Why Scotland’s businesses may go bust in lockdown while English rivals survive – Murdo Fraser MSP

The lower level of help for businesses with multiple outlets during the coronavirus lockdown will end up hitting Scotland hard, while Finance Secretary Kate Forbes may have put the Barnett Formula at risk in a tweet, writes Murdo Fraser MSP.

Kate Forbes may have put the Barnett Formula at risk in a tweet, says Murdo Fraser (Picture: Andrew Milligan/PA Wire)

Last week I was among a number of MSPs who received a letter from Karen Forret, managing director of Wilkies Ltd, the Scottish high street fashion chain. Wilkies have 14 stores in towns across Scotland, employing 131 members of staff. Having had to cease trading due to the coronavirus lockdown, they have been offered one business support grant from the Scottish Government of £25,000.

What infuriates Karen is that equivalent businesses south of the Border would be receiving this grant for each property, a total of £350,000. She cannot understand why a long-established Scottish business like hers is not getting the support from the Scottish Government that similar businesses in England are receiving from Westminster.

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This is by no means an isolated experience, nor does it apply only to the retail sector. Robert Allan’s family business runs three hotels in Scotland – The Bridge of Cally and Breadalbane Arms hotels in Perthshire, and The Inn at Lathones in Fife. He will be receiving a single payment of £25,000 from the Scottish Government, not the £75,000 that an equivalent business in England would be paid. He warns this could lead to the permanent closure of his rural businesses, where they are often the only employer in the area where they are situated.

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The Scottish Government, in the form of the Finance Secretary Kate Forbes, defends the choices it has made, claiming that there are hundreds of businesses in Scotland receiving support who would not be entitled to it south of the Border. They also claim every penny that has been provided in Barnett Consequentials from the UK Government for assisting business with the coronavirus pandemic has been passed on. Without seeing detailed figures, it is impossible to verify whether these statements are correct. However, it is beyond doubt that there are many businesses in Scotland who feel short-changed by the SNP Government, and are warning that there will be serious consequences for their future viability if the business packages available in England are not matched here.

Threat to Barnett Formula?

The allocation of funding to Scotland is determined by the long-established Barnett Formula, which provides that Scotland receives a population share – around 8.5 per cent – of additional spending announced in Westminster in what are devolved areas. In a series of tweets at the weekend, Kate Forbes appeared to suggest that this was a funding approach that the Scottish Government now had an issue with, stating “We could do a lot more if consequential funding from the UK Government was based on business need rather than population share”.

It is unclear whether this was simply a throw-away comment from the Finance Secretary, or if it represents a shift in approach from the Scottish Government. If the latter, it is a statement of great significance. The Fiscal Framework, which governs financial arrangements between the UK and Scottish Governments, is up for review next year, and Treasury officials will be taking a great interest in any change in stance from the Scottish Government on how funding to Scotland will be allocated.

It has been the application of the Barnett Formula over many years that has led to today’s situation where public spending in Scotland is in the region of £1,600 higher per head of population than the UK average. For years, politicians in Wales and the North of England have been agitating for a different approach, believing that the current system advantages Scotland at their expense, and arguing for a shift towards a needs-based formula. They are likely to seize on the Finance Secretary’s words and use them to argue with Treasury for a change of approach. In the long run, this could cost Scotland dear.

Budget now out of date

The Scottish Government’s justification for their position seems to be a claim that Scotland has relatively more small businesses than other parts of the United Kingdom. Published data does not, however, appear to support this claim. Per head of population, there are fewer private businesses in Scotland than the UK average, in relation to all but the largest companies. Something here doesn’t add up.

Scottish business is clearly in perilous times and does need greater support than what is currently on offer from the Scottish Government. If, as they say, all the additional funds coming from Westminster are being deployed, where might that extra support come from? In that respect, we need to look at the Scottish Government’s Budget passed by Parliament just last month, and already looking very out of date.

There are two flagship policy areas where a delay in implementation has already been announced by the SNP Government – the devolution of social security benefits, and the introduction of 1,140 free nursery hours for three- and four-year-olds. These delays should free up additional sums which could be used for business support at this time.

There are other areas of the Budget where additional resource might be found, for example External Affairs, which funds the travel of Scottish ministers to overseas events, increased from £24m last year to £26m this year. It is hard to see how these funds can be utilised as intended throughout much of the coming year, and there is surely scope for this money to be better spent in support of Scottish business. Similarly, any resource allocated, including civil service time, for constitutional reform and pushing for another independence referendum must now be redeployed in direct economic support.

This is not just about saving jobs and businesses, vital as these objectives are. The strength of the Scottish economy determines how much cash we will have available to fund our vital public services such as the NHS. Every business failure, and job loss, amounts to a reduction in tax revenue which, if it cannot be made up elsewhere, will make for hard choices when it comes to public spending.

Against this backdrop, it is clear that much more needs to be done by the Scottish Government to support struggling Scottish businesses. If they fail to act now, we will all be paying the price for many years to come.

Murdo Fraser is a Scottish Conservative MSP for Mid Scotland and Fife

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