Financial Services Industry in Scotland Eighth Annual Report

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The financial services industry plays a significant role in Scottish life and Scotland’s economy – employing over 91,000 people and making up more than 9 per cent of the country’s GDP. Like the industry across the globe, some parts of Scotland’s financial services sector have experienced significant difficulties in recent years. However the industry has demonstrated its resilience by capitalising on Scotland’s core strengths of skilled people, a good business infrastructure, a global reputation and making a clear commitment to change.

Scotland’s financial services industry is emerging from the challenges of recent years to a position of strength with a focus on core services, businesses and customers.

The work done by the Financial Services Advisory Board (FiSAB) ensures that the public sector in Scotland continues to work with industry to promote the long-term interests of the sector. Drawing on the knowledge and expertise of its members, the work of FiSAB focuses on developing the profile, people and infrastructure that the sector needs for its future success.

Throughout the year there has been on-going work by FiSAB and the wider Financial Services Implementation Group (FiSIG) to develop a refreshed strategy for the financial services industry in Scotland. That refresh will be published in the coming year and together with the Scottish Government’s Banking Strategy, published in May 2013, these will ensure that work continues to enhance Scotland’s reputation as one of the leading financial centres in the world.

This year will also see the newly established skills sub-group implement the skills investment plan – building on the previous good work of the financial services skills gateway, which brought 11 of Scotland’s biggest financial services companies together with public sector bodies and trade unions to ensure that skills provision matched the needs and priorities of the industry. The gateway employer council was instrumental in identifying the requirement for, and the development of, a specific website to highlight the skills opportunities in the industry in Scotland.

In 2014, the eyes of the world will be on Scotland as we host the year of Homecoming, stage the Commonwealth Games and the Ryder Cup. This is a year to celebrate Scotland at every level. This international attention gives us a further chance to promote the excellence of our key industries and boost inward investment. These are times of opportunity, as well as challenge, for Scotland’s financial services industry – FiSAB’s work has an important part to play in making the most of those opportunities.

Ministerial Foreword – First Minister of Scotland

Rt Hon Alex Salmond MSP, First Minister of Scotland

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I am pleased to have taken over as FiSAB’s Deputy Chair representing the financial services industry. The industry in Scotland continues to be a major part of the economy; as a generator of wealth, a very substantial employer and a competitive player in international markets. The industry across the world has of course had its challenges in recent years and many organisations are still working their way through the changes that are rightly being implemented to ensure that there is a sound and sustainable base for the future.

The challenges should not, however, detract from the fact that the industry continues to perform well and Scotland’s standing as an international financial centre remains strong. Scotland is known throughout the world for its expertise in the traditional areas of financial services; but increasingly is being recognised as a centre for new growth areas such as asset servicing. I am sure that Scotland can continue to capitalise on the expertise and diversity of the industry to make the most of opportunities in the new economic environment.

FiSAB provides the Scottish Government and senior members of the financial services industry with the opportunity to discuss and influence issues which affect the industry in Scotland and the rest of the UK. The referendum on Scottish independence in 2014 has major implications for our industry but FiSAB has not discussed them, focusing only on areas in which collaboration with the Scottish Government and its agencies is realisable and deliverable under existing arrangements.

The common objective of government and industry is to ensure that Scotland continues to be a good place to do business and to grow successful businesses. Since the continued success of the industry depends on having the right people with the right skills, the provision of a well-educated and skilled workforce is always high on FiSAB’s agenda. And, more generally, industry members have the opportunity to get their ideas for the future and their concerns heard by the Scottish Government at the highest level.

Ewan Brown CBE, Chairman, Scottish Financial Enterprise

Industry Foreword – Ewan Brown CBE

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The Strategy for the Financial Services Industry in Scotland aims to deliver the vision of:

An innovative, competitive and thriving international financial services industry in Scotland, underpinned by world-class infrastructure and universally recognised as a leader on the global stage.

Effective partnership working across the public and private sectors has delivered progress across all areas.

People

Strengthen the world-class workforce

Profile

Build the industry’s profile within and beyond Scotland, by influencing, marketing and

communicating effectively

Infrastructure

Improve the business infrastructure

The Strategy for the Financial Services Industry in Scotland focuses on the following strategic aims:

Innovation

Exploit market opportunities through innovative products and services

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Executive SummaryThe Strategy for the Financial Services Industry in Scotland sets out a vision of Scotland as home to an innovative, competitive and thriving financial services industry.

