Daniel Broby, Department of Accounting and Finance, Strathclyde Business School. First appeared on SBS Blog
Scotland’s financial sector could either be one of the biggest winners or the biggest losers as a result of Brexit. A break from the United Kingdom, if managed properly whilst maintaining Scotland’s access to the single market, could see 50,000 financial jobs finding their way to Edinburgh and Glasgow.
The Scottish financial services sector currently employs around 95,000 people and generates £7bn, 7% of the country’s GDP. It has core competences in global custody, risk management, asset servicing, investment management, insurance and pensions. If Scotland leaves the European Union along with the rest of the United Kingdom, it could well see this contract. This could in turn see the loss of 5,000 jobs.
The reason for these two starkly contrasting outcomes is the so called “single financial passport” that membership of the European Union brings with it. This is a system of mutual recognition which allows financial services operators legally established in one Member State to provide their services to other Member States without further authorisation. Exiting the European Union will risk losing this privilege.
The United Kingdom, and in particular the City of London, is the biggest beneficiary of the free access to other European countries’ financial markets. In effect, London is the gateway to Europe’s capital markets. It does the majority of the foreign exchange, investment banking and ancillary services for the European countries. It stands to lose this pre-eminence in the wake of Brexit. If Scotland plays its cards right and somehow remains in a Europe that the City of London can’t get access to, jobs will flow North of the border. If on the other hand it exits along with the rest of the United Kingdom, marketing jobs and some of those outsourced from London could be lost.
The Scottish Government, Scottish Enterprise, and Scottish Development International have been focused on making Scotland an attractive place for financial companies, particularly in the emerging field of Fintech. The country is respected for its financial savvy and indeed it is still turning out the brightest graduates in the industry. The Department of Accounting and Finance at Strathclyde University, for example, was ranked 1st in the United Kingdom for Accounting and Finance in the Complete University Guide Subject League Table for 2017. Scotland clearly has the skills to take advantage of this opportunity.
Regardless of the outcome, Scotland will become a digital hub for financial transactions, banking, custody and settlements. When the uncertainty clears, this will become apparent. The good news is that, despite the uncertainty, the upside is ten times bigger than the downside.
The Fraser of Allander Institute (FAI) is a leading economy research institute based in the Department of Economics at the University of Strathclyde, Glasgow.