Let's not be mired by the constitutional question when economy needs work

Let's not be mired by the constitutional question when economy needs work

The issue: It is time for Scotland to look ahead – and way beyond the referendum sparring that has exercised minds in the past 18 months.

UBS Taking PartIn the wake of the referendum outcome, it has become clear that civic Scotland requires bold leadership and collaboration across sectors to face up to the difficult challenges ahead. That is the consensus of the BQ Live Debate, held in Glasgow, and sponsored by UBS Wealth Management. The widely-held view was that: no matter what the outcomes have been, business in Scotland still needs to tackle a fundamental number of issues to grow, export more and improve its productivity.

The Scottish referendum in September 2014 prompted one of the most invigorating public debates in our national history. It stimulated Scots from all walks of life, encouraging them to envisage a different kind of future for Scotland. While the ‘Yes’ campaigners wanting an independent nation were beaten by the ‘No’ side who wished to remain in the Union with the UK, there was a ‘vow’ made by Better Together that Scotland would be given extra powers, including the ability to raise its own income tax.

Lord Smith of Kelvin’s commission on increased powers published its report at the end of November 2014. However, for many business people and those who work in this sphere, the debate – which is continuing to excite many fired-up nationalists – needs to move to a space where public spending is placed in the wider context of wealth creation, enterprise and taxation. It is business which builds and creates an entrepreneurial economy so that a welfare state can be maintained. Higher taxation in Scotland than the rest of the UK could have a damaging impact on our country.

The BQ Live Debate reflected the vitality of the independence debate, with some strongly held views – but all handled with good grace and aplomb by chairman Caroline Theobald. On behalf of UBS Wealth Management, Scott Young welcomed the guests to the private dining room in the Corinthian Club in Glasgow.

“We’ve been in Scotland for over ten years now providing a high quality wealth management and financial planning service to business owners and investors, with a particular focus on people who are considering an exit or have recently exited from their business.”

In the run-up to the recent referendum UBS generated a number of research pieces, but we were strongly apolitical and did not have any agenda. Our concern was to try and address a number of questions that our clients had around how a post-referendum independent Scotland might look. We were interested in the key issues that Scottish private businesses, as a sub-group, might face.

What does it mean for Scottish businesses in a UK and a global context? We are delighted to hear the thoughts of the guests tonight. We want guests to hear useful discussion so we can all be better informed.”

THE REFERENDUM RESEARCH  
Professor Brad MacKay was one of 12 senior fellows and 40 researchers working as part of the Economic Social Research Council (ESRC) programme looking into the independence debate in the UK and Scotland. The aim was to create objective, non-political information that could be fed into the public domain.

“My interest was looking at business. We did a couple of different studies undertaking about 70 interviews with senior business leaders across six industries in medium and large companies, and there was a second study with the Federation of Small Businesses in Scotland. My colleague David Bell at Stirling University, also undertook a survey with the Scottish Chambers of Commerce.”

“The statistics were relatively consistent across all the surveys, which was surprising to me. We never asked people their political views or how they intended to vote, we were interested in their attitudes to opportunities and risks and how it might influence their decision-making under different constitutional scenarios. My working hypotheses was that you might have expected the smaller businesses to be more favourable to independence than the larger ones. Among the FSB survey, there was a larger percentage that were more sanguine about the opportunities of independence, but the statistics were pretty consistent across the business sector.”

Prof MacKay asked what the major risk was to business. The currency issue for Scotland was at the top of the list, then after this was taxation, although personal tax rates mattered more than corporation tax. “The argument was that if you look at the UK, the level of corporate tax is relatively low and competitive. Most businesses in Scotland don’t pay corporate tax, so personal tax was the message that was coming through. It was the same for both small and large businesses. Another issue was the European Union and whether Scotland would continue to be part of it, the preference in our study was to keep the pound sterling and for continuing membership of the EU.”

Both large and small businesses pointed to the importance of the single UK market.

