BUSINESS UPDATE: ‘UPs’ OUTSTRIP THE ‘DOWNs’
Amid the claims and counter-claims of the independence referendum battle, it’s hard to keep track of all the business news "on the ground”. Economist Tony Mackay provides an invaluable summary of recent announcements in his Monthly Scottish Economy Report.
HERE ARE THE HIGHLIGHTS…
- £200 million plans for frigate factory on the Clyde BAE Systems have unveiled plans for a £200 million “frigate factory” that is hoped will secure shipbuilding on the Clyde for decades. The defence group have given their clearest signal yet that they plan to build a new generation of Royal Navy warships at their Scotstoun yard in Glasgow
- Carbon capture and storage facility set for Peterhead. Peterhead has been confirmed by the UK Government as the location for the world’s first gas-fired carbon capture and storage (CCS) facility, as part of a £100 million investment in the technology.
- New biotech centre could create 1,500 jobs. The Industrial Biotechnology Innovation Centre (IBioIC) at Strathclyde University in Glasgow is bringing together a number of Scottish universities and private sector firms, including Ineos and GSK, to create a new hi-tech centre. It is claimed that it could boost Scotland’s economy by £130 million and create up to 1,500 jobs.
- Travelodge is investing £12 million in Glasgow hotel. Travelodge are spending £12 million on a new hotel in Glasgow’s Queen Street. This will be a 171 bedroom hotel in the former Charlotte House office block. Travelodge, which will lease the Glasgow building, are investing £100 million to open 15 new hotels in the UK this year.
- A new hotel on Dundee waterfront. Sleeperz, the hotel chain, are to build a new 120 room property as part of the £1 billion regeneration of Dundee’s waterfront. 30 local jobs will be created when the hotel opens for business.
- Alexander Dennis wins Stagecoach order for 570 buses. Stagecoach, the transport group, will invest more than £100 million in their fleet over the coming year with an order of 570 buses and coaches. Most will be built by Alexander Dennis.
- Barrhead Travel’s expansion will create 80 jobs. Barrhead Travel, the UK’s largest independent travel group, are investing more than £15 million to create 80 jobs in an expansion programme. The Company’s headquarters will see 50 of the new vacancies across sales, marketing, IT and human resources, 20 new posts in Edinburgh and the remaining 10 in Aberdeen.
- BSW Timber creating 60 new jobs in Dalbeattie. Because of increasing demand for UK timber, BSW have announced that they are to create up to 60 new jobs in their sawmill at Dalbeattie in Dumfries and Galloway.
- A P Jess’ £2.7 million Scottish Government grant. A P Jess’ investment to almost double the output of their Brechin pig abattoir is being backed with a Scottish Government grant of £2.7 million. The expansion will double the weekly kill to 7,500 pigs and create a further 20 jobs.
- Atlantis Resources Corp is setting up in Edinburgh. Tidal power company Atlantis Resources Corporation is receiving £2 million from the Renewable Energy Investment Fund (REIF) to help set up a new centre in Edinburgh, which is expected to create up to 20 jobs.
- Haymarket development receives £9 million grant. A new development next to Haymarket railway station has been given a £9 million boost from the Scottish Government. The money will help fund initial work at the site of the £200 million office, hotel and retail project. Interserve and Tiger Developments estimate up to 3,500 jobs could be created through the venture on the derelict land.
- £40 million whisky distillery plans for the Borders. Mossburn Distillers have lodged plans with the local authority to transform the former Jedforest Hotel into a whisky distillery and bottling plant, at a cost of £40 million.
- A new whisky distillery on Skye? A listed early 19th century farm steading at Torabhaig on Skye’s south-east coast is to be developed into a new malt whisky distillery, at a cost of £5 million. Eight jobs will be created.
- £8 million regeneration plan for Bute. The Mount Stuart Trust announced that the 27,000 acre Bute Estate is to undertake a major programme of work that will transform historic and unused buildings on the island in the Firth of Clyde to offer residential homes and self-catering holiday accommodation.
- Skyscanner travel search firm expands again. Skyscanner, based in Edinburgh, reported 2013 turnover up by 96% to £65.8 million. The company increased their workforce by 200 in 2013 to 400 and are to create a further 200 jobs in 2014, with a focus on software engineering.
- Semco Maritime’s £5 million rig base in Invergordon. Semco Maritime, a Danish project engineering company, are setting up a £5 million rig refurbishment base at Invergordon on the Cromarty Firth.
