Hopeful signs and stark messages | Glasgow Chamber of Commerce
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Hopeful signs and stark messages

Up and ready on Wednesday morning for a short interview at 7am with Good Morning Scotland on the prospects for the Budget being announced that day. 

The BBC was looking for commercial background noise and where do you get that at 7 o'clock in the morning? You get it at Blochairn Fruit Market.  So I get interviewed surrounded by oranges, passionfruit and lemons.

There is always a demand for business views on the Budget and so this is the time of year I really get up to speed with the economic issues of the moment.  And it helps to have the most recent issue of the Fraser of Allander's Economic Commentary to hand.  It gives you an excellent and detailed independent assessment of the Scottish economy and it is now edited by a good friend of the Chamber, Kevin Kane

There are some hopeful signs and some stark messages.  Economic prospects for Scotland are improving with the Institute's forecast for output growth in 2014 increased by 0.5% to 2.3%.  The positive signals from survey work by Scottish Engineering and Scottish Chambers of Commerce suggest that the production sector is growing in confidence. Indeed in the SCC survey manufacturing optimism has reached its highest level since 2006 and orders are rising.

But for the Fraser of Allander there is an underlying problem. Despite these signals, overall economic growth is still coming mostly from consumer spending which is only possible because households are saving less. Households are still heavily over-borrowed and enduring falling real incomes.  

To rebalance the economy we need to see much more growth coming from increased business investment and from exports.  The Fraser points out that business investment in Scotland is still 14% below its pre-recession peak and while we have seen some good export performances, especially from whisky, trade figures are not yet showing consistent improvements.

So amongst the measures I highlighted in the GMS interview were increased investment allowances for business and moves to get rid of Air Passenger Duty.    The Fraser of Allander made the interesting point that there is good evidence to show that tax support for business investment is at its most effective in an economic upswing when confidence is rebuilding and businesses are more inclined to invest.    And for exports, Air Passenger Duty is essentially a tax on trade.    York Aviation estimates that is costing Scotland up to £210m in lost tourism spend and two million passengers per annum.

So what did the Budget deliver?  There were quite substantial increases in investment incentives with the cap on the Annual Investment Allowance for plant and machinery doubling to £500,000 and the closing date extending a further year to the end of 2015.  Several measures were announced to reduce energy costs - with limited reaction from the renewables sector to date given that this must have reduced the rates of return on renewable projects.  APD was reduced for long haul flights which is a nod to the need to open up much greater trade with non EU countries. But it is only a nod. In the Chancellor's own words APD 'hits exports (and ) puts off tourists'  We've agreed in the past with the airlines and airports that APD should go.  One very small step has been taken in that direction.

There was better news for the Glasgow drinks industry with the scrapping of the alcohol escalator, a penny off beer duty and a duty freeze for Scotch.  And there were some announcements on export finance increasing the funding available and reducing its cost.

Tucked away in the supporting Budget documentation was a comment on the 'good progress'  being made towards a City Deal aimed at improving infrastructure, strengthening the labour market and providing support for business growth in the Glasgow city region. I know that there is an enormous amount of work being done in the City Chambers to deliver this Deal with the UK Government and my fingers are securely crossed that it pays off.  The Treasury's remarks suggest that a Deal is looking very likely.

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