Focus on the small to think big
IT says much about the depth of the UK’s troubles that Chancell or George Osborne has seized upon a recent run of slightly less bad economic data as a sign that the country is coming out of “intensive care”.
His use of the phrase “intensive care” is curious. As a patient, the UK economy appears to have received little of the right kind of care since the Coalition Government came to power, in terms of nurturing growth, let alone anything intensive.
Mr Osborne’s economic policies so far appear to have done much more harm than good, with his vision of a “Britain carried aloft by the march of the makers” still looking fantastical.
And the Chancellor’s latest spending review last month, in which he kept up the rhetoric as he attempted to make it even more difficult to claim welfare benefits, looks unlikely to do anything to improve the health of the UK economy.
All of that said, in such grim times, it is important to seize upon what positives are out there. It was thus heartening to see a survey recently showing that confidence among small businesses in Scotland had risen in the second quarter to its highest level for more than a year.
This survey, from the Federation of Small Businesses, also showed the strongest hiring intentions among small firms north of the Border since comparable records began in 2010.
Colin Borland, the FSB’s head of external affairs in Scotland, viewed this survey as “encouraging”. And he highlighted an improvement from recent past surveys by the FSB, in which it had either been reporting bad results or “looking very hard for positive things”.
However, Mr Borland is realistic about where we are at.
He declared: “Obviously we are coming from a very difficult place – there is no point pretending otherwise – and it is all relative.”
Mr Borland is right to welcome the improved confidence levels among small firms. But he is also wise not to get carried away by a few better signs. This is going to be a long haul. And Mr Osborne’s misdirected austerity drive has helped ensure that it will be an even longer haul than it might have been otherwise. It is still far from clear that the Coalition Government recognises that the main problem in the UK economy is a lack of demand, amid continuing high unemployment and widespread fear of job losses, wage freezes or paltry rises, and severe cuts in welfare spending.
Amid the continuing UK economic gloom, Strathclyde University’s Fraser of Allander Institute last month cut its forecast of growth in Scotland in 2014 still further, from 1.7% to 1.6%, in spite of all the noise from some quarters about the slightly less bad economic indicators. It had in March cut its 2014 growth forecast for Scotland from 2.2% to 1.7%.
Fraser of Allander is forecasting growth of just 0.9% this year – less than half the 2% rate which is calculated by the think-tank to be required to prevent a rise in unemployment.
Brian Ashcroft, economics editor of the Fraser of Allander Institute commentary, said last month: “My concern is I just can’t see where the sources are for quite a strong recovery going forward.”
This sums it up. It is easy to see factors which will dampen future economic activity, but just where are the catalysts for some kind of more meaningful recovery?
Five years after the onset of the Great Recession, the UK is still well adrift of its early-2008 peak in output. Some members of the Bank of England’s Monetary Policy Committee have appeared at pains to keep things in perspective, amid the less bad economic signals.
At his final Monetary Policy Committee meeting last month, former Bank of England Governor Sir Mervyn King continued to push, albeit unsuccessfully, for an immediate £25 billion increase in the quantitative easing programme, to £400bn. QE is aimed at stimulating economic activity by boosting money supply through the purchase of Government and corporate bonds, using central bank reserves.
Returning to the FSB survey, the investment intentions of small businesses in Scotland in the second quarter were actually even weaker than they were at the same time last year.
This appears to signal continuing wariness among small firms over the UK economic situation. Many small businesses, including those in retail and tourism, depend heavily on consumer spending. Consumers’ spending power has been hammered, and there is more to come as the UK remains in the grip of the Coalition Government’s austerity programme.
But back to the positives, economic development agency Scottish Enterprise last month highlighted a rise in Regional Selective Assistance awards to small and medium-sized enter- prises to £20.2 million in the year to March, from £15.7m in the prior 12 months.
This demonstrates that there are plenty of small businesses with big ideas, and an appetite to invest and create jobs, in spite of the economic gloom. Mr Borland would like to see more RSA awards to smaller firms. About 53% of the RSA funding awarded in the year to March went to big businesses but medium-sized enterprises account for 99.3% of all businesses in Scotland.
Small firms, by their nature, tend to be less inclined to up sticks and move to a cheaper location overseas than large companies, so any further increase in RSA funding to these businesses would be positive.
There were meanwhile positive signs, in the FSB survey, that the affordability and availability of bank funding for small businesses in Scotland have improved slightly. It is important to remember this improvement is coming from a low base.
However, as Mr Borland emphasised, improvement is better than deterioration. Amid the continuing grim economic situation in the UK, something is better than nothing.
While the FSB’s Colin Borland reports improved confidence among small firms he says we are coming from a ‘difficult place’