Standard Life
As members will know, the next item of business is a statement by Jim Wallace on Standard Life. The minister will take questions at the end of his statement, so there should be no interventions.
Before making a statement, I am advised that I should make a declaration of interest as I am a policyholder with Standard Life.
Given the scale of the job losses that have been announced today by Standard Life, and the importance of Standard Life as a major Scottish company, I thought that it was appropriate that I should come to the Parliament with some urgency to make a statement and to allow parliamentary colleagues an opportunity to ask questions and to comment. I should add that I apologise that because of that urgency, it was not possible to give the usual hour's notice of the statement to Opposition spokespersons.
Today's announcement by Standard Life is by any measure a significant blow to the financial sector in Scotland. As one of our leading employers in the sector, and indeed in Edinburgh, the company is of great importance to the local economy and our national economy. The loss of 1,000 jobs from its UK labour force, the bulk of which will come from Edinburgh, where there are currently 8,000 employees, is clearly a matter of extreme disappointment.
There will be many families in and around Edinburgh who will be extremely worried by today's announcement. We recognise that it is a very difficult time for them, so our immediate concern in the short term must be for those who are most directly affected. We must assist those who now face the prospect of losing their employment. I understand that the company operates its own support mechanisms for employees who are being made redundant. However, the Lothian local response team, which is part of the Executive's partnership action for continuing employment—PACE—stands ready to offer advice, support and guidance to those who are affected.
I inform the Parliament that the First Minister and I have today spoken to the company's chief executive, Sandy Crombie, to express our concerns, and I shall be meeting Mr Crombie later this week to explore in more detail the background to the company's decisions, and to ascertain what further actions the Executive might take in response to them.
Beyond the immediate concern of today's job losses is the announcement that Standard Life's board is to assess the option of demutualisation as a means of securing access to the additional capital that the board sees as necessary for developing the business. As one of the last and major remaining mutuals in the sector, the company has been subject to speculation about its mutual status on several occasions over the past decade. However, any decisions on demutualisation will be for its policyholders, many of whom are in Scotland.
Standard Life has had a long history of making an important contribution to the Scottish economy, and I look forward to seeing it continue to make such a contribution to the financial services sector and to our economy, as a company headquartered in Scotland. Of course, the company serves markets in the UK and beyond and, with other companies such as the Royal Bank of Scotland and HBOS, has proven that that can be done effectively and with considerable success from a Scottish base. It has been very successful in many of its target markets, has an extremely strong brand, and is regarded as a very serious player in its sector. Its portfolio of businesses such as Standard Life Investments, Standard Life Bank and Standard Life Healthcare includes real successes in tough markets.
It is important to emphasise that this is not the death knell for the financial services sector in Scotland. However, we are certainly not complacent about the sector's future and have established the financial services strategy group, which I chair and which brings together the senior players in the sector in Scotland. The group is working to define a strategic vision for the sector, with a view to identifying the specific actions that the Executive can take to strengthen and reinforce the sector's future success. The sector has been one of our economic success stories over the decade, and employs more than 100,000 people in Edinburgh and beyond. We are committed to retaining and building on that success.
I thank the Deputy First Minister for his statement and express the Scottish National Party's deep concern at the loss of more than 1,000 jobs at Standard Life.
I welcome the Deputy First Minister's recognition that the job losses are both a tragedy for the individuals and families concerned and a grave warning to the wider Scottish economy that the financial services sector and, in particular, the life assurance industry face many tough challenges. Is he aware that two thirds of life assurance companies in Scotland have predicted that they will have to make job losses in the next 12 months? Moreover, is he aware that other countries are increasing employment in the sector by aggressively using tax and other economic powers to target jobs and new investment?
Given those countries' powers and incentives, does the Deputy First Minister accept that Scotland is operating at a competitive disadvantage as it tries to expand its financial services sector? If not, will he tell Parliament the specific measures that the Scottish Executive has taken as a result of the financial services strategy group's recommendations to boost the competitiveness of a sector that is fundamental to the health of the Scottish economy?
