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Edinburgh thrives as it defies fallout from financial crisis

Ten years ago as the fallout from a crisis that started on Wall Street engulfed the global financial system things looked pretty bleak for Edinburgh.

The two banks that had been among the city’s biggest employers for years, Royal Bank of Scotland and HBOS, were on their knees and the prospect of the city suffering a massive economic crash were all too real.

Ten years later RBS is majority-owned by tax payers who provided £45bn bailout funding they are still waiting to recover. It is effectively run from Westminster.

Bank of Scotland became a cog in a London-based machine following the rescue of the former HBOS by Lloyds Banking Group.

Both have made swingeing job cuts over the last ten years in a process which has caused pain to many in Edinburgh, including shareholders and suppliers.

But walk around the city and there is no sign Edinburgh has been through hard times.

With the financial district expanding at pace and retailers and hoteliers clamouring for space in the revamped St Andrews Square area the city is buzzing.

The giant Edinburgh St James development owned by TH Real Estate is attracting strong interest although building work is in the early stages.

“We are already in discussions with a number of aspirational UK and international brands, which will help move Edinburgh up from 13th to 8th place in the UK retail rankings,” says TH’s Martin Perry.

Commercial property expert Miller Mathieson of CBRE notes: “Between 2008 and 2011-12 there was a massive cloud of uncertainty but since then to the present it’s almost been nothing but positive.”

Statistics lend weight to perceptions with output increasing from £15.3bn in 2007 to £18.1bn in 2015. Output per head has risen from £32,697 to £37,000.

Ask for an explanation and at least one of the drivers cited by experts might surprise.

They say the city’s success reflects the fact the key financial services sector has remained resilient while undergoing changes triggered by the crisis.

“Back in 2008 there was all sorts of doom and gloom predicted with the two biggest banks taking such an impact … but it’s been different for a number of reasons,” says Graeme Jones, who runs the Scottish Financial Enterprise trade body.

He notes leading challenger banks – Tesco, Sainsbury’s Bank and Virgin Money – decided to headquarter themselves in Edinburgh, to tap into the skilled labour pool the likes of RBS had helped develop.

“That meant a lot of people who would have been displaced had jobs,” notes Mr Jones.

“The diversification and breaking up of financial services has been good for the city as opposed to the disaster people foresaw,” reckons CBRE’s Mr Mathieson.

Edinburgh has also benefited from the fact it is home to one of the biggest clusters of fund managers in Europe.

“The asset management sector has grown incredibly strongly. That’s the jewel in Scotland’s crown,” says Mr Jones.

Standard Life has shown how firms have responded effectively to changes in the market, shifting its focus from providing pensions to asset management with a view to growing globally.

The group’s decision to remain based in Edinburgh after merging with Aberdeen Asset Management last year provided a huge vote of confidence in the city.

The wall of money managed in the city creates work for firms in areas such as fund accounting and investment administration, which has encouraged giants such as JP Morgan and State Street to develop big operations in the city.

The future could be bright for the financial services sector as billions of people save more for retirement around the world.

Noting the strength of the financial services sector in Edinburgh, PwC accountancy firm partner David Brown says the city benefits from the fact it is a much cheaper place for firms to operate in than London and offers a good quality of life.

“Compared to even five years ago, we’re noticing that graduates are not automatically all moving off to London. People are saying this is a better life style and I can afford to live here – and this is great for the future of the city,” he notes.

Some banks are repatriating work from London to Edinburgh.

The sector may face big challenges in coming years with financial technology allowing new players to take business from incumbents.

But it helps that Edinburgh is itself home to a buoyant technology sector, the growth of which has been a big factor in its recent success.

“The technology sector is a hugely important part of the Scottish economy and particularly the Edinburgh economy,” says Polly Purvis, who runs the ScotlandIS technology trade body.

She notes that both the Skyscanner flight search business and the Fanduel fantasy sports operation became global success stories in recent years while based in Edinburgh, creating hundreds of valuable jobs in the process.

Yet the sector’s contribution may not get the recognition it deserves because much activity is carried out by small firms.

Ms Purvis notes the city has developed an ecosystem which has allowed lots of firms with great technology to emerge.

“One of the best things in the UK is Codebase,” says PwC’s Mr Brown, referring to the incubator for start-ups based in the city.

Ms Purvis highlights the part commercialisation specialists at the Edinburgh university School of Informatics have played in encouraging start ups.

She reckons there is huge potential for growth in the sector as the move to the digital economy and internet of things accelerates.

The challenges include helping ensure promising small firms grow into businesses of scale.

Underlining the scale of the task involved trying to compete with the US and Asia, Mr Brown observes: “We need an environment that routinely produces unicorns. For this to happen, we all need to pull together and we’re starting to see some momentum build here already.”

Unicorns are firms valued at $1bn plus.

The prospect of Brexit is causing concern.

ScotlandIS members tell the body they are seeing reduced applications from non UK EU nationals and have had some staff move back to Europe from jobs here in Scotland.

Mr Brown reckons it is too soon to say that all the effects of the financial crisis have worked their way through the system.

Brexit is fundamentally affecting financial services businesses from a regulatory and supervisory perspective.

He highlights the importance of the tourism sector as a driver of growth in recent years, although many of the jobs concerned are seasonal.

Some may worry about the impact the official austerity drive is having on the city, in which there are thousands of public sector jobs.

But there appears to be increased willingness among public and private sector players to collaborate to help the city realise its potential.

This was seen in the development of the £1.1billion City Deal signed by the UK and Scottish governments and local authorities last year which could provide significant support to the local economy in coming years.

The planned £300m investment in data innovation centres should help the city compete in a key technology market.

“Lots of little things are coming together,” says Mr Brown. “People and organisations are saying how can we collaborate to have a stronger economy and to keep it growing.”

 Source: The Herald 

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