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Run a business in Scotland

At a glance

  • European region of the Future 2004/2005
  • Region with Best Human Resources 2005
  • Scotland's financial services sector was, pre-crash, growing at twice the rate of UK counterpart
  • Investment incentives available, particularly in knowledge-based industries
  • Property and wages are lower than in England, although offset by higher business rates
Run a business in Scotland

The precipitous decline of UK manufacturing in the face of globalisation hit Scotland as hard as any other region.

But like its southern neighbour, it has reinvented itself as a more flexible economy.

Its decline, mitigated by the discovery of North Sea oil and natural gas in the late 1970s, has seen heavy industry supplanted by hi-tech industry.

Tourism represents a significant portion of what is now effectively a service-based sector, accounting for 80% of the workforce and more than two-thirds of GDP

Tourism

Supplementing revenues are the 18 million tourists that flock to Scotland each year, drawn to Unesco heritage site Edinburgh and the mountains, valleys and lochs of the Highlands.

Tourism represents a significant portion of what is now effectively a service-based sector, accounting for 80% of the workforce and more than two-thirds of GDP.

Another economic pillar is Scotland's financial services sector. In the five years up to 2005, it grew faster than the overall economy, and twice as fast as the UK sector as a whole.

Drawn by government incentives, knowledge-based industries set up home in Scotland during the 1990s. Since then, inward investment has been particularly pronounced in life sciences, energy and digital media.

Pharmaceutical giant GlaxoSmithKline, the e-business Amazon.com, and IT titans Hewlett-Packard, Intel and IBM all operate in Scotland.

Between 1999 and 2003 the number of core biotechnology companies in the country had been growing at a rate of around 28 per cent per annum; the EU average was only 15 per cent.

Partly in recognition of its record in attracting and accommodating foreign direct investment (FDI), Scotland was named European Region of the Future 2004/2005 from the Financial Times' FDI magazine. The judges praised its investment promotion networks, citing big investments in the energy, creative and food and drink sectors, among others, as evidence of their success.

The creation of new technology institutes, and investment in high-speed internet access and other infrastructure totalling £450 million, also reflected well on the Scottish Executive's efforts, according to the judges.

Much of the investment has been targeted at fostering research and development in Scotland - to great effect. Scotland attracts around a third more R&D-related investment as a proportion of total investment than England and the rest of the EC.

The FDI magazine panel noted the positive effect of training and job creation grants, discretionary funding, and public investment funds.

"Many small companies have lots of valuable intellectual property that might be useable in Scotland so SDI targets companies of all sizes in its priority industries," says a Scottish Executive Spokesperson.

 

Skilled workforce

One of Scotland's best assets is its people. Just over a third of those of working age have been to university, while a third of people in the 18 to 30 age group have a degree.

Companies in Scotland looking for expertise in physics, computer sciences and electrical and electronic engineering - subjects in which Glasgow, Edinburgh, Strathclyde and St Andrews were recognised for attaining the highest standard of research possible - will be well-placed in Scotland.

The FDI magazine called Scotland's labour market regulations "the most flexible in Europe". It also won a separate award in 2005 from the same magazine: Region with Best Human Resources.

Future strength in depth is contingent on whether the Executive can stem the brain drain of young graduates choosing careers abroad. An announcement in 2005 by Scotland's First Minister suggested it had, announcing a 10% increase in Scottish graduates opting to remain and work in the country in the preceding six years.

Yet the workforce as a whole is shrinking. Scotland's projected population decline is exceeded only by that of the new EU accession states in eastern Europe. As in the EU, Scotland has an ageing population. But unlike much of Europe - where stagnation is offset by immigration - Scotland suffers net emigration.

Spiralling health and pension costs are likely - and business might bear some of the burden through higher taxes. Savings in educational costs will mitigate this, however, due to an inverse decline in the number of children, due to a low birth rate.

So retailers and leisure operators aimed at children are chasing a shrinking market. Conversely, industries which cater principally, or exclusively, for the over 50s, have an expanding customer base. The Western Isles, the Borders, and South Ayrshire have the oldest populations.

West Lothian has the youngest - with 25% under 18 - and the fastest growing population. Ten miles to the east of Edinburgh, and 25 miles to the west of Glasgow, the county is positioned midway between Scotland's two biggest cities. Its largest town is Livingston, with a population of over 50,000.

On Scotland's eastern coast, Edinburgh, the capital, is well placed for access to continental Europe via sea, as well as through its airport. Its financial services sector is huge and expanding, while the thriving tourist economy (among UK cities, only London has more visitors) attests to its cultural status.

 

Glasgow

In 2005 Glasgow was rated the best place to do business in Britain by Growing Business magazine. It's most buoyant industries include financial and business services, communications, biosciences and software.

The city is notable for having more businesses than any other Scottish city, 62 university or research spin-out companies, and for being Europe's fastest growing conference destination.

A number of regeneration projects should be of interest to those looking to locate in Glasgow, including business and technology parks, the £750m regeneration of Glasgow Harbour, a £500 million project for an International Financial Services District, and a broadcasting and digital media district in Pacific Quay.

More surprisingly, 3.1 million tourists a year visit the city, with it having experienced the fastest growth rates in visitors to UK destinations.

The tourist market in Scotland is worth 4.4 billion. Aside from the two biggest cities, the Highlands are the most popular destination.

Scotland's breathtaking vistas - a boon for its tourist economy - are a hindrance to moving goods. Poor climactic conditions hamper freight transportation, which relies more on the road network than other parts of the UK due to its mountainous geography; in terms of weight, 81 per cent of cargo is moved by road.

Yet the Scottish Executive plans to remove as many as 18 million lorry miles from the roads. To this end, it is subsidising cargo transportation on rail, canals, inland waterways and shipping routes.

On the periphery of the EC market, Scotland is remote from the channel tunnel, as well as the lucrative south-east of England. Fortunately, four main airports connect with destinations across the world, and more than 115 flights go to London daily.

And of course Scotland is spared the kind of road congestion that blights freight transportation in the South East.

Rates issues

With lower property values and average earnings 92.7% of the UK average, the country can boast other competitive advantages. Until now, higher business rates to some extent offset them.

The Scottish Executive responded to a clamour for reduced rates, cutting business rate poundage - the figure by which the value of a property is multiplied to determine rates - from 46.1p to 44.9p in April 2006. It plans to bring them fully into line with England next year.

The Small Business Rates Relief Scheme, introduced in 2003, provides further relief. Subsidised by larger businesses occupying non-domestic subjects, it gives small firms rate reductions of up to 50%.

Subject to conditions, Edinburgh council helps out businesses with interest-free loans, although retail and personal services are excluded.

State involvement is not always welcomed, however. The Federation of Small Businesses (FSB) claims that Scottish Water, a publicly-owned water utility formed in 2002, charges between five and 10 times the water rates levied on English businesses by privatised companies.

The FSB explained: "A comparison of two retail premises owned by the same business, one in Scotland and one in England, with virtually identical water usage and rateable values, showed that in 2003/2004, the bill in England was £366; in Scotland the bill was £1212" - an increase of 244% in only two years.

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