Taking stock: Why business leaders are demanding government support for the sector

BrewDog is no stranger to controversy. It courted it in its early days, with marketing stunts that included dropping fat cats from a helicopter flying over London. More recently the north east brewing and pub firm has been courted by it, with tales of toxic working practices and inappropriate managerial behaviour regularly finding their way into the press.

It came as no surprise, then, that the business faced a backlash earlier this month when it was revealed it no longer plans to pay new staff the real living wage, choosing instead to use the lower national living wage while freezing pay levels for employees in its London bars. Bryan Simpson of the trade union Unite called the move “outrageous” while Punks with Purpose, a campaign group made up of former BrewDog staff, said there is “no principle too dearly held for [BrewDog] to abandon”.

For the company’s cofounder James Watt, who has long stated that allegations against BrewDog generally and him personally have been overblown, the criticism was unfair. The company has for the past decade paid the real living wage – a voluntary rate calculated by the Resolution Foundation that takes account of the actual cost of living, applies to workers from the age of 18 and is 48p an hour higher than the government-mandated minimum – which Watt says shows the business is “fully committed to investing in our people”. 

But, with the hospitality sector “going through its toughest period in living memory” resulting in “more closures and job losses last year than ever before” and BrewDog itself reporting an operating loss last year, Watt says the firm has altered its pay structure in order to “protect jobs and keep all of our bars open”. Though the real living wage will increase to £12 an hour from April (£13.15 in London), new BrewDog staff will be hired on the national minimum of £10.42, which will rise to £11.44 from April, and those in London will be paid £11.95 an hour. No one already working for the company will see their pay decrease.

Since Covid about 170 pubs in Scotland have closed for good

It is, says Scottish Licensed Trade Association managing director Colin Wilkinson, a situation many hospitality businesses will recognise. Indeed, with costs soaring while customers cut back on spending in the face of cost-of-living pressures, chains such as Revolution Bars Group have already announced that unprofitable outlets are going to close while 40 Scottish venues run by Stonegate Pub Company are under threat.

“What we’re seeing now is pubs closing at twice the rate of those in England,” Wilkinson says. “Since Covid about 170 pubs in Scotland have closed for good – more than that have closed but some have been taken on by someone else. A lot of that is to do with the Scottish Government not recognising the importance of the licensed hospitality trade because it didn’t get the 75 per cent business rates relief that pubs in England and Wales get. We didn’t have that last year but we did the year before and that really helped a lot of businesses get through. 

“In terms of the living wage, of course we want to pay staff as much as we can but with all the increased costs we’re facing, we’ve got the new level and it’s very difficult. What’s sometimes forgotten when you’re talking about the living wage is that some people have been with the company for years and are in senior positions. You need to maintain the differential so they need a pay increase too and that adds to the employer’s costs.

“We do a six-monthly survey and in the one we did in the summer nine per cent of respondents said they were looking at whether they would have to close or look at other options going into 2024. That’s a really worrying figure.” 

Hospitality is one of Scotland’s backbone business sectors. According to the Scottish Government’s Time Trends: Business In Scotland report, which was last published in December, hospitality was one of the biggest contributors to the Scottish economy on the day data was gathered in March 2023. In total, there were close to 341,000 private business operating in Scotland at that point. The vast majority of them – 98.2 per cent – were small, meaning they employed fewer than 50 people, and construction, retail and hospitality were among the dominant sectors, giving jobs to almost 650,000 people and turning over a combined £86.2bn

The picture was not all positive, though, with the data showing that while there had been an increase of 102,000 business since the turn of the millennium, between 2022 and 2023 a total of 20,150 had closed. It is, says Colin Borland, director of devolved nations at the Federation of Small Businesses (FSB), a worrying trend.

Since Covid, 170 pubs in Scotland have shut down | Alamy

“We lost 20,000 businesses over the last year. In comparison, that’s roughly the number that we lost during the Covid pandemic between 2020 and 2021,” he says. “That’s due to a number of things – the cost of doing business, inflation, rising input costs, shaky consumer confidence – and turnover and footfall are not rising commensurately with that. A lot of businesses say they are busy but the per-customer spend is down. They might be flat on turnover year-on-year but costs have gone up by 10 to 20 per cent and that’s really squeezing margins.

“When it comes to closures, there was a feeling for a lot of people that any reserves they had built up were long gone and that they had run out of road. About 3,500 business in the accommodation and food service sector have closed in the last year. That’s a lot.”

It is a scenario that the Scottish Grocers Federation (SGF) is familiar with. In its review of the year for 2023 the organisation, which represents around 5,000 convenience store owners across the country, identified a range of issues that its members are currently grappling with, ranging from business rates and the compounding impact of various government policies to the increasing living wage and an uptick in retail crime. They are, says policy and public affairs officer Jamie Mackie, collectively putting huge pressure on those operating in the sector.

