HOW ironic that the happier and more confident we feel, the more that economists despair.
We are supposed to be “re-balancing the economy”, boosting manufacturing and driving ahead with exports. But of these there is little sign in the latest numbers. Instead, our economy continues its pesky dependence on the consumer.
The broad services sector accounts for three-quarters of our economy and the consumer is its beating heart. Consumer spending rose 0.9 per cent quarter on quarter in the April-June period. And despite miserable weather in some parts, retail sales volumes UK-wide grew 0.7 per cent. Gains in the distribution, hotel and catering sectors provide further support.
This is for economists “the wrong sort of growth”. Now they are right in their insistence that we need to broaden the recovery. But without a confident consumer sector, the outlook for employment and pay growth would be bleak.
Despite a dip last month on Greece and Eurozone worries, consumer confidence is still at a historically high level, which should be supportive to consumer spending, underpinning growth over the rest of 2015. A tighter labour market, October’s increase in the minimum wage and the introduction of the national living wage next April should ensure that pay growth remains above 3 per cent into 2016. Indeed, a growing problem for firms now is not a lack of jobs but a shortage of skilled labour (see below).
Business Gateway boom
From Business Gateway, Scotland’s national business advice service, comes some heartening figures. The number of people contacting the service has reached its highest level since it was decoupled from Scottish Enterprise in 2008.The figure has risen by almost a third to 26,240 for the 12 months ending March.
More than three-quarters (76.5 per cent) of companies receiving support from BG are trading at or above the £82,000 VAT registration level have a significantly better chance of surviving beyond three years compared to those who don’t work with the service.
Hugh Lightbody, chief officer at the Business Gateway National Unit, sees “a clear and steady rise in the numbers of businesses contacting Business Gateway throughout the year, illustrating that businesses return in numbers to use the service over an extended period.”
Economic analysis on Scotland’s economy tends to downplay the contribution of start-up and micro business activity. Most will fold, fail or sell up before growing into medium-sized businesses.
But nonetheless, business start-up is the seed corn from which companies can grow into successful and significant contributors to Scotland’s economy.
And micro firms, through benefit-in-kind arrangements and collaborative working, can also initiate and sustain business clusters greater than the sum of their constituent parts.
This is particularly the case with IT and digital business clusters described in Douglas McWilliams’ book The Flat White Economy. Some independent research into the dynamics of this sector and its potential growth in Scotland’s cities would fill a notable gap in our knowledge of this growth area and what could be done to develop it.
Why persistent skills shortages?
Scotland is suffering, not from a lack of employment opportunity but from a continuing and glaring lack of suitably qualified entrants to the workforce.
The latest Bank of Scotland jobs survey again reported continuing shortages of available candidates for vacant posts. This has been a regular feature of these reports for at least two years.
And last week, FSB Scotland warned that skills shortages are a growing concern: “Industry, educators and government”, it declared, “must redouble efforts to ensure that we’re giving those going into the world of work the right skills to thrive.”
The words could have been taken from business commentary more than a decade ago. Yet the problem persists, despite a plethora of public sector skills training agencies.
What’s going wrong? There is a persistent problem with the literacy skills of school-leavers – a damning verdict on the competence of Scotland’s schools and teaching staff.
And it doesn’t help to read of a dramatic fall in the number of students taking IT courses in Scotland. Over the last five years the number has tumbled by more than half from 45,900 in 2009-10 to 21,800 in 2014.
MSP Angela Constance, Cabinet Secretary for Lifelong Learning, recently dismissed the importance of IT courses as “how to work a mouse”. Yet the FSB survey found 40 per cent of member firms reporting problems with skills shortages, with software, web development and digital marketing the most commonly cited skills that staff lacked.
Scotland’s skills problem needs a thoroughgoing investigation of what’s going wrong and how the money on skills training can be more effectively spent.
FDI record for Edinburgh
Further evidence that Edinburgh is powering ahead as Scotland’s business as well as administrative capital. Foreign direct investment to the city last month was the highest since the figures were first recorded in May 2008. Eleven companies headquartered in countries including the United States, Germany, South Africa and the Netherlands announced plans to move into the city. The average each month is normally around two or three.
Billions of pounds worth of investment is being ploughed into the city’s 12 key development sites. The companies range from high-tech life sciences and software firms to boutique restaurants and retailers.
A growing worry can be detected across business in Scotland in the approach to the Holyrood election next year. On top of the likelihood of a substantially enlarged presence of the Left-leaning SNP and the Greens comes renewed speculation over the timing of a second independence referendum.
Having just emerged from more than two years of uncertainty over last year’s vote, the prospect of another prolonged period of delayed investment plans is galling. It could wreak havoc in areas ranging from major defence spending on Clydeside to long-term investment and expansion plans across the manufacturing sector.
Looming tax changes and “more powers” legislation are likely to add to costs and regulatory burdens for cross-border businesses.
After the corrosive experience of last year’s referendum, few are in a mood to speak out only to receive a belting from the “fundies”. Others fear that airing their concerns would prejudice business relations and contracts with the SNP administration. But at some point the potential damage to business investment needs to be pointed out. Potential “behavioural effects” range from mothballing investment to relocation. Silence should not at all be taken as acceptance. «