This is supported across many policy areas and by a diverse range of groups and organisations, many of whom are not directly connected to the financial services industry. For example, our teachers, transport and communications professionals, as well as supply chain companies, all contribute to ensuring Scotland is a prime location in which to do business.

The FiSAB partnership ensures that these activities provide the most conducive environment to sustain the financial services industry.

Work is focused on three Strategy pillars, with innovation cutting across all themes:

> People: strengthening Scotland’s world-class workforce

> Profile: enhancing Scotland’s image, identity and profile as a preferred location for financial investment

> Infrastructure: ensuring a fully conducive and supportive business environment

This eighth Annual Report reviews key activities which FiSAB and its delivery partners* have implemented in the last year. It also outlines a broader range of work currently underway across Scotland, from Glasgow to Edinburgh to Aberdeen and Dundee, to support the Strategy pillars.

* FiSAB’s delivery partners include the Scottish Government (SG), Scottish Enterprise (SE), Highlands and Islands Enterprise (HIE), Scottish Development International (SDI), Skills Development Scotland (SDS) and Scottish Financial Enterprise (SFE).

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People – Planning AheadIn December 2012 FiSAB decided that the Employer Council of the Skills Gateway should evolve into a skills sub-group of FiSAB itself. This group will implement the SIP action plan under its four key themes:

> Improving the attractiveness of the sector to new entrants

> Improving work readiness

> Developing and retaining key skills

> Developing an accessible and responsive skills system

People – Current StatusKey aims:

> to strengthen Scotland’s world-class workforce through labour market and skills development

> to raise the appeal of the financial services industry as a career choice and ensure a diverse pool of employees for the industry

> to ensure delivery of financial education in schools and beyond

The draft Financial Services Skills Investment Plan (SIP) was endorsed by the Employer Council of the Financial Services Skills Gateway in November 2012 and by FiSAB in December.

Led by Skills Development Scotland and developed in partnership with employers, the plan highlights the main skills issues facing the industry and identifies key themes for action such as developing and retaining key skills and improving work readiness.

Work to embed the financial service careers website, re:think, into Skills Development Scotland’s interactive service My World of Work was completed during December 2012. This key online development allows potential entrants to the industry, and those advising them, to access a range of career management tools which can assist them in making their next move.

The sector’s involvement with Modern Apprenticeships continued at similar levels to the previous year. A total of 776 MAs started during 2012-13. The most popular frameworks continue to be Customer Services, Providing Financial Services and Management.

Across the sector there was a high degree of engagement with future talent. Scottish Investment Operations developed and launched a smartphone app, ‘My Career Path’, and ran joint events with university student societies. During the 2011-2012 school year around 700 financial education and careers workshops throughout 124 schools, covering approximately 25,000 pupils, were delivered by the Financial Education Partnership. Four Stock Market Challenge events engaged 100 schools and 500 S3 pupils.

The industry has also been playing an increasing part in supporting the Scottish Government’s Youth Employment agenda by assisting young people to develop the skills necessary for work and to access employment opportunities. Three such initiatives supported by financial service companies are Career Academies UK, which raises students’ aspirations and bridges the gap between education and work, by giving students real, hands-on experience of the world of work; paid internships and jobs through the Edinburgh Guarantee, co-ordinated by City of Edinburgh Council; and the establishment of a Graduate Foundation College for Independent Financial Advisers, developed by the Financial Skills Partnership with other industry partners, and partly funded by the UK Commission for Employment and Skills and industry bodies.

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People – Case Study: The Investment ChallengeWhat The Investment Challenge was piloted with schools drawn mainly from the East of Scotland. Aimed at S5 pupils, it is a challenging and stimulating online competition which makes innovative use of interactive technology. Schools nominate pupils to work in pairs to interpret fictional economic and political events in order to make investment decisions and grow their portfolio value. It is specifically designed to be delivered flexibly in school around the timetable and the existing commitments of teachers and pupils.

Who Co-sponsors of the challenge were Standard Life, Scottish Investment Operations and Skills Development Scotland. The challenge attracted participation by 35 schools and 800 pupils. The top eight teams then battled it out in the final at the Standard Life offices in Edinburgh with Stewart’s Melville College emerging as the overall winner.

Why The challenge introduces pupils to the operation of the financial market, its skills needs and opportunities and the broader employability skills required by the industry. It supports the industry’s aim to attract and develop a pipeline of new talent which has an excellent awareness of the sector and understanding of the range of opportunities on offer. It enables schools to deliver key aspects of the Curriculum for Excellence through a stimulating, flexible delivery model.

