London not a drain, RBS expert says

The Royal Bank of Scotland's head of group economics has defended London against critics who insist it is a "drain on the rest of the UK".

The City has been defended by the chief economist of  RBS
The City has been defended by the chief economist of RBS

The UK would not benefit if economic growth in London was constrained as some have suggested, Stephen Boyle said.

Scotland's First Minister Alex Salmond has described London as a "dark star", echoing the views of UK Business Secretary Vince Cable, who said London is becoming "a giant suction machine draining the life out of the rest of the country".

Mr Boyle refused to take a stance on Scottish independence and did not address any one critic in particular, but firmly set himself against those who attack London's economic strength.

"I'm very much in the camp that says London does extremely well, for understandable and legitimate reasons," he said in a speech at the Chartered Institute of Public Finance and Accountancy Scottish conference in Clydebank, West Dunbartonshire.

"It's just got fantastic advantages that it continues to capitalise on.

"The other camp is London is a drain on the rest of the UK, it sucks the life out of the UK.

"It would not benefit the rest of the UK to try to constrain London. The stuff that happens in London would not choose to go to Clydebank if you stopped it being London.

"It would just not happen in the UK. Other parts of the UK have to find their own ways of becoming stronger."

Mr Boyle also warned that the present economic recovery is precarious and could be knocked off course by a number of internal and external factors, and could cause interest rates to rise as early as this summer.

"At the back end of last year the economy was doing well, better than it had done for some considerable time," he said.

"Consumer confidence was rising, in fact it was higher than it was for six years.

"In the first half of the financial year to October, the economy was growing faster than it had been for six years, there were more people in work in the UK than there had been ever, the housing market was beginning to take off and in retail sales volume was up 3% year-on-year."

But he added: "What could throw us off track in this decent recovery?

"The dog that didn't bark last year was the eurozone. The only thing that went wrong was Cyprus and that was pretty minor, but that's a problem that's not going to go away, and won't go away for a decade. It could flare up at any time."

He also said the apparent spare capacity in the economy, in terms of jobs and property, may not be suitable to stimulate growth.

"If that's the case and there isn't that spare capacity then we could run up against constraints sooner than I think and the Bank of England could be forced to put interest rates up," he said.

"I don't think that's going to happen, but if it is going to happen we should know about it this summer because levels of employment are really rising quite quickly and if the people out there who aren't working aren't the right kind of people then wages are going to start rising quite soon."

Conference later heard from Blair Jenkins, chief executive of the pro-independence Yes Scotland campaign.

The recent warnings by banks such as RBS, Lloyds, Barclays and in particular Standard Life of the risks of independence were "choreographed" by the Treasury and "overcooked" by the media, he suggested.

He also reaffirmed Yes Scotland's position that London is a drain on the wider UK economy.

"If you were to suggest to me that there was a degree of choreography and coordination in the various announcements in the last few weeks I would say 'You may say that, and I couldn't possibly comment'," he said.

"When George Osborne ruled out a currency union without taking the trouble of talking to the Nobel Prize winning economists who recommended it, it provided the trigger for various companies to say in their annual reports that they are having to build this in as a risk factor.

"What Standard Life actually said, which I thought was very measured and calculated, was somewhat overcooked by the media and intended to induce concern and panic."

He added: "It was Vince Cable who described London as this giant suction machine draining the life, energy and money out of the rest of the country.

"The ONS said in the five years since the banking crisis there had been a net loss of 300,000 jobs in the rest of the UK and a net increase of 300,000 jobs in London, which tells its own story.

"We talk more and more to people in the north of England, where politicians and local authorities are now beginning to think that Scottish independence is actually going to be a good thing, because if you have dynamic economy adjacent to you then you are potentially going to the get the jobs and growth in their economy that they sure aren't getting now.

"There are parts of the north of England that have much stronger sense of grievance with the way the UK economy works and its structure than I think Scotland does, and there are parts of the north of England that are much more economically blighted than Scotland."