Federation of Small Businesses
First Minister Nicola Sturgeon
18 March, 2016
I understand that this is the first time this conference has ever convened in Glasgow, and it’s the first time it has come to Scotland since 2010.
It’s maybe worth noting that there are 60,000 more businesses in Scotland than when you gathered in Aberdeen 6 years ago. That's an increase of 1/5 in the total number of companies.
Whether you're high-tech start-ups or life sciences companies, local retailers or creative freelancers, electrical specialists or manufacturers - small and medium sized businesses form the backbone of the economy. So it’s a pleasure to welcome the FSB back to Scotland. I extend a warm welcome to all of you.
And it’s a particular pleasure to welcome you back at such an important time – just before the start of the Scottish election campaign. The manifesto for those elections, which has been published by the Federation of Small Businesses, is a typically thoughtful and constructive document.
The Scottish Government is already committed to meeting many of its key proposals. For example I pledged last week that by the end of the next parliament, superfast broadband will be accessible to 100% of premises across Scotland. We are also working with providers to improve mobile coverage.
I’ll deal with other issues raised by the manifesto later in my speech. I’ll deal in particular with access to finance, public sector procurement, and business taxation.
But I want to start my remarks today with one very simple message. The Scottish Government wants Scotland to be the best place in the UK to do business. As part of that, we know that we need small businesses to thrive. So we will do everything we can to support you.
Some of that is about wider action to improve the economy - we're investing in early years, school education and quality vocational and higher education. We are spending more than £4 billion this year on infrastructure projects – such as improving rail and road links, and developing universal broadband coverage. Our enterprise agencies are helping more companies to innovate and to internationalise.
However we’re also promoting a broader cultural change - we want Scotland to become an entrepreneurial nation. We recognise that new business ideas are essential to creating jobs and increasing productivity – and so we want to see and support more people to start new companies.
That’s why we launched the CAN-DO innovation forum last year – chaired by the Deputy First Minister.
We’re encouraging entrepreneurship and innovation in the school curriculum – for example through the Scotland’s Enterprising Schools initiative.
We also launched a Women in Enterprise Framework in 2014- the only one of its kind in the European Union. It’s potentially very important – if as many women owned businesses as men, it would create more than 100,000 new businesses.
And we’ve provided very specific support for entrepreneurship. We established the Scottish EDGE fund in 2012. It has now helped over 150 ambitious new companies; generated £20 million of additional turnover; and created almost 500 jobs.
We want to nurture people’s entrepreneurial ambitions and also – crucially – to provide the practical help and support which enables them to turn their dreams into a reality. By doing that, we will enable them to contribute to Scotland’s prosperity in the years and decades ahead.
We’ve also taken many steps which – in addition to encouraging people to set up new companies – will help existing small and medium-sized enterprises.
I’m going to highlight three of those today. I’ll go on to talk about public sector procurement and business taxation. But I want to start with access to finance- something which is crucial to the growth, and sometimes to the survival, of many small businesses.
In 2010 the Scottish Government established the Scottish Investment Bank to ensure that companies with growth potential could gain access to finance. The Bank works with the wider investment community, including Business Angel syndicates. Last year, it invested in almost 150 different companies.
The Scottish Investment Bank was originally aimed at growth and exporting SMEs. They remain a priority- but we also recognise that many more businesses need access to finance to support their start-up, development and growth.
We are therefore extending its reach, so that it can serve a larger number of small businesses.
We are also ensuring that more companies are able to receive independent financial readiness advice, so that they can be better prepared before approaching lenders.
And last autumn, we announced a new £40 million SME Holding Fund. It will provide microcredit finance up to £25,000, loans up to £100,000 and equity investment up to £2 million through appointed delivery partners. In total, it will make resources of £100 million available over the next three years.
And at the same time as we’re expanding our support for small businesses, we’re simplifying how that support is made available. All our financial support services for SME’s are being brought together under one brand. It’s a simple step which can have an important impact. It’s another way in which we can encourage start-ups, support business investment, and help companies to grow.
The second area I want to mention is public sector procurement. In a month’s time, new duties come into force under the Procurement Reform (Scotland) Act.
Among other things, they require public sector procurers to facilitate the involvement of small and medium sized businesses and third sector organisations. The fundamental principle here - that SMEs should have a fair chance to benefit from public contracts - will now be enshrined in statute.