“If you are a big business in Scotland, trading within the UK, probably 90% of that is with the rest of the UK, outside Scotland. Businesses were continuously coming back to this notion of a consistent fiscal and regulatory regime across the UK. Once you got below this, one issue was the ability to attract and retain key talent for business, and then there were differences across sectors, in engineering, technology, financial services, oil & gas and food and drink. There was some diversity in view across sectors.”

The professor’s findings were: a 50-50 split between businesses who said there were no opportunities and those who said there were from independence. 5-7% said there was an opportunity to invest in their business, but the rest was around various aspects of government support, access to government ministers.

“This was more about the general business environment than the specific business case. Looking at the frequency of uncertainties and risk against opportunities, around 90% argued that the risks leading up to the referendum, particularly given the lack of fiscal information, outweighed the opportunities. 10% said there was opportunity with independence.”
 
UBS Montage 01

OPENING GAMBITS
Professor Russel Griggs declared he was a ‘Yes’ supporter and chairs pureLifi, a university spin-out using visible light communications to transmit information across a data network. He also spoke about his work as an independent reviewer to the Clearing Bank appeals process where they had undertaken 11,000 appeals and put £50m of new lending back into the UK economy.

Stuart Patrick says he is committed to the extension of the successful single market of the United Kingdom to a wider set of people. “The Chamber are committed to the economic growth of the city of Glasgow, within that we are interested in all the economic levers that cities ought to have available to them. We are particularly aware of the imbalances at national and local level in different parts of the UK.”

Alastair MacColl said his company – the BE Group – was in the process of investing in
Scotland. “In what looks like uncertain and turbulent years ahead in Scotland, how do we get greater visibility and a sense of what the economic or industrial plan is and how business in Scotland can engage with that plan, almost regardless of the outcome of political decisions.”

Robin MacGeachy, who explained his Glasgow company exports 95% of its manufactured products, hosted the Secretary of State for BIS Vince Cable, and Labour’s shadow business secretary Chuka Umunna, and Alasdair Darling during the referendum campaign. “We were one of the few companies able to stand up and say we were a ‘Better Together’ company. We decided as a privately owned company -– owned by myself and my wife with 230 people around the world – to stay in Scotland. We were very close to moving out of Scotland if it had been a ‘Yes’ vote.”

Matt Hoyne of UBS asked if further devolution and tax-raising powers are happening would there be positive implications for Scottish business? “I’m keen to hear about the opportunities with further devolution.”

Paul Nelson, whose Glasgow firm builds taxis and other vehicles for disabled people and employs 474 people in Scotland, said most of his business is in the UK, and has recently started to export to Europe and the United States. He said he was agnostic about who was in government in Scotland as long as they don’t place further obstacles in the way of his firm investing and growing in Glasgow.

“In Scotland we can be very insular and decide to do things our own way and we ignore the fact that we are part of the United Kingdom with all the advantages. Then, on the other hand, we are left up here by the UK Government in London who forget about us. They don’t really represent us unless they want to get a political message over to us prior to the referendum. I wonder how many UK politicians have been up since the referendum?”

Stephen Park Brown said his company was having its ‘15 minutes of fame’ after supplying the technology for the Commonwealth Games in Glasgow and the Ryder Cup. He said this was a huge feather in the company’s cap after 25 years in business, and employing just under 100 people. He said this success led to the NVT Group winning a contract to deliver IT for the European Games in Baku in 2015.

“I’ve had a long-standing fight on procurement for indigenous Scottish firms. I’ve been disappointed that since the 1990s the Scottish Government has by-passed the local IT industry. It could be a huge source of revenue for Scotland and create a raft of jobs, taking them off the unemployment register and offering them modern apprenticeships. I coined a phrase: ‘Scotland spends about a billion pounds a year on public sector projects – yet we are the biggest exporters of public sector cash in Europe.’ Most of that money leaves the country and virtually none of it stays in any Scottish businesses.”

Professor Susan Deacon spent a large part of her early career in the Scottish political world and says she was involved throughout the 1990s in the whole devolution debate as a Labour Party member, then as an original MSP and the first Scottish Health Minister.

