Scotland’s new business creation ‘in crisis’

Scotland’s new business creation ‘in crisis’

Colin Donald
Business Correspondent
The Scotsman

Economists and opposition politicians yesterday called for a ‘radical rethink’ on Scottish Executive measures to promote new business start-ups after new figures showed a plunge in the number of new businesses launched in Scotland in the third quarter of 2005.

A report from the Committee of Scottish Clearing Bankers (CSCB) showed that the number of new business accounts opened at CSCB banks had dropped from 5,905 in Q2 to 5,121 in Q3.

The more significant year-on-year figure showed a drop from 5,237.

Professor Robert Wright, an economist with the Fraser of Allander Institute, said yesterday: ‘This is not a trivial decline, and if it continues we have a big problem in Scotland, despite the fact that everyone and his dog is talking the talk about the need to foster entrepreneurship.

‘It is time that the Executive and local authorities considered more radical measures to improve the climate for new businesses, starting with local rates, and the amount of red tape that all new businesses have to endure.

‘The important thing is not to make planning and other processes less rigorous, but to make them quicker.’

His comments were echoed by Tony Mackay, of economists Mackay Consultants: ‘These are very disappointing figures. Even if you don’t read too much into a quarterly fluctuation, the fact is there is no significant rise in new business starts.

‘There is an urgent need for a new approach, as would-be entrepreneurs are being discouraged by the expense of red tape, and competition from the public sector. While I am reasonably happy with the decision to reduce business rates by 2007, the time has come for new initiatives on tax holidays for new start-up companies, and new thinking about launching free trade zones that offer tax advantages.’

SNP MSP Alex Neill, chairman of the business growth inquiry set up by the Scottish Parliament’s enterprise committee, said: ‘There are two problems here: the first is that the business start-up rate in Scotland is pathetically low compared to the south-east, and the second is a lot of the help offered by Scottish Enterprise and the Executive is not effectively geared to encouraging the kind of high-growth start-ups that will add net value to the Scottish economy, rather than displacing other businesses.

‘We need more support for high-tech development such as nanotechnology and companies that can exploit internationally our expertise in sub-sea technology.

‘There are good support mechanisms in place like Proof of Concept but they are not joined up and they don’t encourage the scale of investment required.’

A spokesperson for Scottish Enterprise said: ‘Without knowing the detail behind the statistics, it is difficult to draw meaningful conclusions from comparatively minor fluctuations in quarterly figures and they should therefore be treated with some caution. The main value in having these figures is to identify long-term business start-up trends.’

A spokeswoman for the enterprise department added: ‘Whilst we acknowledge the slight fall this quarter in the number of new business accounts, we are confident that the trend in new business activity is upwards with the number of new businesses having gone up by 2 per cent over the last four quarters.’