Comment
By Liz Cameron
Easter beckons and, with it, a renewed hope for Scottish businesses for a return to prosperity in 2022, as the majority of Covid-19 restrictions have been lifted and life returns to some normality.
Of course, this will have been dampened for some by the recent announcement from the First Minister to delay the lifting of all legal requirements linked to Covid-19 and we urge the Scottish Government to remove remaining restrictions as soon as possible.
These consistent delays are deeply frustrating for businesses and risk our economic recovery from the pandemic, with the rules in Scotland remaining out of sync, and more stringent, than in the rest of the UK.
The arrival of spring also signalled the latest update from the Chancellor on the UK economy through his Spring Statement. There were some welcome measures announced by the Chancellor, including the 5p cut to fuel duty, but the statement failed to meet the moment. There was not nearly enough action taken to provide businesses with the headroom they need to mitigate the overwhelming challenges they are now facing.
Inflation is now at a 30-year-high for the UK, energy prices are surging and supply-chain disruption remains consistently stubborn. This is forcing businesses to raise prices, adjust cashflow to accommodate rising costs and is resulting in shrinking profit margins.
Combined, these challenges put businesses and jobs at risk, especially among small and medium-sized enterprises that make up the majority of the economy. Most SMEs run to tight margins and the clear cost-of-doing-business crisis may push many to breaking point. If businesses are forced to pass on costs to consumers, as many already are, it places additional pressures on households, adding to the cost-of-living crisis.
Scottish businesses urgently require support to navigate these rising costs. Without immediate action from Westminster and Holyrood, this situation threatens recovery and could lead to significant strain being placed on businesses across the country.
The Spring Statement was a missed opportunity for the Chancellor to get ahead of this and inject some much-needed confidence and investment back into the economy.
Compounding the statement’s failings were the worrying forecasts issued by the Office for Budget Responsibility of further potential economic hardship in the months ahead.
The effects of rising prices are being felt everywhere: rising energy, fuel and food prices alongside Russia’s invasion of Ukraine are putting the squeeze on us all and this is predicted to continue for some time yet. The OBR forecast these factors will push UK inflation higher to perhaps even what would be a 40-year high of 8.7% later this year.
The forecast also highlighted the UK’s “high degree of dependence” on international suppliers as a net importer of oil and gas. Like many other countries, global events are underlining the importance of reviewing energy security and supply.
As a recent report by Offshore Energies UK (OEUK) identified, the UK could be forced to become fully reliant on imports of oil and gas within 15 years without significant support from government.
As both of Scotland’s governments redraw their energy plans and security strategies, they must also outline what investment will be made into supporting businesses pivot to new green energy sectors such as hydrogen, whilst also protecting Scotland’s oil and gas industry.
Businesses remain incredibly grateful for the support they received throughout the pandemic from furlough and other business assistance from government. However, bridging the gap as the challenges of the pandemic fade and new inflationary pressures come into focus will be critical to creating a new, resilient and thriving economy.
Investment is necessary to protect jobs and diffuse the threat of declining living standards for households whilst businesses and consumers need support to adjust to rapid economic changes and balance the demands of meeting climate-change targets.
Scotland’s businesses need political leaders to confront these new economic challenges head-on collectively and to not shy away from the difficult choices ahead.
Liz Cameron is chief executive of Scottish Chambers of Commerce
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