She talked on a visit to her native Ayrshire last week of bold plans to make Scotland a global powerhouse, put the economy centre stage and to oversee a shift to hi-tech industries that will “reshape the future” of the global economy.
What heady perfume she summoned from this Arcadia. What sweet ambrosia she has brought to the furrowed brows of Scotland’s business. What bold vision: a garden in which the garlands of enterprise bloom, the sun of creativity sparkles and the dry wells flow with technology and innovation.
Oh, and as she spoke, pigs flew overhead.
Now there’s not a company in the land that will not cheer the First Minister’s switch of attention. Business lobbies from the Scottish Chambers of Commerce to the Federation of Small Business have been urging far greater focus by the SNP on the economy for years.
But it is going to take much more than a speech – and even a reconfigured programme for government this week. We lack for nothing in lofty aspiration, growth agendas and over-arching strategies. The floorboards of St Andrew’s House groan under their weight. What is glaringly absent has been action to back up the words.
Scotland’s spending priorities do not look as fully aligned to the ambitions of hi-tech growth as they should. Government spending on enterprise and economic development at £1.04 billion represents just 1.5 per cent of Scotland’s total budget, a figure dwarfed by spending on social protection.
If Scotland is to achieve anything like break-out from the marked underperformance relative to the UK since the financial crisis and equip the economy for the future, then we must shift spending priorities.
Here the First Minister has made an encouraging step – but it is tiny: an additional £45 million to boost Scottish business R&D. To put this in context, it equates to just 0.06 per cent of total Scottish Government spending.
Now to be fair, “boosting investment” is much more than extra cash for R&D. Business investment includes transport equipment, information and communication technology (ICT) equipment, other machinery and equipment, cultivated assets, intellectual property products and other buildings and structures. Business investment in Scotland totalled £11.3 billion last year, or six per cent of the UK total and was down eight per cent on 2015 – the first fall since 2010. In contrast, UK business investment continues to grow, albeit at a modest pace.
As for our business universe, we are indebted to Alison O’Connor of the Scottish Parliament Information Centre for an awesome 60-page analysis of Scotland’s Business Base just released at the weekend. This reveals that Scotland’s business count has been on an upwards trend since 2000 and is now at its second highest level since then – though the growth still lags the UK. There were 350,410 private sector businesses in Scotland last year, or 6.4 per cent of the UK total. And the gap between Scotland’s business base growth rates relative to the UK is now the widest it has been since the data series began.
What is holding back business growth? Regulations and red tape were the most commonly cited obstacles to business success, with 45 per cent of SMEs reporting this as the key issue. Other challenges highlighted were “competition in the market” (42 per cent) and taxation, VAT, PAYE, National Insurance and business rates (38 per cent). Only one in five businesses cited the UK’s exit from the EU as an obstacle.
Business morale has clearly not been helped by years of constitutional politics that have dominated attention at Holyrood and the uncertainty prolonged by demands for a second referendum. A shift away from this obsession towards the economy and growth is at least an encouraging starting point.
Optimism, orders, exports and jobs defy the doom-mongers
For some weeks I have been highlighting the more encouraging economic news amid the continued wailing over the “ongoing Brexit disaster”.
Several new positive pointers came in the past week. Scottish engineering firms reported a fourth consecutive quarter of growth. Low borrowing costs and the fall in the pound have helped raise orders and exports. The quarterly survey by the Scottish Engineering industry group shows 44 per cent of firms saw a rise in UK orders over the past three months, with 26 per cent down. Exports were up for 39 per cent of companies, and down for 25 per cent. Asked if their business outlook is optimistic, managers at 36 per cent of firms said they were, with 11 per cent being pessimistic.
Across the UK, growth in manufacturing accelerated last month, with output, orders and employment all picking up. The Market/CIPS purchasing managers’ index (PMI) survey found that production increased at the fastest pace for seven months in August, helped by a pick-up in new orders. Rob Dobson from Markit said the sector continued to make “solid progress”. He added that manufacturing should help to support growth in the economy during the third quarter. Meanwhile, the rate of job creation in the manufacturing sector rose at the fastest pace for 13 months.
And the latest CBI quarterly service sector survey showed that business and professional services firms reported business volumes growing at the fastest rate since May 2016, while consumer services companies – which include hotels, bars, restaurants, travel and leisure – saw volumes rise at a similar pace to the last quarter. Business volumes are expected to accelerate in consumer services over the next quarter while business and professional services expect to see stable growth.
Finally, the Bank of England reports consumer credit growth has moderated while business lending has picked up, with a 4.2 per cent increase in borrowing by non-financial companies, the fastest since the financial crisis.
I do hope someone will pass this on to Mike Russell, Scotland’s Minister for Brexit and Disaster Girning.
◆ In last week’s column on GERS I attributed the work of the Budget Process Review Group to Audit Scotland. In fact the work was led by Scottish Parliament officials and the hard working clerks of the Finance Committee in particular. My apologies for this, and a bouquet to the aforementioned clerks.