Sandy Macdonald, Head of Sustainability at Standard Life said “It is a fantastic competition for these young adults to take part in.”

Alan Thornburrow, CEO, Scottish Investment Operations, added “Pupils will gain an insight in to the fast-paced financial sector. However, the skills they build throughout the competition are even more valuable for what lies beyond school.”

Teachers said pupils learned “to work in a team in a meaningful way”, to “link economic theory (e.g. supply and demand) to a real life scenario” and to “make inspired decisions”.

And one of the participants commented at the time “I believe that today’s experience has improved several of my skills, which will be very useful for the present and the future. My experience has also boosted my desire to work in the financial industry”.

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Profile – Current StatusKey aims:

> to deliver the Strategy Communications Plan

> to continue to work with other parts of the UK, especially London

> to promote Scotland globally as a key location for financial services companies

A huge part of Scottish Development International’s (SDI) work is to ensure Scotland’s reputation as a global centre of excellence in financial services is promoted to new international audiences.

2012 was particularly rich in promotional activities; with SDI’s message being delivered through attendance at key events; a global advertising campaign and a social media push to create new followers for SDI’s LinkedIn channel – one of the key routes to new contacts and new possibilities.

Having a presence at events like London City Week and the Financial Times International Financial Centres Summit gave SDI the opportunity to raise Scotland’s profile among a global audience of high-ranking financial services decision makers and to showcase Scotland’s strengths across the sector.

In addition, two financial services technology events – one in Atlanta and one at Turnberry – allowed SDI to arrange meetings with senior delegates and representatives from international firms that SDI would like to attract to Scotland and to engage with them on specific and relevant issues.

Such events offer the opportunity to cultivate long-term relationships that SDI hopes will lead to meaningful and profitable partnerships in the future.

Further more, a LinkedIn ‘follower acquisition campaign’ – in other words, a targeted attempt to attract and hold the attention of target audiences – was delivered during the final quarter of 2012-2013.

Its objectives included:

> drive awareness & consideration of Scotland among international chief officers

> retain Scotland as a top ten investment location in key markets

> increase awareness & consideration of Scotland in a measurable way

> increase case leads generated via LinkedIn activity

Early results were very encouraging. More than 15,000 followers were attracted in total to the SDI account, 2,346 of them specific to the Financial Services sector – 920 in North America, 986 in Europe, Middle East and Africa (EMEA) and 440 across Asia. SDI now has positive, voluntary communication with these potential investors, which carries with it real impact in terms of keeping Scotland front-of-mind in their future planning.

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Profile – Planning AheadThroughout 2013, SDI with the support of SFE will continue to raise the global profile of Scotland as a centre of excellence for financial services through a comprehensive marketing and communications programme. SDI and SFE will also play a full part in the work of the UK Financial Services Trade and Investment Board, including joining the Board’s task force on the international promotion of the UK asset management industry. SDI and the Scottish Industry are also closely involved in the overseas promotional work of the Lord Mayor of London.

Targeting senior executives, influencers and decision makers in key subsectors such as asset servicing, asset management, financial services technology and risk & compliance, SDI will:

> exploit the global reach of social media channels such as LinkedIn

> attend key global events such as London City Week, the Financial Services Technology Summits in Colorado and Turnberry and the Financial Times International Financial Centres Forums in London, Hong Kong and Toronto

> continue to promote Scotland’s expertise by hosting and facilitating events in key target markets such as China

> execute tightly targeted Direct Mail campaigns to showcase Scotland’s Financial Services proposition and facilitate face-to-face meetings

Profile – Case Study: Global advertising campaignIn the two years to April 2013, SDI ran an online advertising campaign, part of which was specifically targeted at international financial services firms.

Developed in partnership with media specialists Carat, the campaign focused on EMEA and North America and was aimed at high-level decision makers in the financial services and business services sectors.

An interactive online advert was placed on sector-specific websites – Wall Street Journal, Financial Times, Reuters etc – where SDI knew the target audience were going to be. Smart ‘geo-targeting’ and ‘behavioural targeting’ technology allowed the advert to be actively sent to those clicking on relevant online content. In other words, someone clicking on financial services content in one of the key locations would see the advert appearing on the page they were browsing in much the same way as the everyday browsing behaviour generates the advertising content seen on the web.