I recognise John Swinney's expression of concern on behalf of his party for those who have experienced, are experiencing and will experience job losses. I made it clear in my statement that we are by no means complacent and that we recognise that the life assurance sector, in particular, has been experiencing considerable difficulties and might continue to do so. The situation is indicative of a complex area that has experienced some particular pressures. Given Scotland's record of promoting such companies over many years, it is inevitable that many of the consequences of pressures on the industry will be felt disproportionately in this country.
That is one of the reasons why we have established the financial services strategy group. Mr Swinney asked me to outline which of the group's recommendations we would develop. However, he will recall that the group was established only last autumn; it is due to meet again in May and in the meantime has set up a number of working groups that have been carrying out work.
I should remind Mr Swinney that we have also produced a financial services action plan, which sets out the priorities for Scottish Enterprise work with firms in the sector. It is intended to address issues such as skills and labour supplies; the provision of strategic locations for companies; improvements in the e-business aspects of the work of such companies; support for the work of the Executive and others in addressing concerns about infrastructure; and the general promotion of co-ordination and clarity. Those measures were endorsed by the financial services strategy group at its first meeting and are now being developed.
As I indicated, we want the strategy group to report by the end of the year. We are committed to working with the industry both through the group and more generally to identify the specific areas where we can assist it.
I welcome the Deputy First Minister's statement and appreciate advance sight of it. I should also declare a family interest: I am not a Standard Life policyholder, but my wife is.
The Deputy First Minister was correct to pay tribute to the strength of Standard Life as a company and I hope that that situation will continue. I also echo the concerns that have been expressed about the jobs lost in the Edinburgh economy.
The finance sector is the jewel in the Scottish economy. Manufacturing has been in recession for a number of years, with thousands of job losses, and the growth in the finance sector has taken up much of the slack. We are now starting to see a contraction in that sector and, although it is important that we do not exaggerate the problem, that is rightly of concern to everyone who has an interest in the Scottish economy.
I have two specific questions to put to the Deputy First Minister. First, does he agree that the way in which Standard Life is structured is entirely a matter for Standard Life, its members and its directors? Does he agree that it is not for politicians to interfere or seek to dictate whether Standard Life should be a mutual company?
Secondly, does the Deputy First Minister agree that what we are seeing in the financial sector is, to a large extent, a consequence of the policies of the Chancellor of the Exchequer, with his £5 billion per year raid on pension funds and his massive expansion of the means test? Those measures have seen the savings ratio—the amount of money that is being saved in the economy—at an all-time low, and they have a knock-on effect on the financial services sector.
The Parliament voted to send a clear message to the Treasury in defence of another vital industry—the whisky industry—but does the Deputy First Minister agree that the Scottish Executive should make the strongest representation to the chancellor, who needs to examine his policies and the damage that they are doing to Scottish financial services?
To pick up on Murdo Fraser's comments on the financial sector, it is important to recognise that the annual report on recruitment trends in Scotland's financial markets, which was published as recently as January, found that 86 per cent of Glasgow respondents and 68 per cent of Edinburgh respondents indicated that they will increase their permanent head count this year. Without diminishing the impact and seriousness of today's announcement, I want to put it in context.
I certainly endorse what Murdo Fraser said; although there is scope for the mutual sector and the co-operative sector in an economy such as ours, it must be for a specific company and its board, policyholders and members to determine its structure. It is not helpful for politicians, and certainly not for ministers, to venture opinions on what must be a matter for the company.
It is perhaps an over-simplification to load the blame for all this on to the Chancellor of the Exchequer. It is clear that there has been a significant decline in with-profits business, which has been one of the key sources of capital for the company. At the same time, the company has a requirement to sustain with-profits business as the capital requirements for that have increased. The board has had to take those factors into account; one of its explanations is that it has had to make a 20 per cent cut in costs in that part of its business—that is a significant cut—to be able to go forward with confidence. That is painful but, given the circumstances of that particular market, it is almost inevitable.
I declare an interest as the constituency MSP for Standard Life. Also, like many people in the chamber and outside it, I am a policyholder in the company.
I am bitterly disappointed to hear that 900 jobs have gone today and I am extremely concerned for Standard Life staff. I welcome the concern that the Deputy First Minister has expressed. I remind him that today's bad news means that nearly 2,000 jobs have been lost in Edinburgh's financial sector during the past three months.
