Budget 2021: Encouraging start on long road to recovery - David Lonsdale

The tricky task before the Chancellor in yesterday’s Budget was to help the economy navigate the next few months, as large swathes of industry hopefully begin to re-open, whilst at the same time charting a course for the next few years.

Help has been extended for hard pressed retailers
Help has been extended for hard pressed retailers

Budgets often begin to unravel in the days afterwards, however a preliminary analysis suggests he may have pulled it off and kept to the Prime Minister’s pledge not to pull the rug out from under stretched firms.

For Scotland’s retailers – the country’s largest private sector employer – there is much within the Budget that they can get behind. The continuation of the furlough scheme is sensible and necessary with non-essential retailers remaining closed and without a firm date for re-opening – albeit we would question what will take its place if there are – heaven forbid - further lockdown restrictions introduced later in the year.

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The Chancellor’s announcement of further business rates relief will not directly affect Scottish shops. However, the Barnett consequential revenues emanating from the Chancellor’s decision should ensure the far more generous 100 per cent year-long relief for Scottish retail and hospitality envisaged by the Finance Secretary can now be confirmed.

It’s a notable contrast in approach, with Finance Secretary Kate Forbes having moved swiftly last month to back the retail industry with her plan for year-long rates relief, providing a cashflow and confidence boost for a sector which remains largely closed and faces an uncertain few months.

The Chancellor’s temporary extension to reduced VAT for eating out should incentivise consumers and support food-to-go retailers – many of which are currently operating on a restricted basis due to government Covid constraints - and shops which operate cafes.

The positive indications from the OBR of a faster than expected recovery will also be welcome – and will hopefully include a swift return to normal patterns of consumer spending – something assisted by the decisions to freeze a number of duties including on fuel. If spending doesn’t bounce back then there could be a case for further direct stimulus later in the year to encourage consumer spending.

Nonetheless, the economic legacy of Covid will be felt for some years to come. That’s why a rethink of the recent scrapping of tax free shopping should be kept on the table, along with much needed reform of the apprenticeship levy which simply isn’t working for levy-payers in Scotland. The failure to link hikes in corporation tax with sustained reductions in business rates was a missed opportunity.

Both the UK and Scottish governments have taken extraordinary steps to protect the Scottish retail industry and its 230,000 jobs during the pandemic. They need to keep in mind the fragile condition of all businesses right now, and reflect on whether further policy burdens, fiscal or regulatory, are sensible whilst businesses recover. Recent proposals from a Scottish Government appointed commission for new levies on out-of-town car parking spaces – which are already liable for business rates - should be firmly knocked on the head.

It will be a long road to full recovery for businesses just as much as it will be for public sector finances, but the Chancellor has made an encouraging start.

David Lonsdale, Director, Scottish Retail Consortium