As what passes for summer draws to a close the Holyrood parliamentary year will kick off this week with two major set pieces, both with potentially significant implications for business.
One is an expected update from Finance Secretary Shona Robison on devolved government finances. The other will see First Minister John Swinney unveil his legislative programme for the coming year. Hopefully, the needs of the economy will be paramount in both.
The Finance Secretary has an unenviable task. Factors including persistent weak economic growth and substantial outlays on social security and public sector pay have put the devolved government’s £60 billion budget in a bind. Last year’s guddle of a Scottish Budget didn’t help, with little sense emerging of a coherent plan to grow the economy. All this has led to decisions to end the peak rail fares discount and curtail winter fuel payments for pensioners, and come on top of increases in taxes earlier this year.
It matters profoundly that government finances are put on a sustainable footing as this provides a bedrock of economic stability as well as militating against the need for tax rises which could stymie economic recovery.
That’s why the Scottish Retail Consortium wants to see the focus on spending restraint rather than higher taxes.
We’ve suggested the administration think differently about which services it delivers and how to do so more efficiently. Structural changes to the public sector ought to be implemented too. The Spending Review two years ago identified 129 public bodies under the Scottish Government’s purview. Indeed, it’s said there are now more public bodies than there are MSPs. So the number of public bodies could be rationalised and government premises surplus to requirements disposed of.
The number of civil servants has almost doubled since devolution. Headcount could be reduced, recruitment for non-critical posts paused, and the policy of no compulsory redundancies rescinded. Government focusing on doing fewer things won’t cause too much distress for a business community already drowning in new regulations.
Which sets the scene for John Swinney’s first Programme for Government since becoming First Minister. It presents an opportunity for him to put his own personal stamp on the governing philosophy of the administration.
Hopefully, he will take a holistic approach towards new regulations affecting business – one which takes into account the current tricky trading conditions for retail, but also the extensive regulatory agenda already in train as well as that of the new UK Government as outlined in the King’s Speech.
Scotland’s retailers have got a vast number of devolved initiatives on their plate. This includes: this month’s increase in alcohol minimum unit pricing; in-store restrictions on selling foodstuffs high in salt and sugar; in-store restrictions on promoting alcoholic beverages; a ban on selling disposable vapes; and the proposed levy on disposable cups. On top of this are UK wide interventions including next year’s expensive new extended producer responsibility rules on packaging, as well as the deposit return scheme for drinks containers.
Hopefully, the First Minister will blunt or end altogether some of these initiatives. This would allow retailers to better focus on their customers and becoming more productive. It would be good for shoppers too as extra statutory costs that retailers encounter are often passed on to consumers.
Hopefully, Mr Swinney will nix plans to make eligibility for permits to trade and business rates reliefs contingent on payment of the ‘real’ living wage. If there was a time to progress this then – given the weak economy - now isn’t it.
The one certainty is there will be a Budget Bill. The last Budget was significantly flawed, including a misbegotten mooted business rate surtax on grocery stores and eye-watering business rate hikes.
The new Budget Bill should knock the surtax on the head and include a timetabled plan for lowering the business rate which is already at a 25 year high. An ambitious Bill would speed up restoring the level playing field with England on the higher property rate.
This agenda could make Scotland’s economy more buoyant, lift living standards, and generate the tax revenues to support public services and alleviate poverty. It would help deliver our shared ambition with Mr Swinney for a more dynamic economy.
Scottish Retailers Face Another Month of Declining Sales
Scottish retailers experienced another month of declining sales in August, marking a disappointing summer for the sector. Total sales fell by 0.5% compared to the same period last year, when they had grown 5.6%. This was above the 3-month average decrease of 1.7% and below the 12-month average growth of 1.0%. Adjusted for inflation, the year-on-year decline was 0.2%.
Scottish sales decreased by 0.3% on a like-for-like basis compared with August 2023, when they had increased by 5.2%. This is above the 3-month average decrease of 1.4% and below the 12-month average growth of 0.9%.
David Lonsdale, Director, Scottish Retail Consortium: “Scottish retailers suffered a hat-trick of falling sales figures during the three months of this summer as August sales dipped below the previous year’s performance. However, the small 0.2 percent real terms fall was an improvement on July giving hope things might pick up as trading moves into the Autumn.