“It is strange for me to have been on that political journey but in the last year I haven’t voiced my opinions about the referendum in public discussions. In so far as I was involved, it was through my work with other organisations including Edinburgh University, which was about finding ways to facilitate discussion among different people from different walks
of public and business life. It was a safe space for them to explore some of the issues that were not explored in the feverish environment outside.”

Professor Susan Deacon stood down from the Scottish Parliament in 2007 to ‘leave the tribalism of party politics behind’ and she is not involved with party politics. “But I am as passionate as ever about changing this shiny wee country of ours for the better. I am passionate about leadership and change in different sectors. What I am keen to explore is how and when we have a grown-up conversation about public spending in Scotland, particularly around health and education. It is about how we make some of this sustainable and fit for purpose for the future. Whatever the constitutional settlement is – and whoever is the party in power in Scotland – we are going to have to start speaking the language about priorities.”

Ian McKay said as a former trade unionist and then managing director of the Royal Mail he has been on both sides of the bargaining table.

“I have never gone along with the idea that the public sector is too big in Scotland. I have the idea that the private sector is too small. If we don’t start doing something about building the private sector in Scotland, and correcting these basic imbalances, then it will be a Pyrrhic victory for whoever had won the vote. It won’t matter if we don’t get the economy sorted and public spending in control, even if you’re progressive and on the left in politics, if we don’t have the ability to pay.”

Paul Nelson said the message for the UK Government, if they were seriously concerned, was don’t forget about us in Scotland, come back up and see what is going on. “I’d be interested to see if they do come back up.”

UBS Montage 02

THE MAIN COURSE:
Robin MacGeachy: “From my point of view, I wish Scotland would stop blaming Westminster and England for its woes.  We have the ability here to make a significant change in our own country. I’m passionately Scottish and British. But I think it would be good for Scots to take ownership – and from an industrial point of view – do things without blaming others.”

Stephen Park Brown began by talking about the procurement process and how Scottish civil servants deliver the framework. “They don’t look upon it as their job to look further than the outcome that they want. They want someone to win the prize of the contract and don’t have any idea about the impact on the local economy – and they don’t really care.”

Yet he says that, later on, the performance of how the country does will have an impact on their pensions. He says his Scottish company is measured against major multi-nationals [he says Microsoft take £300m out of the Scottish economy every year] which can make claims that tick the boxes to win contracts. “No-one in public sector procurement seems to really care about the outcomes.”

“The Scottish Parliament has had all the powers – whether as a majority or minority government – to change that and to do something about this and change this situation. But the civil servants have done nothing and we can’t actually ignore that billion pound of business.”

Caroline Theobald asked what could be done about this. Stephen Park Brown said he has raised this with First Ministers since Jack McConnell. “Even the SNP’s manifesto in 2007 said that 22% of Scottish Government business will be done with Scottish SMEs. They actually had to bin that. Take accountancy – there are very few large Scottish businesses, plcs or otherwise, audited by a Scottish firm of accountants, and did we not invent accountancy? Why do we need the big international players, such as PwC or Deloitte, to do the NHS in Fife? You do not need it.”

Stuart Patrick said it was a badge of honour during the Commonwealth Games to say
that £200m of contracts had gone to Glasgow businesses, and over £350m went to Scottish companies.

Stephen Park Brown said that his firm ‘got lucky’ as a Tier 2 sponsor and there was a genuine belief in Glasgow that they wanted as many companies as possible to be local, which proved they could do the job. We had 350 volunteers from schools and universities and 50 modern apprentices and 80 staff. No-one else could have done that. It was about getting the experience so we could do something on a bigger scale.”

Ian McKay commended Glasgow on its ‘French’ buy-local procurement process.

“Whatever else was happening in the referendum, a hell of lot of these problems are some we had before the referendum – and will remain problems after. It’s useful for the business community to remember this wasn’t a tsunami or a war, but that in a real and tangible way it affected our economy. It was a decision on a constitutional matter.”

