‘Subdued’ Scottish economy needs tax relief and migrant labour guarantees – Scottish Chambers

Scottish Chambers of Commerce has called for a lowering of taxes and a commitment to safeguarding inward migration north of the border to bolster Scotland’s stuttering economy.

The findings of the SCC’s Quarterly Economic Indicator, released in collaboration with the University of Strathclyde’s Fraser of Allander Institute, show that Scotland’s economy remains “subdued”, with the body calling for “targeted” tax cuts in response.

The survey, which engages with five of Scotland’s key business sectors: construction, financial and business services, manufacturing, retail & wholesale, and tourism, found profitability and cashflow “remain challenging” and pressure on prices is high.

Finance and business service firms were said to be at a “turning point”, with many key balances improved including sales revenue despite two years of negative net balances for profits and cash flow.

Business optimism in construction remains positive but has fallen 18 percentage points in a year while manufacturing optimism rose nine percentage points in the same period with “strong” export sales.

More than a third (36 per cent) of retail and wholesale businesses reported falling optimism and the sectors recorded declines in cash flow, sales employment, profitability and capacity.

In tourism, the number of customers was up 13 percentage points on last year but sales revenue fell by the same amount. Investment and employment have declined over the quarter.

The number of tourism businesses reporting declining cashflows hit a record low which the report said this may be due to falling guest numbers from overseas.

The findings come in the wake of the surprising figures released by the Scottish Government earlier this month which showed that the Scottish economy contracted at the end of last year, all eyes will be examining these results for signs of Scotland’s economic prospects.

Neil Amner, chair of the Scottish Chambers of Commerce Economic Advisory Group, said: “In January, our survey warned that Scotland’s economy stood on a knife edge and these latest figures point to continued subdued performance in the early part of this year. However, the picture across the various sectors is less even than it was at the end of 2016, with the manufacturing sector recording very encouraging results, again driven by exports. The financial and business services sector has also rebounded significantly from its position at the beginning of 2016, though this is at least in part as a result of a significant improvement in the prospects of oil and gas service sector businesses from a low base.

“The outlook for construction is again fairly flat and performance in both retail & wholesale and in tourism looks to be negative in comparison to the same period last year, though the first quarter has in the past proved to be a difficult period seasonally for both sectors.

“Warning signs continue to be manifested in terms of higher prices; for example, the retail and wholesale sector has reported its highest prediction of price rises since the third quarter of 2011: a time when inflation stood at over 5 per cent. There are also worrying signs of declining investment trends, particularly in the tourism sector, which has suffered as a result of this year’s business rates revaluation.

“Uncertainty is the word that is on everyone’s lips. Whether as a result of Brexit, the upcoming General Election, or the prospect of a Scottish independence referendum, it is certainly a feature of business life in Scotland at the moment. To help businesses to deal with that and to get back to investment and job creation, we need a clear steer from our Governments north and south of the border that business success is a clear priority. As we approach a General Election, we expect the political parties to pledge targeted tax cuts, potentially including a temporary cut in VAT, in order to bolster consumer demand.”

Garry Clark, head of Scottish Chambers’ economic development intelligence unit, meanwhile, cited “anecdotal stories” about people from other EU member states already returning to their home countries in a trend that could damage Scotland’s economy.

Mr Clark, who declared businesses were telling Scottish Chambers that the euro area “remains a very key market”, warned: “The position of EU workers is very much at the forefront of many businesses’ thoughts.”

He highlighted Scottish Chambers’ expectation that there will be “some sort of limitation on migration in the future” in a UK context because of Brexit.

Mr Clark added: “If that is the case, we need to set those targets based on economic need. Economic need should be reflected across sectors and it should be reflected across the geographies of the UK. While we have lower population growth in Scotland, we have increased need in terms of labour coming into the country to maintain our growth potential.”