“It’s that sense that the sector and the business community as a whole has been hit by challenge after challenge,” he says. “There’s been Brexit, energy costs and the war in Ukraine, inflation, high interest rates. They are all external challenges that governments can’t have a huge impact on but then there’s a doubling down on policies like business rates. They [the Scottish Government] could have passed some of the Barnett consequentials on [to pay for a 75 per cent discount] but they didn’t. We have to pass the cost of that on to customers, including elderly people, because we can’t absorb it all. That’s going to have an impact on the cost of living.”

Luke McGarty, head of policy and public affairs at the SGF, says that on top of everything else retailers are currently having to deal with a surge in crime that is impacting on both their business interests and their mental health. Since the Protection of Workers (Retail and Age-restricted Goods and Services) (Scotland) Act was passed in 2021 over 8,000 cases have been reported, but McGarty says that because there are no stats to show if those reports are leading to convictions it is not clear whether the legislation is acting as a deterrent. The experience of shopkeepers on the ground would suggest it is not, he says.

“Retail crime has been and remains a huge challenge for our sector,” he says. Mohammed Rajak, who has run a convenience store in the east end of Glasgow for the past 30 years, agrees, noting that it has got worse in the years since the pandemic. “We get theft every day,” he says. “Since Covid it’s spiralled. It used to be petty crime – sweets and chewing gum – but now sometimes people come in and take basketloads.”

Much of it goes unreported, Rajak says, with shopkeepers choosing to bear the cost rather than continually call what they know is an already overburdened police service. As is the case in the hospitality sector, many are questioning whether they can go on. “We’re speaking to people and they’re saying they can’t do it anymore, that this year will be make or break for their business,” Mackie says.

The impact of this is already being seen in the construction sector, which is known as a bellwether for the economy as a whole. Businesses of all sizes have warned that turnover and profits will be significantly lower in the current financial year than in the last, with large-scale projects, particularly in the public sector, under threat from uncertain funding arrangements while the flurry of activity seen from individual householders in the wake of the pandemic has dried up as the cost-of-living crisis has taken hold. A number of businesses, including Allma Construction in Barrhead and Stewart Milne Group in Aberdeen, have folded and there are concerns that there will be more bad news to come.

We lost 20,000 businesses over the last year – that’s roughly the number that we lost during the Covid pandemic

“You only have to walk through your local town centre to see lots of retail shops closing,” says Vaughan Hart, managing director of the Scottish Building Federation. “We get peaks and troughs and one thing leads to another – there were major issues in the banking sector in the 1990s, people couldn’t get mortgages and that led to a significant slowdown. During Covid people couldn’t move house so they ploughed money into their existing homes and the sector had ample work, but we’re now seeing a massive slowdown.

“In the public sector buildings like new schools aren’t being built so there’s less money being spent. People see our sector as making an absolute fortune, and some small builders do make a good margin, but when you work in commercial property the margins for large contractors are miniscule. Some of our members do social housing and that’s a major, major issue – expectations remain high but there’s not the money to build what they want to the quality they want. It’s inevitable that more companies will have challenges.”

When he succeeded Nicola Sturgeon as first minister last year Humza Yousaf announced that his government would introduce a New Deal for Business that would help organisations to “thrive and maximise the opportunity of the green economy”. It would, he said, have “fairness at its heart”. He was quick to act, too, assembling a New Deal for Business Group that met for the first time last May and resolved to investigate five key areas for action: regulation, business partnerships, non-domestic rates, the wellbeing economy and how business sectors can “share key metrics”.

An implementation plan was put in place by wellbeing economy secretary Neil Gray in October but, with finance secretary Shona Robison confirming that there will be no rates relief included in her budget for the year ahead, the businesses that keep the Scottish economy ticking over feel let down. 

“Especially in relation to business rates we’d have liked to have seen that the New Deal was about working with businesses,” Mackie says. “There’s also a huge amount of regulation and legislation sitting there for retailers – there will be restrictions on the promotion of foods high in fat, sugar and salt, a consultation on restrictions on alcohol marketing is expected to come back, maybe restrictions on vaping and tobacco. Those are all things that retailers will have to contend with and adjust to. If and when those things do happen it’s imperative that there’s a sequential approach so they are not all landing at the same time.”

In the meantime, all eyes are on UK Chancellor Jeremy Hunt to see if he will throw small businesses a lifeline when he delivers his budget in March. With Robison unable to deliver on rates, the hope is that Hunt will deliver on VAT.

“In a period of high inflation prices have crept up and people are getting perilously close to the £85,000 VAT threshold, but profitability hasn’t gone up,” Borland at the FSB says. “Businesses are deliberately trading under that threshold – the OBR [Office for Budget Responsibility] estimates that by 2025 about 44,000 traders across the UK will be deliberately keeping their turnover just under it. That will be costing the UK hundreds of millions of pounds in economic activity and we’re pushing for that threshold to be raised to £100,000.”