New government inherits buoyant Scottish business community –BDO

The new government has inherited a confident business community but underlying fragility is a cause for concern, according to the latest Business Trends Report by accountants and business advisers BDO in Scotland.

BDO’s Optimism Index, which predicts business growth six months ahead, held firm this month at 104.7 pointing to strong confidence among firms in Scotland.

This suggests businesses have been unruffled by the election campaign and are resilient in the face of Eurozone uncertainty.

There may be good news to come, as BDO’s Output Index rose to 104.3 this month from 103.7, indicating that growth could speed up in the latter half of 2015 following a weaker start to the year.

However, sustained growth depends on companies converting their confidence into the capital expenditure needed to boost productivity. Investment in skills and equipment could help to tackle stagnant productivity levels, boosting business output and ultimately growth.

BDO said the new government “must act quickly to put in place policies encouraging businesses to invest”.

The firm said it would like to see the government permanently increase the annual investment allowance (AIA) to £5 million, giving a real incentive for businesses to invest in the capital assets that will drive future growth, and give businesses the confidence to plan ahead. It should also consider a VAT zero rating of supplies to companies that export. The UK currently allows manufacturers to zero rate their exports but not their suppliers.

Commenting on the findings, Martin Gill, lead partner at BDO LLP in Scotland, said: “Ahead of the 2010 election our data showed high levels of business confidence, much like this time around. However this fell away not long after, and so to avoid this happening again, the new government needs to put firm actions in place to help businesses thrive.

“It is encouraging to see that businesses are feeling optimistic about the coming months in the hands of a new government, but the confidence that counts is the confidence that converts to businesses actually investing. Our new leaders must help with this by putting tangible measures in place that will encourage businesses to invest in training or research, technology and equipment to help improve productivity.

“The new government also has the opportunity to boost future economic growth by investing judiciously in our country’s infrastructure. I hope that they will take it.”

Meanwhile, also addressing Friday’s result and the new Conservative government, Scottish Chambers of Commerce director and chief executive, Liz Cameron OBE, said: “Supporting business growth, creating stable conditions and providing global confidence must be their top priorities.

“Our economy remains vulnerable to external shocks, such as the continuing Greek bailout saga and a slowdown in a number of our international target markets. What we don’t need is extended uncertainty over our future membership of the European Union. This market is worth £12.9 billion to Scotland’s exporters and the European question needs to be settled quickly and decisively.

“Here in Scotland, the election has produced a very different result to the rest of the UK, but business and our economy should remain the central driver. That is our message to all Scottish MPs. Let’s grasp the opportunity and ensure that our politicians work more closely together as they embark on the implementation of additional devolved powers to the Scottish Parliament. They must ensure that Scottish businesses are not placed at a disadvantage in terms of our ability to compete, particularly in our aspirations to support more small and medium sized businesses to access new markets and do business internationally.

“Business is on the path of recovery but now we must work to broaden opportunities and expand horizons. The Parliament ahead must deliver for business both at home and abroad.”

Andy Willox, Scottish policy convener of the Federation of Small Businesses (FSB), said: “No matter the scale of the political sea-change, though, the big issues facing the class of 2015 remain the same: sorting out the economy, securing the recovery and backing business to create jobs and raise revenues.

“On a UK level, the fact that we have a clear winner means we are spared the threatened weeks of political wrangling and horse-trading. That means the new government can get straight on with delivering on the issues that matter most to Scotland’s small businesses: ending the scandal of late payment; developing a more competitive banking market; and ensuring that big energy firms treat our members fairly.”