But, although those new duties are an important landmark, they continue an approach that we’ve adopted over several years. In 2008 we established the Public Contracts Scotland website – it provides a single website for public bodies to advertise contract awards. Importantly, it also allows main contractors to advertise for sub-contracting opportunities.
It makes it far easier for small enterprises -which may not have the resources and range of contacts of larger competitors – to identify business opportunities which are suited to their particular capabilities.
And it’s brought about results. Last year, 19,000 suppliers were awarded contracts through the Public Contracts Scotland website. Of those 19,000, 15,000 were SMEs. 12,000 were Scottish SMEs.
You will all have passed the SSE Hydro on your way here. It’s part of the legacy of the 2014 Commonwealth Games. If you look at those games, the contracts and sub-contracts benefited almost 500 different companies. 76% of the value of the contracts – more than £500 million - went to businesses based in Scotland.
Now, we know that we can still do more – that’s one reason for the duties which are coming into force in June. But in the last year for which we have data on Scottish public sector procurement, almost £1 in every two that we spent, went to SMEs.
The importance, quality and expertise of smaller companies is being recognised – not just in our public statements and our policy-making – but in the purchasing decisions we make on a daily and weekly basis.
We’re also ensuring that when we contract with businesses we pay them promptly. In 2014-15 the Scottish Government paid 98% of invoices within 10 working days. And we’re trying to spread the culture of prompt payment more widely. We know how important it can be to smaller businesses.
The Scottish Business Pledge is a good example of that. The pledge now has more than 230 signatories across Scotland – and more than 2/3 of them employ fewer than 50 people. We hope to encourage many more businesses to sign up in the weeks and months ahead.
The pledge celebrates innovative and progressive companies across Scotland. And when we were designing it, we took account of the representations we received from the Federation of Small Businesses.
As a result, prompt payment of suppliers is one of the 9 key elements of the pledge, alongside characteristics such as innovation, internationalisation, gender equality and payment of the living wage. We’re deliberately promoting prompt payment as something all companies should aspire to – it should be a hallmark of successful, progressive, socially responsible businesses.
The final point I want to talk about is taxation –how we get the balance right between funding our public services, and encouraging business growth and investment.
In the early years of the Scottish Parliament, before 2007, our predecessors in government set levels of business rates that were up to 11% higher than in England. That damaged competitiveness and discouraged investment.
When this government came into office, we matched the business rates poundage in England and created the small business bonus scheme. As a result of the second of those measures, almost 100,000 small business premises in Scotland now pay zero or reduced rates.
In the current financial year, it’s reduced taxation for small businesses by £170 million – that’s an average of more than £1,500 per property. In total, since 2008, the small business bonus has saved businesses more than one billion pounds.
However for all the success of the small business bonus, we know that some aspects of the business rate system are still a source of concern for some of you. The FSB’s manifesto, for example, argues that the current system can sometimes discourage investment, and that it should be simplified.
So there may be a case for making changes – but that case needs to be considered very carefully and the needs of all ratepayers must be balanced.
That’s why the Deputy First Minister announced in December that the Scottish Government would review business rates. We want to ensure that the system is as fair and effective as possible.
I can confirm today that Ken Barclay, the former chair of RBS Scotland, has agreed to chair the Commission which will recommend changes to business rates.
He and the other panel members will consider how business rates can support business growth; respond to wider economic conditions and changing marketplaces; and support long-term growth and investment.
We expect the review to be completed by summer 2017. Businesses will of course be asked to contribute and I hope you all get involved.
I can also make it clear that the review and Scottish Government actions, will be guided by three clear three principles.
Firstly the intention of the review will be to make recommendations which, overall, are revenue neutral. This is not an exercise in increasing tax, it is about ensuring taxation is fair.
Secondly the small business bonus will be retained until at least 2021. And finally, the business rates system should reflect the ambition I outlined at the start of this speech - that Scotland will be the best place to do business anywhere in the UK.
In all of our work to achieve that ambition – as I hope I’ve made clear this morning - the Scottish Government will continue to champion small businesses.
You are crucial to the cohesion of our communities, and the dynamism of our economy. That’s why we want to encourage even more businesses to start up in the years ahead. It’s why are investing in the skills and infrastructure that enable you to prosper. And it’s why we’re ensuring that in everything we do – in taxation, procurement, and encouraging prompt payment – we help rather than hinder the sector.
In all of this work, we know that the Federation of Small Businesses will be a strong – and often challenging – ally. So I’m delighted to be here today; I wish all of you all the best for the rest of this conference; and I look forward to your questions.