Fo­cus on the small to think big

The Herald Business - - Straight Talking - IAN MCCON­NELL

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’

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