Vince Cable became the latest UK government minister to warn (or imply, at any rate) that the financial crisis would have sunk an independent Scotland when he gave evidence to the Business, Innovation and Skills Committee at Westminster yesterday. In response to a question from Labour’s William Bain about the consequences of removing the Bank of England as lender of last resort to the Royal Bank of Scotland, Cable said: “I think if you were managing RBS you would almost certainly want to be in a domicile where your bank is protected against the risk of collapse. I think they already have a substantial amount of their management in London and I would have thought that, inevitably, they would become a London bank, which would be symbolically quite important.”
You can see the Business Secretary’s point. RBS, which is headquartered at Gogarburn, just outside Edinburgh, has a balance sheet roughly ten times the size of Scotland’s entire economic output. Had Scotland been independent in 2008, when the bank imploded under the weight of its own reckless lending and acquisition practices, the Scottish Treasury would have gone bust trying to keep it afloat and the Scots, like the Irish, been forced to seek a hefty EU/IMF rescue package.
But the problem with Cable’s argument – an argument which has featured heavily in unionist rhetoric over the last five or six years – is that RBS is a British bank, not an exclusively Scottish one. At the time of the crash, RBS had more customers and employees in the rest of the United Kingdom than it did in Scotland, as well as a majority of its capital assets in the City of London. Today, as it edges back into private ownership, it still has 24 million customers across the UK and, as Cable acknowledges, “substantial” management in the British capital.
On what grounds, then, would the rest of the UK have insisted that Scotland take responsibility for the full cost of the £45bn RBS bail-out? Moreover, what obligation would an independent Scotland have had – or currently have – to guarantee the deposits of RBS customers south of the border? That was – and would remain were Scotland to leave the UK – the role of the British government.
Cable’s position is further undermined by experiences elsewhere. Not long after the near collapse of Britain’s financial sector, the Netherlands, Belgium and Luxembourg joined forces to salvage Fortis, a major European bank. Bail-out costs were divided according to the proportion of Fortis’s operations in each of those countries. National boundaries, it seems, matter little to financial institutions capable of straddling continents.
Yet Cable has, however unwittingly, raised one interesting question. To what extent would Scotland suffer if RBS did move its headquarters from Edinburgh to London after independence? RBS employs about 12,000 people in Scotland, while the financial sector as a whole employs roughly 85,000 people and accounts for between 7 or 8 per cent of Scottish GDP. Only a small number of these jobs – most likely those at Gogarburn – would be at risk were RBS to relocate down south. It’s difficult to imagine what reasons the bank would have to further reduce its Scottish operations. Indeed, Cable himself concedes any such relocation would be little more than “symbolic”.
And what would that symbolism amount to? Finance capitalism, particularly of the sort practiced by RBS in recent years, is predatory, monopolistic and crisis-prone. It’s hardly a coincidence that those countries, such as the UK, Ireland and the US, which allowed their economies to become heavily leveraged on financial services in the run-up to 2008 also suffered the longest and most severe post-crash downturns in the developed world.
The Scottish economy desperately needs to be rebalanced. It currently exports more in financial goods and services than it does in manufacturing (the underlying weakness of its trade balance is disguised by strong oil and whisky exports). Were its banks to run into more trouble, it would lack a robust manufacturing base to fall back on. RBS won’t flee an independent Scotland. But if it did, the long term effects would probably be beneficial.