06 Dec 2024
By Stuart Patrick, Chief Executive of Glasgow Chamber of Commerce
We now have a clearer sense of the two national governments' plans for managing the economy over the coming year. Given the particular interest Glasgow Chamber of Commerce has in growing Glasgow’s economy, have their decisions helped?
The wider context of national economic growth obviously influences what will happen in the UK’s biggest cities and it helps that both governments have at least put economic growth in their list of top priorities. But we are having to wait to see any improvement.
On Wednesday, the British Chambers of Commerce published its quarterly economic forecast. The growth estimate for 2024 was downgraded from 1.1% to 0.8%, with rising taxation being suggested as a factor. Reaction to the scale of the increase in Employers National Insurance payments has been almost universally negative and the BCC expects unemployment to increase -albeit marginally – ‘due to increased employment costs flowing from NICS and new employment policies’.
Average earnings are also expected to grow more slowly next year ‘as businesses deal with increased costs, including NICS and (the) national living wage’. Just as worrying is the expected dip in 2025 for an already low rate of business investment.
The better news is that growth ‘has been revised upwards for the next two years – with 1.3% expected in 2025 and 1.5% in 2026, higher than previous forecast (1.0% and 1.1%)’. Those increases are largely down to the increases in public spending that the Chancellor laid out in her budget.
This week, the OECD largely aligned with the BCC's analysis, predicting weaker growth this year followed by a public spending-driven increase in 2025/26, which will taper off the following year. The big tests are whether other government measures can stimulate productivity improving investment both in the public and private sectors and whether progress can be made in getting more people of working age back into the labour market.
The Chamber has a list of 10 regional investments that we argue would help deliver on those tests. Amongst the 10 our members have recommended are: support for university-led innovation districts to foster emerging industries, a Clyde maritime industry growth programme, the next phase of investment in the Scottish Events Campus to back tourism and hospitality, a regional skills rapid response system to tackle chronic skills shortages and support for the recovery of Glasgow City Centre. Have either of the two governments made any decisions that bring those projects closer to delivery?
Finance Secretary Shona Robison didn’t specifically mention any of the Chamber’s projects in her speech. There was a welcome move to adopt in part the rates relief for the hospitality industry that has been in place for some time in England. For most businesses in Glasgow, especially in the city centre, the restriction to only those businesses in premises with a rateable value less than £51,000 will rule them out from support. City centre rateable values are almost all substantially higher. That will be especially depressing for the small independent businesses that give city centres their distinctive character and have been dealing with the near 20% drop in footfall following the pandemic.
There was also an offer of £62m for town centre regeneration but I would be surprised if much of that finds its way into supporting city centre recovery. The scale of repurposing empty shops and offices in Glasgow’s city centre has been a subject of intense debate and the most obvious solution would be to convert those spaces into new homes. Will the reinstatement of the budget for affordable housing help?
Perhaps - although you wouldn’t normally expect a city centre to be the natural location for most affordable housing. More crucial will be the final amendments to the Housing Bill that is working its way through Holyrood. Build-to-rent housing projects in the city centre have almost all stalled and without some compromises around tenancy breaks or for new build units, it’s unlikely they will resume.
What support is being offered to the emerging industries across the Glasgow City Region, particularly those driving the three Innovation Districts being led by Glasgow and Strathclyde Universities? The top line above inflation increase of 3.5% in university funding appears promising, although how much that will help the universities deal with the unexpected increase in NICs remains to be seen. Similarly, the budget announced for the enterprise agencies is also difficult to interpret without sight of the details.
There was more obvious cheer in the confirmation the UK government made to the previous government’s commitments to regional funding. Glasgow’s £160m Investment Zone was confirmed and the Innovation Accelerator Partnership, focused on commercialising academic research, was funded for a further year. These are both mechanisms that will fund new industries.
One item that remains unclear in the UK government’s plans is the future of Shared Prosperity Funding. This is essentially the replacement for the hundreds of millions of pounds that were injected into regional economic growth from European funds before Brexit. The UK government has indicated an unwelcome 40% cut in that funding next year and has stated that we must wait until the Comprehensive Spending Review is complete before we know what will happen after that. Given that this is the most flexible funding available to city regions for supporting economic investment, this uncertainty is particularly disappointing.
If there is one economic problem above all else that we hear from our members it is the persistence of skill shortages across almost all industries. Those shortages are not helped by the extraordinary increase in long-term sickness and so perhaps the Scottish Government’s commitments to increased NHS spending and reduced waiting times will help. We must hope so. We will also be watching to see the budget settlement for the college network. Of all the institutions able to respond to technical skill shortages, the colleges are the most important.
Have the two governments delivered on their commitment to economic growth? It is far too early to tell.
This article was first published in The Herald on Friday 6 December 2024
