SCC Op-Ed in the Courier and P&J – October 2024
*Originally published in the Courier and Press & Journal on 29th October 2024.
By Dr Liz Cameron CBE, Chief Executive of Scottish Chambers of Commerce
Entrepreneurs and small and medium-sized enterprises are key to Scotland’s economic growth.
Given the right incentives and support they flourish and create the jobs and prosperity we so badly need.
However, SMEs are also impacted by the current uncertainty and anxiety over the looming fiscal measures. Confidence is critical to investment and the mood music so far has not been encouraging.
That said, our members, are ready and willing to seize any opportunities our governments can deliver.
We need tax stability to allow our businesses and wealth creators to make informed decisions about investments and expansion. SMEs seek assurance that the risks they take in employing people and developing their businesses won’t be disproportionately penalised by hefty tax bills.
Government decisions about taxation and spending significantly affects the business environment and influences investment decisions. However, since Labour took office, there is growing uncertainty about the future of tax reliefs and how the Autumn Budget might impact them.
We have been told there is a significant hole in the UK public finances that needs to be plugged. That figure was initially mooted as £22bn but recent ‘budget leaks’ warn that the Chancellor may seek to raise much more.
This raises critical questions about where additional tax revenue will be sourced and how it might affect the tax reliefs that entrepreneurs and business owners currently rely on.
More reassuringly, Labour has emphasised its commitment to providing stability and certainty for businesses regarding tax policies and is expected to introduce a business roadmap outlining scheduled changes to corporation tax reliefs and capital allowances for the next five years. That will provide welcome clarity – even if the measures may not be so welcome.
This roadmap aims to help entrepreneurs understand what will qualify for allowances, allowing them to make informed spending decisions on plant, machinery, and equipment. We are expecting this to reveal certainty for companies that pay corporation tax and cap the rate at 25% for the duration of the current Government’s term in office.
Another area of speculation is on employer national insurance contributions (NICs). Any increase will simply add to the overall expenses of businesses with evidence showing that the financial burden of any increase ultimately passed on to employees. An Institute for Fiscal Studies study showed that, in the long term, two out of three employer NIC increases/cuts were shifted onto employee’s wages.
As highlighted in the Scottish Chambers of Commerce’s latest quarterly economic survey, while there is more cause for optimism, SMEs are continuing to be significantly impacted by the ongoing cost of doing business.
With the labour market about to see the biggest raft of employment law reform in decades and predictions that employer national insurance contributions will be increased in the upcoming Autumn Budget, there remains plenty of workforce uncertainty amongst the business community.
Staff costs have increased for 7 in 10 Scottish firms, indicating that competition for skilled labour is also intensifying. Many Scottish SMEs, particularly in sectors like construction, engineering, and healthcare, are struggling to attract and retain talent.
The challenge is not only in finding qualified candidates but also in training and keeping them in what remains a tight labour market.
A report by CMS and the Fraser of Allander Institute highlighted a marked increase in job vacancies and a growing mismatch between the skills available and those demanded by employers. One in four Scottish employers reported vacancies with nearly a third (31%) classified as skill-shortage vacancies – a sharp rise from 2020.
Taxation is another major concern, cited by 55% of the firms we surveyed, going up to over 70% for sectors such as construction and tourism. On the business taxation side, entrepreneurs and SMEs will be watching out for any potential increases to what is already a significant tax burden.
However, there remain plenty of opportunities for aspiring entrepreneurs and SMEs in Scotland.
The nation boasts a vibrant ecosystem of support, including incubators, accelerators, and business networks. Organisations like chambers of commerce offer resources, mentorship, and funding opportunities. Entrepreneurs who tap into these networks can gain valuable insights, resources, and connections to enable growth.
While economic pressures, workforce issues, and regulatory complexities pose significant hurdles, the potential for innovation, sustainable practices, and digital transformation presents avenues for economic growth and new jobs.
The last few years have been challenging for business and SMEs were finally feeling more confident to invest and grow but there is a real danger the Prime Minister’s “painful” Budget could undermine our hopes. That would be disappointing, especially given the new Government’s election mandate included a plan for small business and promised a partnership for growth.
So looking ahead, our eyes are firmly on the Budget and hope that SMEs, entrepreneurs and innovators will be at the heart of Labour’s plans for economic prosperity.
ENDS
