Scotland’s financial services industry has the potential to increase the sector’s gross value added (GVA) contribution by up to 21% by 2028, according to new research by EY.

For that to happen, EY said key competitive advantages need to be harnessed and barriers to growth addressed.

EY’s first Accelerating Growth in Scotland’s Financial Services Sector report, which is based on detailed economic analysis, in-depth interviews, and a survey of Scotland’s financial services senior leaders, outlines measures that could raise compound yearly GVA growth to 4% — up from 2.9% today.

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.

Personal income tax and lack of support for scaling businesses are 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,” said EY.

“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.”

Scotland’s education pipeline and talent retention were highlighted in the report as strengths of Scotland’s 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.

The report said 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.

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.”

Scottish Financial Enterprise CEO Sandy Begbie 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.”