Business demands 'decisive action' on Scottish budget

Published on Tuesday 19 October 2010 21:59

Holyrood was last night facing demands to act decisively in the wake of UK government spending cuts or risk "months of speculation and uncertainty" for thousands of Scottish businesses.

As Chancellor George Osborne outlined details of his eagerly-anticipated spending review, business leaders north of the Border urged Scottish ministers to provide a "clear road forward" for Scots firms.

Much of the impact from yesterday's cuts will only become clear after Scottish finance secretary John Swinney decides his spending priorities over the next month.

Scotland faces a near-7 per cent reduction in real terms in its block grant from the Treasury by 2014-15.

The Federation of Small Businesses in Scotland, which represents the views of some 20,000 small and medium-sized companies, said: "We need to know what the Scottish Government's priorities will be and, crucially for our members, what will happen to local government funding.

"The choices to be made here in Scotland must now put economic growth in our communities front and centre."

The Scotland Office said the 900 million cut in next year's Scottish budget, set out in Osborne's spending plan, was less than the 1.2 billion forecast by the SNP administration.

Liz Cameron, chief executive of the Scottish Chambers of Commerce, acknowledged the smaller-than-expected budget reduction but said "some serious challenges remain".

She added: "The Scottish Government must remove the barriers to success through tackling regulation and ensuring fair rates burdens."

CBI Scotland's director, Iain McMillan, welcomed the coalition government's efforts to cut the public spending deficit "in a timely fashion".

He too stressed the need for the SNP to grasp the nettle and spell out the impact on services north of the Border.

"It is important that the Scottish Government, in its own upcoming spending review, acts to reform public services and protect GDP-enhancing investments in infrastructure as well as support for skills development, research and development, and business support," McMillan said. "This will enable firms to grow and create jobs."

Financial markets reacted coolly to yesterday's spending review as it was widely considered there were no shocks for the corporate world that had not already been flagged.

One analyst summed it up: "It was severe, but no more than expected. There were no unexpected hand grenades for markets."

The FTSE 100 index closed just over 25 points higher at 5,728.93 after being up by a similar level in early trading, and flat at 5,704 when the Chancellor stood up.

Tom Vosa, chief economist at NabCapital, said: "There were no surprises that were not telegraphed. Sterling improved against the dollar, but I think that was more a dollar story than anything particularly to do with the spending review."

Sterling later trimmed its gains, slipping to $1.573 from the day's high of $1.576.The euro edged up to a day's high of 88.21p. Gilts also trod water.

Richard Hargreaves, head of equities at Hargreaves Lansdown, said: "I cannot see anything of significance that had not been flagged before. It is difficult to get a take on it until we see more concrete details of government department cuts."

However, Trevor Greetham, investment director at Fidelity Investment Managers, said there remained risks to the government's plan to cut the deficit from 11 per cent of GDP to 2 per cent by 2014.

"Ironically, public spending cuts could lead to a further increase in government debt if they push the economy back into recession," he said.

The Association of British Insurers welcomed the Chancellor's commitment to set up a green investment bank with 1bn of funds, while British Retail Consortium director-general Stephen Robertson noted: "These are serious plans to tackle the budget deficit and will remove some of the uncertainty which was driving down consumer confidence."

Richard Lambert, director-general of the CBI, welcomed the extra 2bn a year on capital spending, and the focus on areas that supported growth such as transport, education and science and the green economy.

"The spending cuts, though painful, are essential to balance the UK's books and build its future prosperity," added Lambert.