He said that a great deal of UK interest and serious resource was brought to bear during the debate, including Scottish Government and UK Treasury work, with more data than has ever been seen before.

“Yet the day after, a lot of the people who have been providing that resource and stimulating that debate, walk away. They think that it is all done and all finished. That’s my big concern. We need to make sure that both of these governments understand what we want from real politics. The business community now has to really step up. It is not surprising that most businesses kept their heads down during the campaign. During the Smith Commission, businesses wanted to speak up and make their voices heard.”

Professor Russel Griggs: “I agree with Ian. We have to grow the private sector in Scotland and address the key issues of how to do that. One of the things we need is a grown-up conversation about education and the way we spend our money.”

UBS Montage 03Robin MacGeachy:  “We have a working environment where people have a huge amount of freedom. People come along to our factory – we’ve got table-tennis tables and a golf driving range – and then want to come and work with us. What amazes me are the number of Scottish companies out there still talking about ‘them and us’. They say workers are bad and lazy and need to work harder, but we found the right people. This [our approach] is giving them a sense of expression, worth and being – it is almost as if they own it [the company]. We’ve been able to create something that sadly is not replicated across much of the country. If we don’t sort out education at early stages when people are coming through, then we have part of a generation coming through who are sadly unemployable and will never get a job. It’s a sad indictment of Scotland. We lose a lot of talented Scots who leave the country.” 

Professor Susan Deacon said that there are shared issues and responsibilities and talks of ‘us’ and ‘them’ will only heighten divisions that need to be healed. Leadership and collaboration had to be the key for Scotland.

“The rich terrain is when we bring people together across sectors and find some of that common ground, some of which is value-based and some about how we take forward a positive approach to our economy.”

Professor Russel Griggs spoke about his work with the chemical cluster around Grangemouth, which was around 11% of Scotland’s GDP. Two things have been concerning this industrial sector: the change in the oil-energy price and how fracking and conventional gas in the United States has fundamentally altered the way that the firms operate.

“Now Dow Chemical Company is paying 80% more for energy than in its sites across Europe than in Texas. So guess where a lot of the infrastructure investment is going? – into Texas. There is also the impact of the industrial emissions directive they put out. The only politics you get into here is: who can help you best? Is it better to have somebody locally I can talk to, or a minister who can fight my battle for me? The energy market is so complicated with all the carbon floor pricing that a lot of Scottish businesses understand that wherever we go as a nation we will go, but you have to get back to some of the basic questions, about what are we going to do? The energy cluster in Grangemouth is going to have to drop their energy prices by about 20% to remain competitive. We can do that but we need a pragmatic view to some of the directives coming out of Europe.”

Alastair MacColl talked about moving on from the referendum and that exporting was imperative, along with focusing on higher levels of skills to attract inward investors, and also working in key supply-chain clusters.

“We need to be much cleverer about developing supply chain opportunities. Government works best when it works close to the ground and I think there is an opportunity here that must be grasped by business.

We need to talk about what home rule, devolution or more powers means and how these powers can stimulate economic growth and create jobs.” Paul Nelson said he was down in the UK’s Manufacturing Technology Centre (MTC) in Coventry, one of seven in the UK, but that few Scottish policy people were aware of this – or even encouraged Scottish firms to go and visit it. “Scottish companies should be encouraged to use this facility.”

Stuart Patrick took up Alastair’s point about exporting, recalling a visit from Danny Alexander and Michael Moore, both Lib-Democrat Scots in the UK Coalition, after George Osborne’s first budget.

“The task then for the recovery was growing exports and business investment. Neither of which we have done particularly dramatically  – particularly in exports – in that time. Very little has happened in our exporting activity and only recently have we seen investment improvement. On top of that our productivity performance is now abysmal because of the reaction of our labour market, with lots of people possibly part-time and self-employed during a time of major demand. We’ve got three substantial economic problems, very little of which were raised in the referendum debate. We are back to those fundamental issues – so what is stopping us?”

Stephen Park Brown said every clever graduate setting up their Scottish start-up is being pushed into internationalisation, without actually doing any business down the road. He said Ireland has done far more to encourage home-grown business to gain Irish contracts.

