Bill Jamieson wonders how badly ‘Brand Scotland’, with its associations of canniness and caution, has been damaged by the financial crisis and a dismal Scottish Prime Minister
Scotland’s fortitude has certainly been tested these past 12 months. Its proud claim to have a special excellence in finance — an innate canniness and caution — has been shattered by the demise of its two banks headquartered in Edinburgh, Royal Bank of Scotland and HBOS. It didn’t matter that New York, London, Dublin and Frankfurt also suffered blows to their banking systems. These were blows that Scots took personally, a wound to our very definition. Scotland was whisky, lochs, glens, tartan — and banks. There were also, of course, other stains on the brand, at least as far as England was concerned: a surfeit of Scottish Labour Cabinet members, chippy Scottish nationalists constantly whingeing over money, a Scottish First Minister, Alex Salmond, relishing the prospect of a Westminster parliament ‘hung by a Scottish rope’, and a cheerless, luckless, moody Scottish Prime Minister.
Scotland’s brand of politics — one that defines the nation by the size of its government budget and public sector — has plunged from favour. But it has been the blow to the banks that has caused the greatest soul-searching. In Edinburgh, from the elegant Georgian squares of the New Town to the Hanseatic alleyways off the Royal Mile, it seemed less like a banking crisis than another Darien — that ill-fated 17th-century attempt to create a utopian colony in Panama that did for our dreams, our wealth and our hopes of Scottish independence. Might the shattering of RBS and Bank of Scotland do the same for the SNP’s ambitions? Scotland’s share of UK public debt is reckoned at 9 per cent. With the UK figure rising to £1.4 trillion by 2013-14 this would suggest a liability of £126 billion, well over 100 per cent of Scottish GDP. That leaves no scope for playing Mary Queen of Bountiful with stricken banks and a style of politics dominated by an ever-expanding public sector. Other financial centres are wrestling in more practical terms with the ‘can do’ of recovery. The nagging worry among Scots is whether Scottish finance — and indeed Scottishness as a brand — may be mortally damaged.
That these questions persist one year on testifies to a self-doubt that has crept in like a haar over the Forth. For others, however, it has brought moments of truth about a continuing change within and without that the banking crisis has accelerated. The shift away from a once-deep attachment to tartan and shortbread-tin branding has been underway for some time.
Scotland and Scottishness will become even less relevant to the ‘unique selling point’ of any Scottish-based financial services company. The threat to Scotland’s position in finance had been building long before the global financial crisis — in particular the hegemonic shift of global finance and power from Western economies to those in the Asia-Pacific region. Some firms have already chosen to rebrand themselves and remove the word ‘Scottish’ from their title, partly to de-emphasise their Scottishness. Others are more sanguine.
Says Sir Donald MacKay, chairman of the £1.5 billion Edinburgh-based Scottish Mortgage Trust, ‘We have discussed a name change within the company for several years. But the Scottish name still works for us in America and Canada, and also in Japan. And many investors might be put off by a change. They have been investors for a long time and they are very comfortable with it. In any case, if there’s any concern about words in the title, it’s probably more over “Mortgage” than “Scottish”.’
Standard Life, the giant among Edinburgh’s investment institutions, has had a ‘good’ crisis with a net inflow of funds, and other asset management companies see little sign of ‘brand contamination’. In fact, a recent report on global financial centres found Edinburgh maintaining its position as an asset management centre in the world top 20. Says Owen Kelly, chief executive of Scottish Financial Enterprise, ‘An element of Scottishness in your identity remains a big plus in international financial services. Sure, the impact on our self-image has been keenly felt. But it is solipsistic to imagine that everyone sees us in the self-critical way we see ourselves. The financial crisis has hit all international centres, from Geneva to New York to Dublin; and we need to keep some perspective. Burns had it right when he wrote, “O wad some Power the giftie gie us, to see oursels as ithers see us!” Today, those “ithers” are not looking at an industry as diverse as ours, with fund managers, insurers and others doing pretty well in tough circumstances, as especially hard-hit.’
But it is also true that corporate change has been reducing the relevance of Scotland as a financial brand for years. Of the 87 members of the industry lobby group Scottish Financial Enterprise, only nine firms (belonging to six companies) now have the word ‘Scotland’ or ‘Scottish’ in their title. How much in any event does geographic location now matter in financial services? Clear law and regulation, cost competitiveness, a good skills base and an attractive physical environment are the big swing factors in deciding where to locate a financial centre. So arguably the biggest challenge to Scotland’s financial sector is not any reputational smirch on geographical location but that faced by companies in all financial centres — how to deal with the blow delivered to consumer trust and confidence.
