By Dr Liz Cameron CBE, Chief Executive of the Scottish Chambers of Commerce.
It’s at the forefront of all our minds and is causing a great deal of worry for businesses, consumers and households. Economists call it inflation but put simply, prices are rising and borrowing is more expensive, straining the ability of businesses to invest and restricting purchasing power of consumers.
I have picked this view up consistently over many quarters from my engagement with businesses across Scotland. This sentiment is backed up by the economic reality we are experiencing, and we are now recording the first signs of the long-term impact that these shocks could have on the economy.
Our recent Quarterly Economic Indicator survey results – show that there is some general improvement across some of the headline indicators such as sales and orders. However, these are improvements from a low baseline and other underlying trends are cause for concern. The most alarming result which should be a wake-up call for all policymakers in Government and agencies is that business investment is flatlining.
The survey also shows a divide in performance across Scotland’s main sectors. Take manufacturing and services sectors, which both reported generally positive results across the board. Compared to construction, which reported its largest contraction in housebuilding contracts since the first pandemic lockdown, indicating clear signs of the impact of high interest rates on mortgages. Retail and tourism are facing the brunt of reduced consumer confidence which is squeezing turnover and profitability.
One factor that is consistent across all sectors is the stubbornly tight labour market and shortages of skills. In fact, the issue is so problematic that our survey highlighted staffing as a top concern, overtaking energy costs.
The constrained labour market could prolong the UK’s high inflation unless action is taken to address the strong competition for labour and skills, which is leaving many firms with job vacancies that they simply can’t fill.
As businesses navigate the tough trading environment, we need governments north and south of the border to make sensible policy decisions that alleviate our concerns, rather than exacerbating them. As the Scottish Government considers widespread reform of the skills delivery system to address current and future needs, businesses are ready to play their part but we must be leading the demand side, with suppliers delivering what we need. Playing around with structures will not be sufficient. We are ready to support a real skills revolution driven by intelligence gleaned from business. It will take time for any reforms to yield the results the economy and business demands.
That’s why businesses need action from the UK Government. We have said for years that we need access to a flexible and efficient immigration system, one that responds to the needs of the economy. It is a question often raised by the business community as to why progress is so slow. We are already falling behind other advanced economies when it comes to attracting highly skilled international talent and we will be disadvantaged further as work and tourist visa fees are set to increase by at least 15% and the immigration health surcharge – an upfront levy paid by all visa applicants to use the NHS – will increase by 66% from £624 to £1,035.
More alignment between Whitehall departments could increase the understanding and opportunity of using this lever to boost the economy.
As well as policy alignment, it is critical that the right balancing act is struck by the Bank of England on interest rates or there is a threat that spiralling interest rates will make repayments simply unsustainable in the medium and long-term. It is a difficult task and will require the Bank to have its ear close to the ground, if it is to fully appreciate the challenges facing businesses today and how strained they are to absorb rising costs. With companies putting investment decisions on hold, we must find ways to incentivise business investment, to create jobs and boost growth.
This was my main message to the Scottish Government as a member of the New Deal for Business Group. More of the same just simply will not do. If the Government is serious about supporting business, then the tough issues such as reforming business rates must be on the table.
Early indication is that the First Minister is listening with a formal confirmation that the Scottish Government will be extending the deadlines for ratepayers to submit appeals to rateable values. The eyes of the business community remain firmly on action, not discussion, and whilst this is a small step, it is a step in the right direction which is what matters to business.
One thing is clear. There are no shortage of actions that Governments could take to help the business community. So will a brolly be opened for businesses to shelter? We’ll have to wait for our next economic forecast to assess the impact.