Will the Deputy First Minister convey the Parliament's dismay to Standard Life's management and tell it that many of us believe that this is a strange way to reward the staff and policyholders who have supported the company's mutual status? There is justified resentment. Will he tell me what he intends to do to stem the flow of job losses from the capital and to stabilise and support the financial sector, which is crucial both to Edinburgh and to Scotland?
I certainly do not believe for a moment that today's job losses are a reflection of the quality of the staff who have worked for Standard Life—I welcome the opportunity to say that.
I inform Sarah Boyack and the Parliament that Standard Life has indicated that the reduction in staff will be achieved through a combination of natural attrition, the phasing-out of some temporary contracts and redundancies, and that the company will support those who are affected by the announcement. The staff association has indicated that it has been developing a partnership agreement with the company and will work closely with the management team to ensure that the changes that need to be made are made in full consultation with employees.
I also indicate to Sarah Boyack, because she has raised this with me in the past and it is an important point, that work has been done by the City of Edinburgh Council, through the financial services group that it has set up and the report that it has commissioned specifically on the offshoring of financial services activity—that is not what we are discussing here, but that work is nevertheless relevant in the context of attempts to secure jobs in the financial services sector in Edinburgh. Part of the council's approach, which we certainly endorse and want to support through our enterprise network, is the recognition of the strengths that Edinburgh—and indeed, Scotland—has as a location for financial services. We have a good reputation in financial services and in particular we have people who have the skills and ability to engage with and be employed in the industry. I assure Sarah Boyack that we will continue to try to put those messages across and when I meet Mr Crombie on Friday I will certainly convey to him the concerns that she asked me to express to the management.
I will now take shorter questions and answers, to allow everyone in.
I am sure that the Deputy First Minister agrees that Edinburgh's economy is vital to Scotland's economy. Can he give Edinburgh any assurances today about how the Scottish Executive will help to promote Edinburgh's economy?
There are a number of ways in which the Scottish Executive can help to promote and support Edinburgh's economy. In my answer to Sarah Boyack, I mentioned the importance of the investment that we make in skills and training, in particular in places of higher and further education in Edinburgh, which have an undoubted and deserved reputation. That is one way in which we can help.
Mr Pringle will also be aware of a number of transport infrastructure projects, which I believe can be of considerable benefit to Edinburgh. We recognise the importance of transport in a developing economy. Of course, Edinburgh will also receive its share of the cities fund, to try to promote a vision for the city.
A number of the Executive's policies have practical expression in Edinburgh, but in the light of decisions such as that of Standard Life, we will always look again at the specifics—in this case with regard to the financial services sector. That is why we are engaging with the industry to ascertain whether there might be other means of support that we can give.
I am pleased that the Deputy First Minister has reacted so promptly to today's announcement and I share his and other members' concerns about the possible job losses in Edinburgh.
The demutualization of Standard Life would be a major event that would have serious consequences for the Scottish economy. I am a strong advocate of the benefits of mutuality, which allows companies to be managed by people who care—their members—rather than being left to the vagaries of the stock market. We should do everything that we can to maintain diversity of ownership in the financial services sector. Does the Deputy First Minister agree that we should secure that diversity of ownership? Does he also agree that mutual companies are an asset to the sector? What actions will he undertake to ensure that there is a future for mutual financial institutions?
As I said in my response to Murdo Fraser, I believe that there is a place for mutuality in a mixed economy such as ours. However, it would not be right or proper for ministers to expound a view on whether that would be right for Standard Life; that must be a matter for the company's members.
Today's announcement, as the Deputy First Minister knows, is not the first "significant blow"—as he euphemistically called it—for the Scottish financial sector this year. Is it not true that insecurity is now rife in the industry? Is it not also true that 1,000 employees at Standard Life are paying an enormous price for the failure of the company's management, which invested enormous amounts of equity in the stock market? The Deputy First Minister said that many families in and around Edinburgh would be very worried by the announcement, but is not the word that he is looking for "furious"? A thousand people and their families will be furious; they are paying an enormous price for the failures of management.
