Budget Questions

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No-one doubts the enormity of the task facing Chancellor George Osborne tomorrow when he announces the budget for 2013. There’ll be pressure from both parties regarding elections even though they may be 2 years or so away, there’ll have been frantic readjustments as forecasts show gloomier reading than he would have hoped and above all else he has to try and install some confidence amongst Business Leaders as a series of austerity measures have all but eroded any business confidence.

Growth – is it possible?

How realistic is it for businesses to expect growth when so little investment is forthcoming? With demand stagnating both from public and private sectors, it’s estimated that for Scotland to reach a modest 2% growth rate, Scottish investment needs to grow by an incredible 8% per year. When you consider that figure is over double the expected UK growth rate for this year you start to understand the enormity of the task confronting our Chancellor.

The task facing business is perhaps even more testing, with many firms in what is being called a ‘zombie mode’ – unable to pay more than the interest on their debt and remaining solvent or afloat purely down to such low interest rates. In Scotland, it’s being estimated that 11% of companies are in that position, including 20% of those in the hospitality sector.

Alternatives – self-employment.

Although the country finds itself in the middle of a recession, perhaps not surprisingly self-employment has seen sharp rises with now more than 12% of Scots in employment compared to a UK rate of 14% and London at 18%. The biggest growth in self-employment was in 2011-12 and ties in with a marked increase in the number of very small companies, often one-person bands. This is part of a wider trend, since 2007, there was a sharp increase in the number of Scottish enterprises with no employees and in the UK between 2000 and 2012 the number of micro-enterprises was up 38%.

So are people jumping or is there a firm hand on their back pushing or propelling them headfirst into self-employment? A Small Business Survey conducted last year showed that:

• 46% of new-start business owners set up because they could see a market opportunity.
• 29% said it was because here were no other choices for work
• 25% said it was down to a combination of opportunity and necessity.

We’ll spend tomorrow looking at the survival rates for new businesses and how the trends have changed over the last few years. Whatever else once concludes from the raft of statistics and facts and figures that abound at this time of the year, those firms that are flexible, innovative and react the quickest to an incredibly challenging environment are best positioned to ride out the current financial storm.

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