Anyone clicking on the call to action was then directed to a campaign-specific landing page, where they were presented with the option of registering their details to access more information. In that way SDI opened a direct pathway to a lead.

The online version of the advert can be found at www.sdi.co.uk/golf

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Infrastructure – Planning AheadRecognising an opportunity in providing high quality Grade A offices, there has been recent investment to develop various locations in Glasgow, including sites at West Regent Street, Queen Street and St Vincent Street. The site at Queen Street is being developed with a £50 million funding package and includes a £9.6 million loan from the Scottish Partnership for Regeneration in Urban Centres (SPRUCE) Fund, which has been established with Scottish Government and European Regional Development Fund money. Work has already started on all three sites with completion for West Regent Street expected to be in December 2014 and completion for Queen Street and St Vincent Street expected in 2015.

This on-going commitment by both public and private sector is a further boost to the city’s successful International Financial Services District (IFSD) in which, to date, 15,000 net jobs have been created and £1 billion has been invested. A number of strategically important sites are still available within the IFSD and work will continue to market these as major opportunities.

Infrastructure – Current StatusKey aims:

> to ensure the business environment in Scotland is conducive to a thriving financial services industry

> to ensure the right infrastructure is in place to enhance the industry’s competitiveness

The financial services industry in Scotland requires truly world-class digital infrastructure to maintain and strengthen its important international standing and provide access to services and products to its customers. As mentioned in last year’s report, Scotland’s Digital Future: Infrastructure Action Plan, which was published on 31 January 2012, outlined the Scottish Government’s commitment and the steps it will take to achieve a world-class, future-proofed infrastructure that will deliver digital connectivity across the whole of Scotland by 2020. The World-Class 2020 plan will ensure the right mechanisms, partnerships and commercial models are in place to deliver world-class infrastructure in a sustainable way.

Over £410 million of public and private sector funds are being invested in Scotland to deliver two of the largest and most complex broadband infrastructure projects in Europe, bringing next generation broadband access to communities in those areas where the market will not go. These projects – one covering the Highlands and Islands and one covering the rest of Scotland – lay the foundations for Scotland’s world-class digital future and will ensure that 85 per cent of Scottish premises have access to fibre broadband by the end of the 2015-2016 financial year and over 95 per cent by the end of the 2017-2018 financial year.

This will enable the financial services industry to maximise the opportunities to reach as many current and potential customers in Scotland as possible and provide the same level of service Scotland wide. It will also improve the availability and accessibility to products, services and technology for customers, making it better and easier to connect and interact with financial services companies as digital technologies continue to evolve.

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Infrastructure – Case Study: The Financial Sector Resilience Group (FSRG)

What The Scottish Government’s Strategic Framework for Critical National Infrastructure in Scotland encompasses nine Critical National Infrastructure Sectors (Finance, Communications, Energy, Emergency Services, Food, Water, Health, Government and Transport). Each of the CNI Sectors has a Sector Resilience Group.

The Financial Sector Resilience Group (FSRG) was established with the assistance of the Scottish Business Crime Centre (SBCC) in March 2013 and carries on the work of a previous group – the Scottish Financial Crime Group. The remit of this previous group, which included e-crime, fraud, money laundering, physical security and adults at risk of financial harm, has been extended to include the wider resilience of the financial sector in Scotland during emergency events as defined by the Civil Contingencies Act, 2004 and the interdependencies affecting the sector. The group seeks to promote and assist with creating a secure financial landscape across Scotland.

Who The FSRG is chaired by Assistant Chief Constable Ruaraidh Nicolson of Police Scotland with representation from the Scottish Government, Crown and Procurator Fiscal Service, Standard Life, RBS, Lloyds Banking Group, National Australia Bank, Tesco Bank, SBCC, HMRC, COSLA, Police Scotland and HMT. The Resilience Advisory Board for Scotland Critical Infrastructure (RABS CI) and the Board of the SBCC maintain strategic oversight.

Activity In Scotland there is an established network of defences from and responses to events which would be regarded as disruptive, whether they be from various types of crime or from an emergency event like severe weather, pandemic flu etc. The FSRG continues to develop this network as well as update the defences and responses in an ever changing world of threats and hazards. The FSRG provides a forum to promote closer links between the industry and public sector services and they are also involved in the development of an information sharing system during emergencies and major events.

The FSRG will host an annual conference and a number of supporting events including workshops and focus groups. An annual e-crime summit is hosted for the SME market each spring.

