Business needs ideas not ideology - Liz McAreavey

These are precarious times – a combination of existential challenges facing businesses coming hard on the heels of a crippling global pandemic.

Soaring costs, stubborn inflation, labour shortages, continuing global supply chain issues – each a major obstacle but when combined, form a perfect storm that adds even more pressure to businesses facing into the prospect of a major hike in interest rates and cost of borrowing.

The past weeks have seen business react to a series of interventions designed to kick-start growth of our economy through the most radical measures taken by any Government in decades. The mini- budget announcements by the Chancellor has seen markets react and sterling initially plummet against a strong dollar, before Bank of England intervention helped restore some calm. Significant borrowing to fund tax cuts has been met with divided opinion with the Bank of England hinting at significant rate rise to continue their mission to achieve target inflation of 2% by 2024.

Consequently, business confidence remains low.

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What has become clear is that we need ideas, not ideology. We need a long-term strategy, not short-term politics. Fixing inflation, delivering growth, then looking at tax cuts may have been a better sequence for the new measures. Short-term measures may provide a welcome lifeline to many businesses, but a growing, strong and sustainable economy, properly funded health and social care and manageable national debt transparently laid out will create a better business environment in the longer-term.

The announcement to help businesses meet soaring global energy costs by introducing a six-month price cap was generally welcomed – given the urgency for businesses facing enormous cost increases - but they are shrouded in uncertainty in terms of their lifespan and which sectors may be defined as vulnerable.

Also welcome, in the short term, was the announcement to reverse the increase to the National Insurance Contribution (NIC), one of the asks of the British Chambers of Commerce to safeguard the many businesses facing failure as we slide into recession.

But with no analysis by OBR to support these decisions, we need to wait until November for the Chancellor’s medium-term fiscal plan and justification of how these measures will deliver real long- term benefits to business and the economy.

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Meanwhile, in Scotland the potential threat of a brain-drain again came into sharp focus, with a proposed – then quickly discarded – 5 per cent cut in the top rate of tax for those earning more than £150,000 a year south of the border. The political optics of such a move saw its speedy demise but lost in the mayhem was the prospect that it could create further division and inequality due to the devolved tax regime here.

And all of this as we come to the end of Scotland’s Climate Week, an initiative from the Scottish Government aimed at keeping the need to move towards net zero high on all of our agendas. While businesses largely remain committed to a just transition to a more sustainable economy, the current economic crisis is seen as a priority to address before SMEs, in particular, feel able to invest in the measures needed to adapt to the low carbon future and all the opportunities that accompany this.

With the number of business failures in Scotland up by 30 per cent on last year, this is not an unreasonable position. But without support to better inform and assist businesses on the net zero journey, we are in danger of seeing our ambitious targets drift further out and losing out on the economic boost of a green economy.

We need reassurance and a clear explanation of the strategy behind these new fiscal interventions. Independent analysis by OBR should be published and Treasury and the Bank of England might wish to agree on whether we take money out of the economy to lower inflation or put money into the economy through tax cuts and increased borrowing to avoid recession and drive growth.

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All eyes will now be on how the Scottish Government responds to the UK’s ‘mini budget’, the clarity offered by the Chancellor in his Autumn statement, and how the recent Bank of England intervention plays out. Interesting if precarious times indeed!

Liz McAreavey, Chief Executive, Edinburgh Chamber of Commerce

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