“Back to school sales were disappointing as consumers looked to save by switching to pre-loved items, an area retailers are increasingly involved in. Food sales were flat, but against very strong figures from last year when inflation was running hot, indicating grocers may have to adapt to more normal conditions.”
Mr Lonsdale continued: “Unfortunately whilst trading is stagnant new government initiatives remain a concerning growth area. This week’s Programme for Government will be a test to see if Scottish Ministers are paying attention to the travails of the business community, who are already grappling with the implications of the new UK administration’s legislative programme.
“If there are further significant or unreasonable regulatory burdens announced then industry will question whether the government is truly focused on Scotland’s economic recovery.”
What's Next for Scottish Retailers?
Linda Ellett, UK head of consumer, retail and leisure, at KPMG, said: “Despite summer finally making an appearance, and a slight uptick in consumer confidence, shoppers did not catch-up their spending during August, with a slight dip in sales growth reflecting the challenging retail environment that is likely to dominate for the rest of this year.
“Consumer sentiment is gradually starting to improve, but there still remains some nervousness around potential tax rises and the cost of putting the heating back on when the cooler weather arrives. The fragile nature of consumer confidence means shoppers will continue to be driven by price and value, moving from brand to brand to find the best price benefit and we are likely to see retailers using promotional activity to seek to win at this.
“Retailers looking to seize on slowly returning consumer confidence will need to demonstrate best value for money, as well as tap in to the “experience” factor as consumers focus their discretionary spend on having fun or experiences over owning more ‘stuff’. Winning retailers will need clear differentiation, targeting specific consumer needs, and executing with consistency and clarity.”
Retailers Call for Tax Cuts and Regulatory Relief
The Scottish Retail Consortium (SRC) has warned in a submission to Finance Secretary Shona Robison these are “unsettling” times for businesses and called for spending restraint rather than tax rises in the upcoming Scottish budget. The body also recommended the Scottish Government should inject greater certainty into its fiscal plans through a two-year budget accord with opposition MSPs leading up to the next Holyrood election.
Its paper contains a total of 23 recommendations including ruling out an increase in income tax rates to bolster consumer spending and restoring a level playing field with England for firms paying higher property rates.
It is estimated the retail sector supports around a quarter of a million jobs in Scotland but the SRC said figures published last week showed the number of roles had slumped by 30,000.
David Lonsdale, director of the SRC, said: “We recognise this will be a challenging budget for Scottish ministers as they seek to balance a stark fiscal outlook whilst trying to stimulate greater levels of economic growth.
“These are unsettling times too for retailers, despite the industry having shown tremendous fortitude and resilience to come through the tribulations of the past few years of Covid and the costs crunch.
“Trading conditions remain tough and the only fixed point in a world of flux for the industry seems to be rising costs, which are near impossible to absorb, which means they are likely to be passed on to shoppers.
“To provide greater certainty, a two-year budget accord with opposition MSPs could provide a more strategic and less piecemeal approach to devolved policy making.
“Stimulating greater levels of private sector investment is crucial to lifting Scotland’s measly rate of economic growth and living standards, and generating the tax revenues to support public services and alleviate poverty.
“Increasing taxes could exacerbate the problem by further hampering growth.
“That’s why we are calling for a mixture of spending retrenchment, forestalling rises in taxation, competitive business taxes and regulatory easements, as a means of proving a path to greater prosperity and towards making Scotland the best place in the UK to grow a retail business.”
A Call for Action
The SRC’s call for a more supportive economic environment comes at a time when Scottish retailers are facing a number of challenges, including rising costs, weaker consumer demand and increasing competition from online retailers. The group’s recommendations offer a roadmap for the Scottish Government to help the retail sector navigate these challenges and achieve growth.
The Scottish Government has acknowledged the challenges facing the retail sector and has committed to working with industry representatives to address them. However, the extent to which the government will be able to meet the SRC’s demands remains to be seen. The upcoming Scottish budget will provide an opportunity for the government to demonstrate its commitment to supporting the retail sector and driving economic growth.