Does the minister not accept that the demutualisation of Standard Life makes the company even more vulnerable to a predatory takeover? Is it not true that the Executive's financial services strategy group is presiding over a job slaughter in the industry? Will he assure the chamber that protection will be offered to employees in the financial sector—protection akin to what we see in Europe, where the rapacious financial profiteering that goes on does not take away people's jobs as a consequence?
It is important to recognise that—even after today's news, serious though it is—there will still be some 7,000 employees of Standard Life in Edinburgh. I do not think that it necessarily helps the company or its employees to go into the mode of bashing the company, which has undoubtedly had difficult decisions to take. We must try to support the employees who will lose their jobs. I say to Colin Fox that, although there is uncertainty at the moment, it is self-evident that any prospect of nationalisation of the financial services sector would send absolute shudders down the spine of all those affected.
I declare an interest as a Standard Life policyholder and as a former supplier to the company.
The minister has referred to his chairmanship of the financial services strategy group. What specific strategic objectives has the group set? Will the group undertake a review of the Irish International Financial Services Centre, which has grown from virtually nothing in the past 10 years?
The objective of the financial services strategy group is to ensure a commonality of vision and approach in the industry, which has, as I said, shown remarkable growth in Scotland over the past decade. We must ensure that we continue to build on that. Issues that are of concern to the industry should be identified and recognised by the Executive. Wherever possible, we should take appropriate action to ensure that the industry continues to be strong in Scotland and can be supported in future. I am certainly more than willing to draw to the attention of the group—which has a number of sub-groups as well—any international experience that may be relevant. In spite of the setbacks of today and of recent weeks, we have an industry in Scotland that has shown remarkable growth. The strategy group's objective is to ensure that that growth can be consolidated and built on.
Is the Deputy First Minister aware of indications from Standard Life that 1,000 jobs will be lost before the end of the year? Does he agree that a low-taxation economy would at least safeguard and help to retain such jobs in Scotland?
I think that I made it clear that I was aware that 1,000 jobs would be lost. I am not quite sure what Lord James Douglas-Hamilton is proposing, but it is clear that the rate of corporation tax in Scotland—and, indeed, throughout the United Kingdom—is below the European average, so it is not as though Scotland is at some sort of competitive disadvantage compared with other parts of the UK in that respect.
Does the minister agree that today's announcement is a salutary reminder to us all that we cannot take for granted the continued growth of the Edinburgh economy? Will he give a commitment that, right across the Executive, ministers and officials will work closely with the City of Edinburgh Council to develop policies to ensure the continued success of the economy? To the issues that he has already identified in answer to colleagues, will he add that of affordable housing, the lack of which poses a serious threat to the local economy, has a serious effect on local employers and is a real concern to local people?
I readily give Susan Deacon the assurance that she seeks. It is important to recognise that, although Edinburgh has enjoyed a period of considerable growth, we cannot take the continuation of that growth for granted. As I said in answer to earlier questions, many Executive policies are relevant to these issues. Margaret Curran is in the chamber and she will have heard what Susan Deacon said about housing. Others in Edinburgh—including people in the business community—have raised that issue with me. We will ensure that it is properly addressed.
I declare an interest as a Standard Life policyholder.
I associate myself with comments made by colleagues, particularly by Edinburgh colleagues, on the need to ensure that the Scottish Executive and the Parliament do not take for granted Edinburgh's growth and its success story to date. The announcement is obviously a terrible blow for Edinburgh and for the staff concerned, many of whom are my constituents. Will the minister do all that he can to work with Standard Life to minimise the number of compulsory redundancies? At this stage, can he outline the sorts of support mechanisms that the company will be making available to staff?
A letter that was sent to the First Minister and me earlier today quotes the chairman of the Standard Life staff association, Link, as saying that the company was
committed to minimising the impact of these changes on staff and will be looking at opportunities to achieve the staff reductions through redeployment and natural wastage.
In a telephone conversation with me, Sandy Crombie indicated that the company would make considerable efforts to redeploy staff within the Standard Life group of companies, to secure transfers and, where staff were leaving, to provide the appropriate support to enable them to move on.
I should declare that I am a former employee of Standard Life and that I, too, hold policies.