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Sector Trends and Benchmarking Summary The time periods used as benchmarks for the indicators in this chapter, particularly those used for comparisons with other countries, are the same as in previous reports. As such, they are not necessarily benchmarked against the same year but may differ for some indicators as determined by data availability.

Global growth slowed through the second half of 2012, and emerging and advanced economies posted disappointing growth rates for the year as a whole. Scottish GDP growth continued to be muted, with year-on-year growth of 0.3 per cent in 2012. Early data for 2013 shows more positive signs, with stock markets rallying around the world and a positive preliminary estimate for UK GDP growth in the first quarter. Economic headwinds remain, however, including on-going uncertainty in the Euro Area and the continuing process of deleveraging by both governments and households.

The latest quarterly GDP figures released by the Scottish Government1 show that the Scottish economy grew in 2013 Q1 by 0.4 per cent compared with the previous quarter and by 1.2 per cent compared with the same quarter of 2012.

The Scottish financial sector’s output in 2013 Q1 was 13 per cent below the peak level reached in 2008 Q2. Since 2008, movements in the GDP index for the sector in Scotland have been broadly in line with the UK sector. The sector in Scotland grew by 5 per cent in 2013 Q1, compared to the previous quarter. Compared to the same quarter of the previous year, the sector contracted by 0.2 per cent.

The number of people employed in Scotland’s financial sector rose from 84,600 in 2011 to 91,200 in 2012. This represents a rise of 17.8 per cent compared to a fall of 1.8 per cent in the previous year.

1 Gross Domestic Product 1st Quarter 2013 available at http://www.scotland.gov.uk/Topics/Statistics/Browse/Economy/Q/pno/0 2 Refers to changes in nominal earnings.

Performance of Financial Services in Scotland relative to:

Scottish Economy UK Economy UK Financial Services

s s s

▼ ▼ ▼

s s ▼

▼ ▼ ▼

▼s s

s s s

Indicator

Growth in GDP (1998–2012)

Growth in Employment (2009–2012)

Median Earnings2 (2012)

Growth in Median Earnings (2011–2012)

Proportion of Workforce Educated to Degree Level (2012)

Growth in Proportion of Workforce Educated to Degree Level (2001–2012)

FIGURE 1: SUMMARY OF PERFORMANCE

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3 Gross Domestic Product 1st Quarter 2013 Publication – Scottish Government. 2009 is the most recent year for which a GDP weight is available.

Contribution to the EconomyThe financial services industry makes a significant contribution to the economy of Scotland. The sector accounted for over 9 per cent of the country’s GDP in 20093.

The Scottish financial sector’s output in 2013 Q1 was 13 per cent below the peak level reached in 2008 Q2 (Figure 2). Since 2008, movements in the GDP index for the sector in Scotland have been broadly in line with the UK sector.

The decrease in the sector’s output since 2008 has followed an extended period of rapid growth. During the decade preceding the financial crisis, the financial sector experienced faster growth in Scotland than in the UK as a whole. Despite the recent decline, output of the Scottish financial and insurance services sector in 2012 Q4 was 104 per cent higher than at the start of 1998. Since the publication of the Strategy in 2005, output from the sector has grown by 14 per cent.

The most recent Scottish GDP data published in July 2013 shows that:

> Output in the financial services sector grew by 5 per cent in 2013 Q1 compared to the previous quarter. Compared to the same quarter of the previous year, the sector contracted by 0.2 per cent.

> The Scottish economy grew in 2013 Q1 by 0.4 per cent compared with the previous quarter and by 1.2 per cent compared with the same quarter in 2012. The services sector grew by 1 per cent in Q1 2013 compared with the same quarter in 2012.

FIGURE 2: QUARTERLY GDP INDEX – SCOTLAND, 2009=100

Source: Gross Domestic Product 4th Quarter 2012 – Scottish Government. Gross value added in constant basic prices.

2007 = 100

Whole economy Services Financial services40

50

60

70

80

90

100

110

120

201220112010200920082007200620052004200320022001200019991998

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EmploymentEmployment in Scotland’s financial services industry was 91,200 in 2012 (Figure 3)4. This was 6,600 higher than the level of employment in 2011 (84,600). This represents a rise of 7.8 per cent compared with a fall of 1.8 per cent in the previous year, suggesting that employment in the sector has returned to growth (although it remains below its 2009 employment level of 94,000).

