The independence referendum: the importance of SMEs

The referendum debate is picking up speed, with heavy guns being deployed on both sides.

Would Scottish independence be a good thing? The airlines and some parts of the manufacturing sector say yes. The oil industry and financial services take an opposite view.

The debate so far has largely been confined to the biggest issues, voiced by business leaders representing the biggest companies in Scotland. But as the date for the referendum comes closer, it’s worth reminding ourselves that Scotland’s economy is heavily dependent on the small business sector, and they are as much affected by tax or fiscal uncertainties as anyone else.

The country may need oil and financial services for its tax revenues, but employment and business growth is largely being fuelled at the other end of the economic spectrum.

The statistics are compelling. Levels of unemployment in Scotland are falling, employment rising, and there are now some 340,000 small businesses in Scotland. That’s the highest number since records began.

To put that in perspective, over 30,000 Scottish businesses registered with Companies House in 2013. In 2012, it was 25,500; in 2011, 24,000; in 2010, 20,700. It’s a trend we should all welcome.

This is borne out in a recent report, the UK Startup Ecosystems Report, which ranks Britain’s entrepreneurial ecosystems. Scotland comes out extremely well – ranked fourth, reflecting its high business birth rate and low business death rate.

The report, essentially, is a guide to the best places in the UK to start a business, and is based on a number of criteria – for example, business birth rates, unemployment rates and the number of businesses per 10,000 adults. Scotland came after the south east, London and the east.

The Federation of Small Businesses (FSB) quotes Scottish government statistics to show that small and medium-sized enterprises now account for 99% of all Scottish businesses and for over half of all private sector employment.

The FSB also recently said that Scotland’s SMEs need support from banks, the government and utility firms if the sector’s recovery is to gain momentum this year. Tellingly, the FSB also said that both sides of the Yes/No debate needed to make a more compelling case to SMEs on the benefits of unity or separation.

It’s a point noted by the Yes campaign which is promising simplification of the tax system and a slashing of red tape for small enterprises – as well, of course, the benefits of having control of VAT: targeting tax breaks for the likes of the tourism and hospitality sectors.

However, many of those proposals don’t need independence. For example, the Regulatory Reform (Scotland) Bill which was voted into law earlier this year, is intended to improve the way that regulation affects Scottish businesses while encouraging sustainable growth. It’s a good bit of legislation, overwhelmingly supported by the Scottish parliament, and a good example of the “if it ain’t broke, don’t fix it” school of thought in the constitutional debate.

However, for most voters, the referendum debate has become bogged down in what BA or BP says; whether Scotland can (or should) retain the £; and whether we will be granted early membership of the EU. 

These are, of course, huge and important issues. But we have to remember that Scotland is a patchwork of many thousands of companies, working across the business spectrum – many of them dependent on UK or export trade; others on international collaboration.

Scotland’s economy, in a digital age, has been transformed: from medical research to renewables; from gaming to computer software: again underlining Scotland’s proud history of innovation. Would independence be a benefit or a hindrance for those high-growth sectors?

Rather, then, than have the independence debate shaped by RBS or Standard Life, it is the SME sector that politicians and the media should be listening to. Should be, but aren’t.

The trouble, of course, is that it’s not easy for a small business to speak up, let alone make its voice heard. That’s where the likes of the FSB, Chambers of Commerce and other representative bodies are so important.

The small business sector is the Scottish business sector. What happens to it will have a much greater impact on Scottish employment and economic health than many big Scottish employers put together.

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