Scotland hopes to gain from London job losses

There are signs that it may be succeeding. Morgan Stanley is developing a new office in Glasgow's financial district to house clearing and settlement staff. More than 200 staff are moving from existing premises in the Scottish town of Cumbernauld and the firm says an extra 180 jobs will be created by 2005.

The bank says this will not involve job losses in London, but the development of its Scottish site is significant. Other banks are considering following suit and one large firm acknowledges that this could lead to job losses in London.

Morgan Stanley is the only big investment bank to undertake securities clearing and settlement operations in Scotland. But Ray Perman, chief executive of Scottish Financial Enterprise (SFE), a body that promotes the financial services sector, says that over the past year Scotland has received visits from a number of consultants scouting sites for unnamed financial services clients.

He adds that the September 11 terrorist attacks have given added impetus to their interest. Banks are keen to move clearing and settlement operations out of London so that business can continue.

David Nicol, Morgan Stanley's managing director and head of finance, administration and operations for Europe, says that Scotland is an obvious destination: "Scotland offers a high quality infrastructure and high quality people. Scottish people are very well educated and there is a tremendous supply of talented individuals."

Even so, there may not be enough of them. Edinburgh, a successful fund management centre, is already plagued by skills shortages. The city has reached full employment in financial services says Perman. He believes that growth is to blame: Scotland's financial services output has been growing twice as fast as the financial services industry across the UK, and five times as fast as the Scottish economy as a whole.

To counter recruitment difficulties, leading Scottish financial services employers linked up in July to form Scottish Investment Operations (SIO), a body with the express remit of widening the recruitment pool.

Jim Phillips, director of the commercial department for HSBC in Edinburgh, is the organisation's chairman. "We aim to entice people into the industry and create an awareness of the career opportunities," he says.

SIO's efforts are directed at school leavers and experienced people and it has set up an investment administration training course, for which it says it has been inundated by applicants.

By enticing more people to work in the industry, SIO hopes to offset pressure for higher salaries. Phillips says that a graduate working in an operational role in Glasgow is paid about 14,000 (€22,300). In the City of London, the equivalent salary would be 17,000. The differential will play an important role in encouraging firms to relocate.

At more senior levels however, Scottish pay is comparable to that south of the border. This is particularly the case for fund managers. Richard Fletcher, of the Edinburgh headhunter Fletcher Jones, says that the days of fund managers accepting lower pay in return for a higher standard of living in Scotland are over. "Fund managers in Scotland realise that if they want to compete with London, they will have to pay properly."

Nevertheless, with London hiring in the doldrums, the need to compete over pay may be diminishing. Graham Knox, another headhunter specialising in fund management placements, says he has received many calls from redundant London headhunters who want to relocate. There are still opportunities to do so, says Knox: "The chance of finding a gap is thinner than it was, but there is still a strong edge of business development, which is driving demand."

In the first quarter of this year total funds managed by Scottish investment managers rose by 12bn to 338bn from the previous quarter, at a difficult time for the industry, according to the SFE. It estimates that 97,000 people are employed in financial services overall, an increase of 7,000 in the past two years, while numbers in London have fallen.

One fund manager with vacancies is Scotland-based Standard Life Assurance. Gordon Teasdale, head of human resources, says there are currently 60 vacancies in the firm's Edinburgh office, of which about 10 are for fund managers.

Teasdale says that the company has no problems attracting staff from London and even New York. "Scotland is the sixth largest fund management centre in Europe and there are world class names here," he says. Since 1998, Standard Life has recruited 17 people from the English capital.

One of those was Andrew Milligan, head of global strategy at the company. Milligan came from Morley, the fund manager. He says that Scotland offers numerous lifestyle advantages, not least the possibility of walking to work.

"Edinburgh has a great mix of firms to work for. It may be a small city compared with London but with the Edinburgh Festival and other events, it offers the same quality of culture. You get a great family environment without the long commute of the London suburbs."

Moreover, working in the Scottish market is widely seen as carrying less risk of redundancy. On the SIO's website, a securities associate at the Royal Bank of Scotland explains why he was enthused by the financial services industry: "I was attracted because of the job security," he says.

London-based employees may be tempted to think he is deluded, and yet he could well be right.

Fletcher says: "We don't get the recruitment peaks and troughs that the London market suffers from. Scots are more prudent: we don't gear up so much when times are good."