As Figure 3 shows, employment in the financial services industry for Great Britain overall fell from 1,048,000 to 1,042,300 between 2011 and 2012 – a decrease of 0.5 per cent.

FIGURE 3: FINANCIAL SERVICES EMPLOYMENT

Source: Business Register and Employment Survey 2012

As shown in Figure 4, the banking sector accounts for around half of all financial services employment in Scotland5. Employment within three of the five broad financial services sub-sectors rose between 2011 and 2012. In particular, asset management grew for a fourth consecutive year with employment rising from 13,300 in 2009 to 19,600 in 2012.

FIGURE 4: FINANCIAL SERVICES EMPLOYMENT IN SCOTLAND BY SUB-SECTOR

Source: Business Register and Employment Survey 2012 (BRES)

4 Employment figures from Business Register and Employment Survey include working proprietors, but do not include the smallest sole traders that have an annual turnover below the VAT threshold.

5 Sub-sectors are defined using SIC (2007) codes as follows: Banking: 64.1, 64.91, 64.92, 64.992; Life & Pensions: 65.11, 65.201, 65.3; General Insurances: 65.12, 65.202; Asset Management: 64.3, 64.991, 64.999, 66.1, 66.3; Intermediation: 66.2

2009 2010 2011 2012

0

10,000

20,000

30,000

40,000

50,000

60,000

50,200

44,90043,500

46,400

12,400 12,000 11,500 11,000

3,400 2,400 2,100 2,000

13,300 13,50015,500

19,600

14,80013,200 11,900 12,100

IntermediationAsset ManagementGeneral InsuranceLife and PensionsBanking

Financial services employment As proportion of employment in all sectors (%)

Scotland

Great Britain

2009

94,000

1,048,500

86,100

1,019,100 1,048,000 1,042,300

2010 2011 2012

84,600 91,200

2009

3.8

3.7

3.5

3.7 3.8 3.7

2010 2011 2012

3.4 3.8

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Overall, Scotland’s share of GB financial services employment was 8.7 per cent in 2012 (Figure 5). This was up from 8.1 per cent in 2011. The life and pension sub-sector is a particular strength in Scotland, accounting for 28.4 per cent of the total employment in this sub-sector for Great Britain in 2012.

Source: Business Register and Employment Survey 2012

Earnings and OccupationsMedian full-time earnings in Scotland remain higher in the financial services industry (£29,900) than the overall economy (£25,800). However, within the financial services industry, median earnings are lower in Scotland than in Great Britain as a whole where median earnings were £35,500 in 2012.

Figure 6 shows the occupational structure of Scotland’s financial services sector.

> 23 per cent of the sector’s workforce are managers and senior officials. While this is similar to the GB financial services sector (also 23 per cent), it is substantially higher than the Scottish economy as a whole, where 8 per cent of employment is within this occupational group.

> Around four in ten of the financial services workforce in Scotland are employed in administrative, secretarial, and sales and customer services occupations. By contrast, only 22 per cent of the workforce in the Scottish economy as a whole are in this occupational group.

Figure 6 also shows there is considerable variation in the median earnings by occupation within the financial services sector. Most notably, for managers and senior officials, median earnings were £53,700 in Scotland’s financial services sector in 2012 – this is considerably higher than the median earnings for managers and officials in all sectors in Scotland (£36,500) but lower than in the GB financial services sector (£68,100).

The median salary in Scotland’s financial services industry fell slightly between 2011 and 2012 from £31,300 to £29,900. The median salary in the GB financial services sector increased slightly over the same period from £35,400 to £35,500.

FIGURE 5: FINANCIAL SERVICES EMPLOYMENT – SHARE OF GREAT BRITAIN TOTAL BY SUB-SECTOR

2009 2010 2011 2012

0%

5%

10%

15%

20%

25%

30%

10.29.3 9.0

10.0

27.126.0

28.5 28.4

5.53.8 3.1 3.1

5.76.5 6.1

7.46.9

6.1 5.9 5.8

9.0 8.5 8.78.1

Financial ServicesIntermediationAsset Management

General Insurance

Life and Pensions

Banking

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Source: Annual Survey of Hours and Earnings.

Notes: Figures may not sum to totals due to rounding. The financial services sector is defined as SIC (2007) sector K excluding SIC code 64.2 (Activities of Holding Companies).

QualificationsScotland’s financial services sector boasts a highly qualified workforce – 36 per cent of workers in this sector are graduates (Figure 7). The proportion of graduates in the financial services sector is greater than that of the Scottish economy as a whole (28 per cent). However, it is less than the proportion of graduates working in UK financial services sector (40 per cent).

