Exclusive: Future Fund shortfall
New attack on Higgins as Scotland ‘misses out’ on new fund
Funding for Scottish startups falls short of expectations
Scotland’s innovative startups are missing out on a new government support scheme – prompting more criticism of the Higgins recovery group for “failing to recognise the best policy responses”.
The Future Fund is the UK government’s flagship fund to plug the gap left by the decline of seed finance due to the Covid-19 pandemic.
New data shows that the vast majority of the funding goes to firms in London and the South-East of England which collectively received £173m from the government – or 73% of the total so far committed.
Scotland, on the other hand, has seen comparatively little benefit from the Fund. Of the 252 awards disbursed by the British Business Bank, Scotland received only five – around 2% of the total.
These are exactly the kind of responsive policy measures which should have been examined in the Higgins Report– Prof Ross Brown
On a pro rata population basis it should have received around 25 loans. Even Wales has been allocated double the amount of funding given to Scotland.
Commenting on the figures, Ross Brown professor of entrepreneurship and small business finance at the University of St Andrews, stated: “The locations receiving support under the Future Fund are also those with the highest concentration of VC funds – London and south east England.
“Once again, this shows the huge spatial imbalances within the UK economy and how business support benefits the richest parts of the country the most.”
A shortage of finance for new ventures is of crucial importance because research shows that start-ups born during recessions not only start smaller, they stay smaller in subsequent years’ even when macro-economic conditions, he explained.
“This means that the future levels of innovation in the Scottish economy are also likely to be negatively impacted by the crisis.”
He added: “The Scottish Government may need to help better signpost these UK schemes so that eligible Scottish high-tech firms are made aware of them.
“These are exactly the kind of responsive policy measures which should have been examined in the Higgins Report on economic recovery published last week which completely overlooked the needs of entrepreneurs and SMEs in Scotland.
“Rather than providing practical policy steps to quickly aid the economic recovery it provided a series of vague platitudes and odd policy ideas.
“To help mitigate the impact of the Covid-19 crisis on innovative Scottish start-ups and SMEs, policy measures need to be both evidence-based and enacted swiftly.”
Prof Brown last week noted that the Higgins report mentioned SMEs only once in its 77 pages (p.39).
Describing the report, produced by the Advisory Group on Economic Recovery, as “woefully inadequate”, he said: “The current Advisory Group on Economic Recovery has largely (and surprisingly) neglected the crucial issues facing SMEs at the present time,” says Prof Brown in his own new paper making a series of recommendations on how to help this key sector.
“This is probably of no great surprise given the lack of formal representation on the group from the small business community such as the Federation of Small Businesses,” he said.
Independent economist Tony Mackay was also critical of the report, describing it as “very poor and very disappointing”.