Scottish Agenda: Edinburgh’s wave of optimism hides sinister undercurrent

By Ian Fraser

Published: The Sunday Times

Date: August 16th, 2009

Tram chaos outside RSA in Edinburgh's Prince Street; Image courtesy of Flikr

For much of the nineties and noughties, Edinburgh’s economy rode a wave. Success in financial services and the “Holyrood effect” prompted businesses in other sectors to flock to the capital. House prices surged and Auld Reekie was often named as one of Europe’s most attractive cities for living and working. Then, in October, the wave crashed into the shore.

The implosion of HBOS and Royal Bank of Scotland caused several bubbles to burst and led to dire predictions of thousands of job losses. Edinburgh swung from being crane city to being written off as Reykjavik-on-the-Forth.

In recent weeks, signs of civic failure have been everywhere. Princes Street, the main shopping thoroughfare, is in chaos as interminable tram works render it inaccessible to shoppers. Lothian Buses has plunged into the red. Property developments planned in an era of easier money, including Caltongate in the old town, have hit the buffers leaving vacant lots to uglify the streetscape. Rubbish has been piling up from Morningside to Trinity thanks to a dispute between the city council — which seems to want to privatise refuse collection — and the city’s up-for-a-fight binmen.

As employers feel the pinch from the global slowdown and get used to tougher-nosed bankers, unemployment has soared, although at 3.2% it is still well below the national average. Even lawyers and accountants are being laid off, for heaven’s sake, and Oloroso, their favourite hang-out, is suffering.

The city council sought to dispel some of the gloom last week. David Anderson, its development director, bombarded us with good news reports suggesting the city’s economy is actually in fine fettle. He marshalled the evidence well.

We were told that, thanks to the weakness of the pound, tourists are flocking to the capital like never before; restaurants and hotels are heaving, with events such as rugby league’s “magic weekend”, the Gathering and a resurgent Edinburgh Festival luring them north.

Anderson also noted that passenger growth at Edinburgh airport had eclipsed all other UK airports.

Even Lloyds managed to deliver some positive news last week, saying Scottish Widows Investment Partnership will be bolstered by the £235m sale of Insight.

Encouraged by Edinburgh’s looser labour market, it seems overseas companies are also queuing up to locate in Scotland’s capital. Anderson said that, in the first half of the year 13 overseas investors, including Vattenfall, the Swedish energy group, chose to locate in Edinburgh. That’s more than in the whole of either 2007 or 2008. Also in the past year, residential property prices have fallen by only 6%, less than half as much as in comparable British cities.

It’s nice to be reminded of these points of light but I fear this summer could be the calm before the storm where Edinburgh’s economy is concerned.

Once Lloyds Banking Group and RBS get their teeth into lay-offs to meet cost-saving pledges, unemployment can be expected to climb sharply. And it’s going to take scores of wind-energy HQs to compensate for these painful cuts.

Also, the pound is not going to stay weak for ever. When it strengthens, visitor numbers can be expected to fall. Perhaps Anderson and his colleagues should devote more energy to finding sustainable ways of boosting Edinburgh’s economy.

Money and motivation

Vince Cable, the Lib Dem Treasury spokesman, last week pointed out that RBS had spent nearly 50% of its first-half profits on a bonus for the chief executive and “golden hellos” for two new recruits. He’s right and it’s clearly the economics of the madhouse. Cable was referring to Stephen Hester’s £9.6m package (for which he must lift the share price above 70p) and the £10m paid to lure Bruce Van Saun, the new finance director, from BNY Mellon and Antonio Polverino, a bond trader, from Merrill Lynch. Hester argues that the state-owned bank will be unable to secure talent unless it pays competitive salaries but I fear this is bunkum.

If personal greed was removed from the equation, the trio would be capable of performing just as well on a fraction of what they’re being given.

Out of their league

The Scottish Premier League is not entering the new season in the best of financial health — revenues will fall because of Setanta’s collapse, as ESPN/Sky are being less generous than the Irish broadcaster, and because takings from season tickets and corporate hospitality will fall thanks to straitened circumstances among fans.

But, according to a survey by Equifax, SPL clubs are outperforming those in the English Premier League on a number of criteria. For example, three out of 12 SPL clubs are rated as technically insolvent by Equifax, compared with half of the 20 English clubs. Also, St Johnstone and St Mirren scored a perfect 100, whereas only Manchester United managed this among the English clubs.

If their on-pitch performance could match this financial performance, then Scotland’s football clubs really would be having the last laugh.

This article was published in The Sunday Times on August 16th, 2009. To read on Times Online click here

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1 Comment for “Scottish Agenda: Edinburgh’s wave of optimism hides sinister undercurrent”

  1. Mr Fraser, I am sure this extract from a letter dated February 2009 from HM Treasury, will put everyone’s mind at rest over job losses!

    “……….This merger, as any, brings uncertainty for staff and Ministers understand that this can be a difficult time. We fully expect the companies involved to engage constructively with trade unions through the merger process and have made this clear to them. We understand discussions are underway.
    The Lloyds TSB circular on the proposed Acquisition said that “Lloyds TSB attaches great importance to the skills and experience of the existing management and employees of HBOS…The Lloyds TSB Board has also given assurances to the HBOS Directors that, following the Acquisition becoming effective, the existing contractual employment rights of all employees of the HBOS Group will be fully safeguarded……..”

    It is similarly reassuring about bankers remunerations:

    “……The remuneration of senior executives will follow strict guidelines – both for 2008 (when the Government expects no cash bonuses to be paid to board members) and for remuneration policy going forward (where incentives schemes will be reviewed and linked to long-term value creation, taking account of risk, and restricting the potential for “rewards for failure”)……”

    So as you can see, everything is under control. No job losses and no excessive pay or bonuses.


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