- £4.5million to boost food and drink sales overseas. £4.5 million plan to drive up the sales of Scottish food and drink products will target 15 overseas markets. This will be developed jointly by the industry and government, the aim of the Export Plan is for food sales to emulate the success of the whisky industry, which accounts for the vast bulk of food and drink sales oversea.
- Stirling to get a new curling centre. There is to be a new multimillion-pound National Curling Centre developed at Stirling Sports Village. Stirling Council and sportscotland, the Scottish Government’s national agency for sport, will invest an initial £2.25 million.
- Spanish group bid for Glasgow Airport. Ferrovial, the Spanish infrastructure group, have submitted a bid of £800 million for Heathrow Airport Holdings – formerly known as BAA. This would include Glasgow Airport.
- Crieff Hydro to acquire rival hotels in £10 million deal. Crieff Hydro is to acquire the Peebles Hydro and the Park Hotel in the Borders town from McMillan Hotels in a £10 million deal. The company is also taking on the management of three hotels in Scotland and one in England. This move will result in an increase in the number of hotels managed by Crieff Hydro from two to eight.
- Retail sales up +2.5% in January. Like-for-like retail sales in January increased by +2.5% compared with January 2013, according to the Scottish Retail Consortium.
- Airport passenger numbers up +9.2% in January. 1,273,684 passengers used Scotland’s three main airports in January, which was up +9.2% on the same month of 2012. There were 586,184 passengers at Edinburgh (+11.5%), 436,100 at Glasgow (+6%) and 251,400 at Aberdeen (+10%).
- New car sales up +9% in January. New car registrations in Scotland in January totalled 12,674, an increase of +9% compared with January 2013. The overall British figure showed an increase of +7.6%, according to the Scottish Motor Trade Association.
- UK North Sea oil production up and gas production down. UK oil production fell in October 2013, compared with the same month of 2012. Average daily oil output was 713,025 barrels per day, which was up +9.9%. Average daily gas output was 3,213 million cubic feet per day, a fall of -22.5%.
NOW FOR THE DOWNs…
- Murchison oil field ceases production. After 30 years of pumping oil the Murchison oil field 330 miles north east of Aberdeen has ceased production. Around 400 million barrels of oil were produced.
- Prestwick Airport’s –£9.8 million loss. Prestwick Airport reported a pre-tax loss of -£9.8 million in the 12 months to March 2013, compared with a loss of -£2.3 million in the previous year. The airport was recently taken over by the Scottish Government.
- Senergy cutting 30 jobs. Senergy, the Aberdeen-based energy services firm, are to cut 30 jobs in response to changing market demand. They denied that the cuts are because of the recent acquisition by Lloyd’s Register.
- Bairds development store in liquidation. Bairds of Hamilton, the well-known department store, has been put in liquidation, with the loss of 38 staff.
- BAE to axe 75 posts at Prestwick. Around 75 jobs are to be cut at BAE Systems’ based in Prestwick. The defence giant is in consultations with staff and trade unions with a view to shedding the 75 posts at the regional aircraft site in Ayrshire.
- Henderson Jewellers in liquidation. Henderson Jewellers, who were established in 1886, have been put into liquidation with the loss of 79 staff across 14 branches throughout the country.
- Internacionale clothes chain in administration. Approximately 200 jobs are under threat after Internacionale, the Glasgow–based clothing chain, went into administration. The high street chain has 16 stores across Scotland.
MORE POWERS: WEST MIDLANDS WON'T STAND IDLY BY
Unionist parties at Westminster hope they can fast track more powers through the Commons in time for draft legislation by next January. Dream on.
Not only will any new legislation be subject to keen scrutiny – that’s what parliaments are for – but it will also have to contend with arguments from economically struggling areas elsewhere in the UK that they should not be overlooked.
This is the Pandora’s Box that the Scottish referendum has sprung open. In an important article, Paul Forrest (pictured, third from left), head of research at the West Midlands Economic Forum, sets out why his region should not be disadvantaged by Westminster rushing through more powers for Scotland.
The Scottish Referendum debate has centred on whether Scotland is stronger in the Union or outside it – little attention has been paid to which option benefits the England and the West Midlands. The impact on the region of Scotland remaining in the UK could indeed be negative for the region.
The No-side appear to have adopted a negative campaign, simply stating that Scotland would be £1400 per head better off if it voted No. The Yes campaign, with its romantic populist approach, argue that the Independence windfall would be £1000 per head.