The proportion of financial services workers with a qualification at SVQ Level 4 or above is higher in Scotland’s financial services sector (50 per cent) than the sector in the UK as a whole (48 per cent).

FIGURE 7: QUALIFICATIONS OF THE FINANCIAL SERVICES7 WORKFORCE8 2012

Source: Labour Force Survey 2012 Calendar quarter 2 (Apr-Jun)

Notes: Estimates are rounded to the nearest thousand. Figures may not sum to totals due to rounding. Those with unknown qualifications have been removed from the analysis and are excluded from the total figures. The BRES data in the Employment section of this report provides a more reliable estimate of total employment in the sector.

Over the period 2007-2012, the number of graduates employed in Scotland’s financial services sector increased from 31,000 to 36,000 (Figure 8).

FIGURE 6: MEDIAN EARNINGS BY OCCUPATIONAL STRUCTURE 2012

Occupational Group

Managers and Senior Officials

Associate Professional and Technical

Administrative and Secretarial, and Sales and Customer Service

Other6

Total

Scotland financial services

23

41

16

100

53,700

19,900

38,300

29,900

8

22

57

100

36,500

18,800

26,100

25,800

23

35

16

100

68,100

20,900

43,400

35,500

10

21

55

100

38,900

20 29,000 14 29,400 27 36,300 14 30,500

19,500

26,100

26,500

% of sector Earnings £ % of sector Earnings £ % of sector Earnings £ % of sector Earnings £

Scotland – all sectors GB financial services GB – all sectors

Qualification Scotland financial services Scotland – all sectors UK financial services UK – all sectors

Number % of sector Number % of sector Number % of sector Number % of sector

36,000 36 703,000 28 474,000 40 8,662,000 30Above SVQ 4 – Degree or Higher

15,000 14 380,000 15 86,000 7 2,897,000 10SVQ 4 – Higher Education below degree

29,000 28 629,000 25 288,000 25 6,952,000 24SVQ 3 – A Level or Equivalent

22,000 21 756,000 31 324,000 28 10,564,000 36SVQ 2 and below9

102,00010 100 2,468,000 100 1,172,000 100 29,075,000 100Total

6 Other includes a wide range of occupations, and in financial services, includes professional occupations such as actuaries and economists. 7 Estimates for Financial Services based on SIC 2007 sector K excluding SIC code 64.2 (Activities of Holding Companies). 8 Workforce includes all those over 16 and in employment. 9 This includes those with SVQ level 1 & 2 qualifications, other qualifications and no qualifications.10 Note that the level of total employment in Scottish financial services (102,000) presented in Figure 8 differs from that presented in Figure 3 (84,700). The reason for this is that the level of

84,700 is based on the Business Register and Employment Survey which is a surveys of businesses. However, the employment level of 102,000 is based on the Labour Force Survey which is a survey on employees. The difference in values is accounted for by a difference between the employer and employee as to what constitutes working in the financial services sector. It should be noted that the Business Register and Employment Survey is the preferred source of employment by sector.

19

FIGURE 8: PROPORTION OF WORKERS WITH A DEGREE LEVEL QUALIFICATION, FINANCIAL SERVICES

Source: Labour Force Survey 2012 Calendar quarter 2 (Apr-Jun). Data for 2007 and 2008: SIC (2003) section J. Data for 2009-2012: SIC (2007) sector K excluding SIC code 64.2 (Activities of

Holding Companies).

International and Regional BenchmarkingScotland’s financial services industry is benchmarked against a set of international and regional comparators, across a range of indicators agreed by FiSAB and FiSIG since the first publication of the annual report. The change in Scotland’s position is assessed from 2000, or the latest period over which comparator data is available.

The significance of Scotland’s financial services industry is reflected in a number of key indicators as shown in Figure 9. Of the 11 regions and nations in Great Britain, Scotland ranks second in the industry’s contribution to GVA and third in the industry’s average earnings and contribution to employment.

In a comparison with the 27 EU countries, Scotland ranked fifth in 2010 in terms of the contribution made by the financial services sector to GVA.