Are Scotland’s banks retaining customer loyalty? The words ‘Scotland’ and ‘Scottish’ in a bank title still matters for many Scots. One ironic result of the banking debacle is likely to be the re-emergence of ‘Bank of Scotland’ as the HBOS branches in Scotland acquired by Lloyds are retro-branded. And the EU-enforced divestment of former Lloyds-TSB branches in Scotland may see the emergence of ‘TSB Scotland’ as a brand.
But is loyalty as set in stone as it once was? Former RBS chief Sir George Mathewson is doubtful. ‘The relationship between customers and banks has been fractured. And I sense there is a lot of non-competitive activity between banks at present.’ He also believes that there has been a migration of senior executives and functions away from Edinburgh to London. ‘It’s almost inevitable. You have the banks now run by people who have no interest in keeping jobs in Edinburgh.’
More worrying is the broader atrophy of Scotland’s business and enterprise sector. No fewer than 20 Scottish publicly quoted companies have migrated, gone under, been taken over or otherwise disappeared from the list over the past two years. And of the 30 or so that remain, some have only small operations in Scotland. The decline across the business universe — from start-ups to mid-sized firms to quoted companies — and the loss of a powerful, vocal lobby of business big-hitters was not sparked by the banking crisis, but has been aggravated by it.
And the esprit de corps of the business sector has taken a battering. Two recent business and investment gatherings testified to the chastened mood. The business representatives attending Scotland’s ‘corporate elite’ dinner provided a low-key spectacle, made more conspicuous by those who were absent: no top bankers, no construction industry titans. Said one attendee, ‘The trouble is, no one is sticking their necks out. There are no bold moves or statements. All seem to be watching carefully for signs and portents — from Europe, the US, and the City. Scotland has lost its centre. There’s no one calling the shots here.’
And an investment confere nce in Edinburgh attended by 250 silver-haired investors brought well-argued advice from fund managers to invest in Asia-Pacific and emerging markets. The grey hairs nodded and applauded. But if this is where Scotland’s portfolio capital is going, it begs the question as to where the equity will come from for new ventures here.
What of the Scottish brand more generally? Scotland’s engagement with the rest of the UK is not what it was. Says a young professional worker who left Edinburgh to live in London a year ago, ‘Much more worrying for Scotland is not what England thinks of it but whether England thinks of it at all. It’s true that the reputation of Scotland’s banks has taken a huge hit. It has taken years to get to the stage where Scottish banknotes were understood and accepted in England. Now it’s hard to hand them over without incurring some withering remark about their worth in the post-HBOS, post-RBS era.
‘There is little doubt that Scottishness is a pejorative term for many in England. Gordon Brown may have done more damage to Scotland’s image than any financial crisis. He has reinforced every prejudice ever held in England that all Scots are like Gordon Brown: unattractive, unfathomable and with a dangerous temper.’
And this, from a senior Glasgow-based business executive whose work has taken her into high-level public sector projects: ‘The feedback I get from overseas contacts was that Scotland’s brand reputation was never that high to begin with. I think some people in Scotland may have a rather over-inflated view of it, propagated by the government and the SNP making out “Brand Scotland” to be better than it is.
‘However, in the education and knowledge sector, Scottish universities and colleges are very highly regarded. Edinburgh, Glasgow, St Andrews and Aberdeen universities are well-respected. I think after the bank crisis there’s a job to re-establish Scotland’s credibility and rebuild our confidence and self-belief as a nation. I believe it has got a lot to offer internationally — life sciences, creative industries, engineering, manufacturing and education; we shouldn’t focus as much on financial services as we have done.’
Overall, there is relief one year on that the worst forecasts of a second Great Depression have been avoided. House prices in Edinburgh and the Highlands have held up, though turnover is low. And Scotland has had a good tourist season, benefiting from the ‘staycation’ trend. Edinburgh airport has been the best performer in the BAA stable, while the International Festival saw bookings some 20 per cent up on last year. But if there is much to be positive about, the big blow dealt as a result of the demise of the banks has been to future expectation. The sense of steady betterment has gone. Thousands of bank workers and those in related industries are in fear for their jobs longer term. The clocks in the Old Town spires tick on. But the clock of confidence has stopped. And that is the worry in Edinburgh.