Bill Jamieson: Budget shot in the arm needed to combat PTSD

Pizza Express has teetered on the brink of bankruptcy. Picture: Tolga Akmen/Getty

The hope is that confidence will quickly recover. Three and a half years of mayhem are put behind us. The storm dies down, customers wooed, orders placed, deliveries cranked up.

But I’m not so sure a swift snap back to normality can be counted on. After such a long period of chronic uncertainty, businesses large and small – and not just those dependent on supplies and sales volumes with the EU – may be at risk of a condition akin to Post Traumatic Stress Disorder – an inability to move quickly on, even assuming the road ahead seems clearer.

It’s not just the continuing domestic political mayhem with an election pending; or the multiplicity of trade and regulatory loose ends with the EU that will take years to resolve, or that day-to-day supply chain anxieties will continue to command immediate attention.

Even with a settlement of sorts on the way ahead, it is going to take time for businesses to assess the market shifts and economic cross-currents that have unfolded in the background while the Brexit drama has unfolded centre-stage.

We may have avoided recession for now. But the economic pulse has slowed. The loss of business investment cannot quickly be made good and will be felt for years.

Here in Scotland that investment hiatus is likely to continue if demands for a second independence referendum move centre stage. Businesses may have to prepare themselves for renewed uncertainty over the future of the Union and the questions that would attend such a period: a separate currency for Scotland? Application for Scotland to rejoin the EU Single Market and Customs Union? A hard border on the Tweed, which First Minister Nicola Sturgeon has not ruled out?

Meanwhile, larger forces beyond our control have also been at work: trade tariff wars between the US and China; higher US tariffs on EU goods (single malt Scotch a hapless victim); an economic slowdown in the EU itself with Germany, its largest economy, close to if not already in recession and worrying signs of slowdown in both the US and China.

Last week’s global economic forecasts from the International Monetary Fund warned that global GDP growth in 2019 will be the weakest since the financial crisis. Its World Economic Outlook forecasts revised down its GDP projections to show world growth (based on purchasing power parity weights) slowing to three per cent this year from 3.6 per cent in 2018 before recovering slightly next year.

But others, such as Oxford Economics, tracked by the Scottish Government, believe this to be too optimistic. It expects growth for the advanced economies to be the weakest since the midst of the eurozone crisis in 2012. It is more circumspect than the IMF about the likely boost to global growth from recent monetary policy loosening. This, it argues, “will provide only a limited growth boost”.

Major central banks have been lowering interest rates and resuming Quantitative Easing to help arrest a global downturn. But many doubt that they have sufficient firepower left in the monetary armoury for policy action to have much effect.

Here at home, there are signs that the banks are reining in business lending amid growing signs that many debt-laden companies have fallen into administration or bankruptcy: prominent among them have been construction giant Carillion, House of Fraser, Thomas Cook and now, tottering on the edge, Pizza Express.

The proportion of banks expecting to cut access to credit over the rest of the year now outweighs those anticipating easier access to loans – indicating that the final three months of the year will see the sharpest tightening in financial conditions since 2008.

Howard Archer of the EY Item Club says: “This suggests that lenders are increasingly cautious about their corporate lending as the economy struggles and faces a myriad of uncertainties… There is also the weakened global economy and fractious trade environment.”

Caution is also evident in household borrowing, with consumer unsecured debt such as credit cards also decreasing. Figures from the Office for National Statistics last week showed shoppers are still reining in spending with retail sales volumes flatlined in September after a 0.3 per cent decline in August.

Fatigue may well be a big factor in determining the political outlook. But I fear it may also have an impact on business behaviour in the period ahead. A spur is needed. But what?

An immediate first step is a budget on 6 November – assuming we have a functioning government – that provides some direct relief for the small and medium-sized business sector. That means radical business rates reform as firms struggle with surging property costs.

The Federation of Small Businesses  is calling for a major reduction in business rates bills, as thousands of small firms struggle to stay afloat amid spiralling operating costs. It recommends that the Retail Discount which allows small retailers with rateable values of up to £51,000 to claim a 33 per cent discount on their rates bills – be increased to at least 50 per cent, made permanent and extended to small firms operating in other sectors, including manufacturing.

FSB national chairman Mike Cherry says: “Business rates reform must be a priority. This unfair, regressive tax – which hits firms before they’ve made their first pound in turnover, let alone profit – continues to threaten the futures of small firms all over the country. We’ve secured important business rates mitigations in the past, but now is the time for a significant reduction in small business bills.

“Fundamentally, the business rates tax serves as a disincentive to invest. You spend money on bettering your property – by installing solar panels, or improving workplaces, for example – and the next thing you know your rates bill has shot up. It’s ludicrous.”

Similar measures for Scotland should follow suit. Such a package, accompanied by a temporary cut in VAT from 20 per cent to 15 per cent, would provide a fillip for households and businesses alike – and help mitigate the threat of an economic PTSD in the period ahead.