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

27

32 33 33

28

35 36 37 3840 40

36

201220112010200920082007

Scotland

Great Britain

20

11 Changes in position are from 2009. Due to changes in methodology, employment data cannot be compared with earlier years.12 Change in position from 2002 for regional comparison. For comparator countries, data for 2008 or 2009 is used where 2010 data is unavailable.13 Changes in position are from 2008. The latest data for the international comparison is for 2010; this is the most recent data available at time of publication. Due to data availability,

international comparisons are based on mean earnings and are in real terms; regional comparisons are based on median earnings and in nominal terms.

FIGURE 9: FINANCIAL SERVICES BENCHMARKING

Sources: Eurostat, OECD, ONS

Scotland Financial Services International comparisons

Number of comparator locations

27

27

28

26

12

8

25

5

2

7

N/A

s

s

▼

11

11

12

UK as a whole

11

3

10

2

1

3

▼

N/A

Scotland’s position Change in position since 2000

Number of comparators Scotland’s position Change in position

since 2000

Regional comparisons

Share of total employment (2011)11

Employment Growth (2009 – 2011)

Contribution to GVA (2010)

Exports per employee (2010)12

Earnings (2012)13

▼

s

s

s

s

s

The significance of Scotland’s financial services industry is reflected in a number of key indicators as shown in Figure 9. Of the 11 regions and nations in Great Britain, Scotland ranks second in the industry’s contribution to GVA and third in the industry’s average earnings and contribution to employment.

In a comparison with the 27 EU countries, Scotland ranked fifth in 2010 in terms of the contribution made by the financial services sector to GVA.

General Business Environment BenchmarkingFigure 10 compares the wider economic environment in Scotland with other industrialised economies.

> Scotland’s GDP per head, which was lower than the OECD average in 2000, now exceeds the GDP per head of both the OECD and European Union.

> The percentage of working-age adults in Scotland who are university graduates is greater than the rate in the OECD as a whole.

> Scotland’s net inward migration, which was negative in 1999-2000, has been positive in each year since 2002-03.

FIGURE 10: SCOTLAND’S GENERAL BUSINESS ENVIRONMENT BENCHMARKING

International comparisons

Number of comparator locations Scotland’s position Change in position since 2000

35 18 s

26 15 (tied) ▼

13 6 s

35 8 s

27 7 s

Indicator

Gross value added per head of population (2011)15

Productivity – Gross value added per hour worked (2011)16

Total Entrepreneurial Activity (2011)17

Percentage of Graduates in the population aged 25-64 (2010)18

Net migration as percentage of population (2011 or latest available year)19

14 Global Entrepreneurship Monitor – Scotland 2011 http://www.strath.ac.uk/media/departments/huntercentre/research/gem/GEM_Scotland_2011.pdf 15 Does not include North Sea oil and gas extraction.16 Does not include North Sea oil and gas extraction. Change in position from 1999.17 There were some methodological changes in 2001.18 Tertiary type A and advanced degrees, OECD definition. Change in position is from 2005.19 2011 data is not currently available for every comparator nation; 2010 or 2009 data has been used when necessary.20 See Scottish Government, 2013, Oil and Gas Analytical Bulletin. http://www.scotland.gov.uk/Topics/Statistics/Browse/Business/Energy/OilGas 21 Small Business Survey, 2012 http://www.scotland.gov.uk/Topics/Economy/ASBS

Sources: GEM 201114, National Records of Scotland, OECD, ONS

Since 2000, Scotland has narrowed the gap in relation to Gross Value Added (GVA) per head with the UK as a whole. The latest data, for 2011, shows that Scotland has a GVA per head which is 98.6 per cent that of the UK. In 2000 Scotland’s GVA per head was 94.8 per cent that of the UK. This GVA data does not include offshore extraction of oil and gas, which makes a substantial contribution to Scotland’s economy20.

Scotland’s total entrepreneurial activity rate, as measured by the Global Entrepreneurship Monitor, was higher in 2011 than in 2000. It is generally considered that a difficult economic climate can spur business start-ups – the issue is to separate how much of this is accounted for by a difficult jobs market and how much is a growth in entrepreneurial spirit. Data from the Small Business Survey 201221 suggest that 46 per cent of start-ups were motivated to take advantage of an opportunity; 29 per cent responded that there were no other choices for work; and the remaining 25 per cent said the choice was a combination of both of these factors.

w w w . s c o t l a n d . g o v . u k / f i n a n c i a l s e r v i c e s

© Crown copyright 2013

ISBN: 978-1-78256-950-3

This document is also available on the Scottish Government website: www.scotland.gov.uk/financialservices

APS Group ScotlandDPPAS18750 (12/13)