The inaugural report, Accelerating Growth in Scotland’s Financial Services Sector, which is based on detailed economic analysis, in-depth interviews, and a survey of Scotland’s financial services senior leaders, suggests that by harnessing key advantages and addressing growth barriers, the sector could achieve a compound yearly GVA growth rate of 4%, up from the current 2.9%.

Delivering such growth could raise employment across Scottish financial services, not including related professional services, by as much as 18% by 2028, at a compound annual growth of 3.4%. This would add an additional 16,000 new jobs to Scotland’s financial services industry and bring total employment to 105,000 by 2028 (up from 89,000 today).

Sue Dawe, EY Scotland managing partner for financial services, said: “This report is not just a reflection of current conditions but a call to action for all involved to collaborate on the continued success and growth of the sector. Scotland’s financial services sector must continue to reinforce existing strengths and address potential barriers to growth.

“Central to this fantastic growth narrative is the recognition that technology infrastructure and innovation, a robust regulatory and legal framework, and demographics and labour supply will play a vital role in shaping Scotland’s financial services future.

“The sector has already done a lot of the thinking about where we need to go, and it is reinforced by this research; we now have to turn that strategy into action, driving sustainable growth and prosperity for years to come.”

Sandy Begbie, Scottish Financial Enterprise chief executive, said: “Scotland has long been a key part of the UK’s financial and professional services sector and today remains one of the most competitive financial centres in Europe.

“Our sector growth strategy set out our ambition to grow the sector and our contribution to the economy, and with Scotland’s rich heritage, exceptional human capital and strong capability in data and AI, we are well placed to do so.

“While there are still some ongoing challenges facing our industry, such as high personal tax, a lack of government support in R&D and challenges surrounding government funding for further education which risks pushing our brightest and best out of Scottish universities, it is pleasing to see our sector continuing to strengthen.”

Talent in Scotland is driving financial services growth

A third of Scotland’s financial services leaders (32%) highlighted the gender balance and cultural diversity and inclusivity of the workforce as a significant advantage over international peers, with a further third (32%) highlighting the strong availability of skills in key areas, such as emerging technologies and ESG integration, as a competitive advantage.

Scotland’s education pipeline and talent retention were also highlighted as strengths of the financial sector, with a third (32%) of leaders citing the talent pipeline from Scotland’s schools, colleges and universities, more than a fifth (22%) citing specialised training programmes, and more than two in five (41%) citing the retention of graduates in the domestic workforce as competitive advantages. However, more than a third (36%) of leaders view challenges with retaining top-tier talent as potential barriers to Scotland’s financial services growth.

Close proximity to continental Europe supports Scottish growth 

Scotland being located close to major financial centres including London, Paris and Dublin is highlighted by more than two in five (43%) leaders as a competitive advantage. This reinforces the role geographic positioning continues to play in attracting firms looking for cost-efficient proximity to broader European markets.

However, despite Scotland’s proximity to continental Europe, more than a third (36%) of leaders view lack of access to the European market as a barrier for growth, highlighting the loss of the passporting regime for financial services companies post-Brexit as a particular disadvantage for the Scottish industry.

Lower overheads help Scotland to compete as a financial hub 

More than a third (36%) of leaders surveyed identified Scotland’s comparatively lower cost of living and doing business as a key strength for the sector, with a further two in five (38%) viewing the outlook for the UK’s economic growth as a key advantage.

Personal income tax and lack of support for scaling businesses seen as the main barriers to the growth

When it comes to barriers to growth, Scotland’s personal tax regime is seen by 46% of leaders as being the leading disadvantage to the Scottish financial services industry relative to international peers, with a further 36% citing difficulty in attracting top talent due to the less-attractive tax framework and challenges with visa availability and processes.

More than a third of Scotland’s financial services leaders (35%) also raised concerns about lower levels of government support and investment research and development (R&D), with more than a quarter (28%) seeing a lack of access to capital for early stage FinTech startups as a competitive disadvantage for Scotland.

Scottish financial services leaders recommendations to accelerate sector growth

The report makes recommendations to capitalise on the strengths of Scotland’s financial services sector and support the accelerated growth, including:

• Policy: accelerate some fundamental policy change to drive greater growth potential in the FS sector in Scotland, key areas of focus should include visa regime, personal tax and infrastructure
• Talent: make it easy for firms to access and attract talent, armed with the right skills and experience to support the sectors growth ambition in Scotland, including skilling and reskilling, recruitment pathways and education-industry partnerships
• International differentiation: better promote Scotland’s global appeal to drive greater inward investment through a sector-wide FDI narrative and investment case, expand support for early-stage start-up firms and trade delegations focused on FS and Fintech.