I share the concern that the minister has expressed for the 1,000 people who will lose their jobs as a result of today's announcement and for their families. Will he encourage the company to resist the need for compulsory redundancies?
The financial services strategy group is defining a strategic vision and is considering what action it can take in the future. What action has it taken in respect of the demutualisation issue? What approaches has the minister made to Ruth Kelly and Gordon Brown on the financial vandalism of the Financial Services Authority's actions in some of its recent rulings? What action has he taken to protect the interests not just of Standard Life, but of other mutuals?
On the question that Fiona Hyslop raises about compulsory redundancies, which I think Margaret Smith also raised, I am not in a position to indicate whether compulsory redundancies will be necessary. That will obviously be a matter for the company. However, I will certainly ensure that those comments are conveyed to the company.
The factors that may lead to demutualisation relate very much to the market; they do not always relate to specific policy. I can assure Fiona Hyslop that the Treasury is engaged with the financial services strategy group—indeed, a senior Treasury official attended the group's first meeting specifically because issues are raised that relate to responsibilities that go beyond the responsibilities and powers of this Parliament. Those issues, which relate to regulation and other matters that affect the financial services, are dealt with at a Whitehall-Westminster level. That is why the Treasury will be involved in the work of that group.
I suspect that the Deputy First Minister may agree that, in such circumstances, Opposition parties always think that the Government should be blamed. It is my understanding of the Standard Life story that the company is meant to be characterised by its greater accountability to policyholders. However, in recent weeks, it has been characterised by high pay-offs to the former chief executive, huge pay rises to the senior executives and—it could be argued—an over-cosy tradition in promotion practices internally and at board level, as well as an investment strategy that has required the FSA to intervene to try to protect policyholders' interests. Does the minister agree that the Parliament's reputation might be enhanced if we focused on and understood some of those issues rather than on simply blaming the Government?
Wendy Alexander highlights the fact that these matters are never quite a simple case in which it is sufficient to blame the Government. To be fair, a number of members—even some from Opposition parties—have not sought to put all the blame on the Government. [Interruption.]
Order.
We are undoubtedly dealing with an area in which there are complex issues. In the life assurance market, there has been a significant decline in the market for with-profit products. Those are all important considerations. To pin the blame on any one individual or any one group of individuals does not do justice to what is inevitably a complex matter.
I draw attention to my entry in the register of members' interests.
Does the Deputy First Minister think, as I do, that the Chancellor of the Exchequer's treatment of capital gains tax in relation to investment funds has been nothing short of scandalous? In 1997, he removed funds' freedom from capital gains tax. Of course, he has now proposed introducing freedom from capital gains tax for disposals for commercial companies, thus disadvantaging mutual companies that work in the investment sector to the advantage of commercial operations across a wide segment of businesses. In view of the conversion of the Deputy First Minister's party to fiscal autonomy at its recent conference, how would he respond to the situation that we are discussing today if he was in charge of the Scottish Executive's financial policy after we had won fiscal autonomy?
The first part of Stewart Stevenson's question highlighted the point that Wendy Alexander made. Quite frankly, to try to score that kind of political point and to put that kind of hypothetical question does not do justice to what is a very serious situation, in which 1,000 people face job losses.
Given the very worrying circumstances, is there not a case for the Executive to reconsider its policy of dispersing civil service jobs away from the Lothian area?
We know that dispersal announcements have been made already. As we have indicated in the past, although there is a presumption in favour of dispersal when specific trigger points are reached, dispersal is not automatic. Indeed, I think that I recall at least one announcement in the recent past in which jobs were secured in Edinburgh. Obviously, the economic circumstances of the areas concerned, including Edinburgh, are relevant factors that ministers take into account when considering relocation.
I express my sympathy for the Standard Life employees who are to lose their jobs. My view is that mutuality delivers a high standard of service to a company's members. Will the minister join me in commending Standard Life for its commitment to the Edinburgh community? Its example is one that could be followed by many other businesses in the city.
I join Robin Harper in commending the company for the range of ways in which it has contributed to the life of the city. As I said, even after the impact of the announcement is taken into account, several thousand Standard Life jobs will remain in Edinburgh. We want to ensure that those jobs prosper.