Benny Higgins plan to help firms needing financial help

Douglas Fraser
Business/economy editor, Scotland

Benny Higgins
Image caption,
Benny Higgins wants a new agency to be set up as part of the rescue phase for all sizes of firms in financial distress
  • Benny Higgins, chair of the Scottish government's economic recovery panel, speaks exclusively to BBC Scotland about his plan, which goes to the cabinet next week
  • It includes recommendation that a new agency be set up, to take on board numerous private company stakes that government is likely to be taking on soon, as part of the rescue phase for all sizes of firms in financial distress
  • Other priorities include youth unemployment, rural vulnerability to the tourism stoppage, skills and the school curriculum, and making more of Scotland's universities

You may be about to take on a wide-ranging share portfolio, whether you want to or not. The Scottish government will be the public's asset manager.

That's because we are heading into a new role for ministers, as investors in Scotland's companies, and not just the big, strategically-important ones. To preserve the economy from an even more catastrophic collapse, Holyrood can be expected to take on equity stakes in a wide range of small companies.

So says Benny Higgins, the ex-banker leading the eight-member team commissioned by the Scottish government to advise it on the route to economic recovery.

The former chief executive of Tesco Bank talked to me about the direction of travel for the group, which will see him present outline conclusions to the Scottish cabinet next week, and full publication by the end of the month.

It won't just be high-level themes, he said. There will be specific "interventions" - one of his favourite words. The creation of a new government agency to take control of the new and wide-ranging share portfolio is one taster of what to expect.

"It is likely that government will own equity stakes in businesses," says Mr Higgins. "We need to create an institution which can do that professionally."

At arm's length? Not necessarily: "The important bit is that the assets are managed by people who know what they're doing."

No clear model

That's how it works with the UK Financial Investments arm of the Treasury, which holds the 62% stake in Royal Bank of Scotland. The Scottish government already owns stakes in BiFab and wholly owns Prestwick Airport, both taken on as rescue operations.

The ownership of Scottish Water, Cal-Mac ferries and Highlands and Islands Airports is a legacy from days when the state or councils ran utilities and public transport.

Transport Scotland takes some of the management role, but there's no clear, consistent model for the way government ownership operates. And the advisors think there should be.

The same questions are being asked, urgently, in Whitehall, where something called Project Birch is under way across departments. It is in preparation for swooping on strategically-important companies at risk of collapse.

Use of the Birch hasn't happened yet, but it's seen as potentially vital to keeping steel manufacturing alive as the crisis develops, and Virgin Atlantic aloft.

Image source, Getty Images

Says Mr Higgins: "It is inevitable that the Scottish and UK governments would own stakes in organisations". Where he appears to differ from Whitehall (what little we know of Project Birch) is that he sees small businesses being of strategic importance, and says part ownership of them should be brought into the recommended new agency.

Big firms will survive the current crisis, even if they're in poorer shape, he tells me. Around 250,000 mid-sized firms will get a lot of attention, and they deserve it.

"But there's also about five million much smaller companies [in the UK] - typically sole proprietors," he said. "They are facing choices and circumstances they are not well-prepared for. We have to find ways to support them too. They matter to employment and to the business sector."

Finance will be a constraint, he says. Some "interventions" should be given priority, and that means that others should not. Picking the losers is often the more difficult part of selecting likely winners.

But it's not yet clear how constraining finance will be. The Office for Budget Responsibility (OBR) has today (Thursday) updated its estimate of the cost of the Treasury's measures to tackle the economic consequence of coronavirus: with furlough extended to October, the total is up from £123bn to £132.5bn, of which £17bn is in tax cuts.

With the fall also in tax revenue, the most recent OBR estimate of this years' deficit is up from the planned £55bn to £298bn. So, yes, money will be constrained but not by much, for now.

The thinking among economic advisers, and voiced by the Chancellor Rishi Sunak, is that it's better and probably cheaper to spend now to prop up distressed, but fundamentally sound, companies than to see them collapse and have to rebuild the economy and employment from the debris.

Inequality illuminated

Benny Higgins says his approach to economic recovery starts with acknowledgement of weak growth and weak productivity that was evident in the economy before the Covid-19 crisis.

There were responses to that that were needed, but may now get a bit more oxygen and momentum, he suggests. As an example, the slow pace of planning and development for green energy investment has caught his attention.

He then lists the main themes of challenge that have come with the economic downturn.

Image source, PA Media
Image caption,
Mr Higgins says education has got to play a central role in the recovery of the Scottish economy

"The crisis has exposed and illuminated the scale of inequalities in our society," he starts.

"Second, education has got to play a central role in the recovery of the Scottish economy. Schools have to consider their curriculum in preparing children not just for the opportunity to go into higher education, but for those who want to pursue vocational careers through apprenticeships. We need to look at reskilling, retraining and lifelong learning.

"The university sector is a jewel in the crown of Scottish society and the economy, but we need to protect it and make more of it, because it is threatened in these circumstances. It is a very important part of 'brand Scotland'."

That involves much faster pace behind the commercialisation of Scotland's world-class university research. Many people have been pushing at that conversion for decades.

Radical and bold

"The third issue is huge unemployment. We must get Scotland back to work. The health crisis has affected older people, who have been more vulnerable. The economic crisis really puts in jeopardy younger people and I'm especially concerned about people in their late teens into their mid-20s.

"We cannot allow, as has happened in previous crises, for this to scar their future potential.

"We're going to be facing a mountain to climb in terms of unemployment. We need to do it with very careful planning, and with very radical and bold interventions."

He adds, with emphasis: "Seventy per cent of jobs in Scotland are in the private sector. It's essential that the public private partnership in Scotland is stronger and better than it has been. we have to work together to solve a very big problem".

Image source, PA Media
Image caption,
Mr Higgins said there was going to be a mountain to climb in terms of unemployment

They haven't been working together well?

"Both sides have to try harder. If this isn't a catalyst for doing things better, for making things happen faster, then nothing will be."

Special mention is given to rural Scotland, and its close links with the plight of the tourism and hospitality sectors. Digital cabling is seen as an important part of tackling that.

The change in working practices through the crisis is described as an opportunity to make work more flexible. That's about a lot more than the first minister's invitation to employers to "consider" a move to a four-day week.

The word "flexibility" makes trade unions nervous, I point out. "I'm talking about practices that work for both sides - meeting the needs of employers as well as employees," comes the reply.

These recommendations, says their lead author, will not be about the immediate emergency life support system for the economy.

It is looking at the rehabilitation and recovery of the patient: "Our recommendations are about how we build a robust, resilient, wellbeing economy for the future." And that goes for future shocks, from cyber-attack to climate change to another viral pandemic.