Whatever happens, major changes can be anticipated. The three main Westminster parties have already made un-costed commitments to further devolution if the vote is No, effectively moving toward further Scots financial autonomy in all areas, except defence, foreign affairs and social security.
Assessing the impact of either outcome is difficult, not least due to lack of hard data. It is relatively easily to quantify relations between national economies as they have clearly defined economic spaces, trading and tax regimes. Defining relations between sub-national entities such as Scotland and England or the West Midlands is reliant on assumptions, which can be politically slanted, because of data weaknesses.
Scotland and England have no single-defined border to determine the extent of the respective economies - according to some there are at least nine internationally acceptable variants of the North Sea border.
There is no agreement on the division of the continental shelf in the North Sea, currently the fisheries zones are used for determining allocation of North Sea energy resources. Statistically these resources are allocated by the ONS to the Continental Shelf (or Extra-regio). Proponents of Scottish independence assume North Sea revenues should be allocated to Scotland. With these revenues, Scotland per head provided an estimated £789 more in tax than the UK as a whole in 2012-13. Scottish public expenditure per head, however, in the same period was some £1256 (11%) higher.
If Scotland does vote yes, the true fiscal position will become quickly apparent and negotiation commence on an equitable and transparent redistribution of national asset and liabilities, including natural energy resources, debt and currency reserves as well a range of cross-border issues that have yet to be identified or quantified.
What could be the impact of the Scots remaining within the UK?
The current structure of funding is via a combination of the Scottish block grant and UK Departmental expenditure north of the Border.
Currently public expenditure in Scotland is equivalent to 9.3% of the UK total, despite an 8.4% population share. In 2012-13, per person this equated to £7932, 16% higher than the UK as a whole (£6722).
Annual recurrent public spend per head was 12.5% higher, and annual capital spend per head 48.2% higher than for the UK.
Significantly, Enterprise expenditure per head in Scotland was three times higher and the differential with the West Midlands, which received £262 per head, was more pronounced with Scotland’s receipt of £1001 per head. Similarly on transport activity, the West Midlands received £1112 per head compared to Scotland’s £2722.
There are arguments that Scotland receives more because of its greater relative deprivation and isolation, however there are parts of the West Midlands that suffer equally, if not more badly in terms of poverty and structural employment, whilst in Herefordshire, Shropshire and Staffordshire there are communities that are as equally isolated as many Scottish populations.
It is also argued that the Barnett Formula that determines the block grant is based on needs. However the baseline was calculated on the expenditure levels current when the political fudge was struck in 1979, with expenditure raised incrementally and proportionality since.
Expenditure was allocated according to 1979 population levels, although political expediencies subsequently have seen major funding variations. For capital expenditure, the national basis of the calculation has the perverse impact that London capital expenditure (by far the main recipient) reduces the available capital for other English regions, whilst simultaneously increasing the allocation available for Scotland.
The key problems of the Barnett Formula is its lack of transparency in its calculation and focus on political expediency rather than addressing very real social problems which are usually concentrated in specific pockets within regions, rather than generically to regions as a whole.
If there is a long-term structural unemployment problem in Wolverhampton it should be treated as equally urgently and effectively as if it were in East Kilbride or Newport.
With Scotland being promised control of some income and other taxes, such as Air Passenger Duty (APD), unless the Barnett Formula is restructured, or indeed a new methodology altogether adopted, this will exacerbate the asymmetrical devolution of governance that currently exists and put devolved administrations at a fiscal advantage.
If, for instance, the West Midlands took control of APD this could radically alter Birmingham Airport’s potential and consequently significantly boost the regional economy. The Davies Commission has implicitly and more recently explicitly stated the strengths of the Airport, but cited some reluctance on the part of international carriers to fly there, reducing or abolishing APD could transform its international attractiveness.
London, Wales, Northern Ireland and Scotland have institutions that take strategic economic views and lobbying for their implementation. English Regions, however defined, have no comparable capacity with no consensus on how devolution, if at all, should proceed. There are interesting proposals for combined local authorities, and both the Heseltine and Adonis Reviews have suggested ways forward. Proposals to give City Regions greater powers offers some scope, although again there needs to be mechanisms for them each to work together effectively. The One North proposal is an innovative approach that incorporates disparate City and local identities and harnesses them collectively to create a new regional approach.
The West Midlands, and indeed the Midlands collectively needs to decide how it can move forward and strengthen what is already one of the more dynamic and productive regions globally.
This article first appeared in The Birmingham Post