Paul Nelson said procurement was a problem not just in Scotland but across the UK. “The other huge issue that has permeated government has been the inability to make a decision. Everything is farmed out to consultants who tell you how to make a decision, and this adds time and doesn’t give the government any more security. I make decisions every day: I make 80% right and 20% are wrong. The more decisions I make, the more right ones I make!”

This causes great hilarity – but Paul insisted: “That’s what government needs to do.”
However, several at the gathering pondered the role of the Scottish Office and asked why more UK Treasury officials were not visible north of the Border. It was felt an invisible barrier at the border was being put up, which gave the UK government the opportunity to ignore Scotland.

CLOSING POINTS
Ian McKay said that both UK and Scottish Government have to speak to each other more openly. He returned to his earlier point that the private sector in Scotland was too small and needed more resources so businesses have a chance. Westminster needed to keep to the promises made throughout the referendum campaign. “There are massive resources available to business through Whitehall departments and equally large resources in Holyrood. But both during the Labour regime – and the SNP for its own reasons – they didn’t talk to each other. They have tended to build a large wall instead of seeking to dovetail all of the support that is available for business. This has got to change. We need to be maximising support from both of these avenues.”

Professor Russel Griggs: “Whatever the people of Scotland will do, they will do. But the issues for business need to be addressed, whoever is in power and wherever they sit. For the companies in Grangemouth area, did the referendum change anything? They might have got a bit more excited. Did the content of the conversation change or has it changed since? Not at all.”

Robin MacGeachy: “I really would like to see the political parties working more closely together for our benefit, regardless of whether we are independent or not.”

Ian McKay: “I think that what you are doing is the right thing for a country that wants better social values, helping to encourage your people. On the Living Wage, some companies have a real feel-good factor because it is the right thing to do. The private sector can be engaged in doing the right thing – and that reflects the Scottish way of doing things.”

Robin MacGeachy: “Business needs to be profitable to generate cash, otherwise it dies. But doing something beyond that is important and a lot of Scots, who are more liberal, left-wing, have this understanding.

Stuart Patrick said he was concerned that the Smith Commission has pronounced on full income tax powers for Scotland, yet there had not been a proper debate and research over income taxation and the implications. “I find that really uncomfortable because we have no idea of the financial implications. We haven’t had the same interrogation of that issue as we had of the ‘Yes-No’ debate.”

Paul Nelson: “It is all about values and aspirations. We have to re-invigorate that – not just in Scotland. I’m starting an automotive growth forum in Scotland – because we need a fully-fledged automotive industry here. We export £1bn of automotive products from Scotland and manufacturing is around 15%, so that’s a fair proportion. We’ve companies such as Alexander Dennis and we need to get government to recognise that we exist and create the aspirations in Scotland to build automotive companies and export.”

Professor Susan Deacon: “There is a really big serious question about how we move on from the constitutional question in Scotland. And I think a lot of campaigners for independence would recognise that this is an issue and we now need to re-focus on the issue and challenges that we face together, irrespective of our constitutional future. I look back over three decades of being in and around this debate, and I feel there is a huge displacement effect of the time, energy and effort we’ve spent on this constitutional debate in Scotland. We only have a finite headspace of time and we’ve had a disproportionate focus on the constitutional question. We expected too much. I long for us to move on from some of this and recognise there are other issues.”

Brad MacKay spoke about the two Quebec referendums in 1980 and 1995 and warned that there were similarities to Scotland and the experience led to Montreal losing its position as Canada’s business hub.“What has happened over time in Quebec is that you had 30 corporate head-offices but since 1995, Quebec has lost 20% of its top 500 companies and 300,000 Anglo phone business people left between 1980 and 1995, and the GDP has fallen from 25% of Canada to less than 20%. So it has been a huge drag on the economy over time. If you look at Scotland, that need not be the case here, but I fear the direction of travel is precisely there.”

He said Scotland must now begin a debate on its national competitive advantage and why it is a good place to do business.