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Will the spending cuts damage Scottish retail?


Retail leaders have been some of the most vocal cheerleaders of the government’s proposed cuts, signing letters of support before and making sounds of relief after this week’s Comprehensive Spending Review (CSR).

The government is initiating the kind of efficiency savings that retailers have had to adopt over the last few years and with limited tax rises on the horizon and interest rates set to stay low the outlook appears promising.

What is good for Britain in general may not be good for its regions however and Scottish retail seems to have some particular issues which the CSR may not have assisted.

Scottish retail has been recovering far slower than in the south of England and on Wednesday the Scottish Retail Consortium (SRC) announced like-for-like sales falling 0.4 per cent year-on-year during September in the region.

Scottish sales levels have declined five out of the last six months and in July they experienced the biggest fall in a decade.

Despite the current fragile state of the country’s retail trade, the SRC is fully behind the government’s policy of deficit reduction.

Richard Dodd, spokesperson for the SRC, said: “This is something the UK needs to go through. We believe that the recent uncertainty may be more damaging to consumer confidence than the reality of the cuts proves to be, even if the effects are severe.”

A more promising statistic from this month’s Scottish trading update was total sales increasing 2.3 per cent, thanks in large part to an expansion in retail space during the last year.

Construction in general has been growing fast in Scotland of late, in the second quarter alone it increased 10.4 per cent according to the Scottish government, helping the nation’s overall economy grow 1.3 per cent.

That makes the 38 per cent decline in capital spending announced in Westminster on Wednesday particularly worrying for Scotland.

Stewart Hosie MP, SNP Treasury Spokesman, said: “Scotland’s economy grew faster than the UK as a whole in the second quarter of 2010 – the highest growth for four years – but the Tories and Liberal Democats threaten to throttle Scottish recovery with these huge cuts to capital expenditure.”

Retail construction in the region has been healthy in recent years and further expansion is planned with property company Hammerson alone building 7,728 sq m of new retail and leisure space at the Silverburn shopping centre in Glasgow next year.

There is a danger of contagion from the public to the private sector however and whether global property companies will continue to build in areas where public facilities may have fallen into disrepair remains to be seen.

Graeme Hartley, Director of the Royal Institution of Chartered Surveyors (RICS) Scotland, said: “The property and construction sector will certainly feel its share of the general pain, and when this sector hurts, the whole economy hurts more.

“RICS Scotland is concerned about the impact that the spending cuts will have, especially on the construction industry - every £1 spent by the UK government on building projects generates around £3 for the wider economy.

“Cutting construction spending will have serious negative impacts including long-term unemployment, loss of skills and outdated infrastructure preventing economic growth.”

Unemployment is the other major worry for retail coming out of the CSR, with an estimated 90,000 public sector jobs set to be cut over the next four years.

The onus will be on retail to employ those made redundant but it can only do that if the Scottish consumer is buying at the tills.

A report by the workers union group Unison found that there are currently 25 unemployed people for every job advertised in Scotland.

Consumer confidence as a consequence is running lower than the rest of the UK according to the SRC, and rising VAT and squeezed budgets are unlikely to improve the mood north of the border.

Whilst pay freezes have thawed to applying to just 14 per cent of UK companies compared to 55 per cent in spring 2009, according to the Confederation of British Industry, the Bank of Scotland reported on Monday that starting wages in Scotland fell in September for a fourth month in succession.

Pacing may be vital to relieving pressure on the Scottish consumer and the CSR has allowed a delay of a year for the cuts to be introduced in Scotland, this it hopes will give time for the private sector to expand before the very large public sector recedes.

John Swinney, the Scottish Finance Secretary, said: “The Scottish government will prioritise economic recovery.

“That is why we are planning to defer these further cuts until the following year, in order that we can entrench economic recovery.”

If private investment in construction continues and consumer confidence recovers, the cuts may not seem as painful in a year’s time.

Retail will be crucial to the future of the Scottish economy and the government, both UK and Scottish, must ensure that it is able to flourish.

By Jon Whiteaker

Published on Friday 22 October by Editorial Assistant

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