Meeting of the Parliament (Hybrid)

Meeting date: Wednesday, June 29, 2022

Official Report 1200KB pdf

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Scotland’s Companies

The final item of business is a members’ business debate on motion S6M-03994, in the name of John Mason, on Scotland’s companies. The debate will be concluded without any question being put. I encourage members who wish to participate to press their request-to-speak button or place an R in the chat function. I also encourage members who are leaving the chamber to do so quietly and quickly.

Motion debated,

That the Parliament notes the reported probable loss of independent control and headquarter function of two major Scottish companies, namely Stagecoach and John Menzies; understands that Stagecoach, which was founded in 1980, agreed a merger with National Express late in 2021 but that a fund managed by Germany’s DWS, which is part of Deutsche Bank, presented a near £600 million offer to take over the company; further understands that John Menzies, which was founded in 1883, has reached an agreement on a £571 million bid from Kuwait-based National Aviation Services; recognises what it sees as a further erosion of large thriving Scottish companies leaving the stock market, which it believes is detrimental to the nation’s standing in the corporate world; further recognises what it sees as similar high-profile examples such as McVitie’s in the Glasgow Shettleston constituency; notes the view that Scotland needs to do all that it can to encourage large Scottish companies to keep their independence, and further notes the hope that more Scottish companies see the value of keeping control of their operations in Scotland.

18:51  

I am very grateful to have the chance to hold a members’ business debate in my name today; it takes quite a lot of time to get people to agree with much that I say.

The debate is on a subject that has concerned me for quite some time. If we lose business headquarters and ownership from Scotland, does that have a negative effect on the Scottish economy? Does it mean that at a time of downturn, if there is apparent overcapacity, it is more likely that a Scottish branch of a business, which is perceived to be far away from the centre, will be closed down?

We have seen that happen quite recently with McVitie’s in my constituency. It was floated as a public company many years ago, and it has suffered from a lack of investment and is now being closed. That is despite the fact that the Scottish food sector as a whole is doing well and people around the world are willing to pay a premium for Scottish products. Other biscuit companies such as Walker’s Shortbread, Border Biscuits and Tunnock’s appear to be doing very well. When I visited the Faroe Islands a few years ago, even they had Tunnock’s teacakes in the local shops.

However, the issue is much wider. Over the years, we have lost Stakis, Kwik-Fit, Scottish & Newcastle and Bank of Scotland, and we no longer even have the name of Clydesdale Bank on the high street. To bring members right up to date, I note that we have seen Stagecoach almost taken over by National Express. Although it was called a merger, the company would have been 75 per cent National Express, with the headquarters down south. It now looks like Stagecoach will be owned by the German investment company DWS Infrastructure, which would at least mean that some HQ functions would stay in Scotland.

Then again, there is the situation with Capricorn, previously known as Cairn Energy, which is looking at being taken over by Tullow Oil. Simon Thomson, who was chief executive of Capricorn, was asked about having a London HQ. He said:

“This is all about creating value for shareholders.”

It is reckoned that, if the takeover goes ahead, redundancies will be expected as part of $50 million annual cost savings. In addition, FirstGroup is currently rejecting a bid from I Squared Capital.

I understand that the Competition and Markets Authority was looking into the National Express-Stagecoach deal. The CMA is a reserved body, and we would need to consider an equivalent body in the event of independence. However, I note that its focus seems to be on competition concerns, with an assumption that mergers and takeovers should go ahead unless there are serious reasons for them not to do so. I am just floating some ideas today, but I wonder whether we should be reversing that thinking—for example, by assuming that takeovers or mergers should not go ahead unless there are compelling reasons why they should, such as a declining market or strong foreign competition.

One of the interesting aspects of the point that the member has just raised is that a lot of academic work and theory shows that mergers very often decrease, rather than add, value. Does he think that we should give more thought to that?

Yes—I was going to refer to that point later, although I may not get that far. In general, a merger or takeover does not increase value; rather, it often shifts value away from the staff and employees towards shareholders. Of course, shareholders are vital, and they should always have a way out when they want or need to sell their shares. However, other European countries seem to be better than the United Kingdom at keeping more local control of their important businesses. We have seen that especially with the Dutch national railways, which are effectively running our railways too. Why should that be a good thing?

Going further back, Scottish Power was taken over by Iberdrola in 2007, with no benefit that I can see to Scottish workers or energy users. I should probably declare an interest here, as my father spent his whole working life with Scottish Power, or SSEB—South of Scotland Electricity Board—as it previously was. As far as I could see, that was a successful company. Why did it need to be taken over?

Of course, electricity should never have been privatised in the first place. Once you float a business on the stock exchange, you lose control. Anyone can then buy and sell it, so you are at the mercy of those who want to make a quick buck. As a general rule, we know that the short term overrules the long term.

I am not saying that public ownership is always a success. British Airways was not that successful while it was nationalised; neither was British Rail, nor, in the car industry, British Leyland. However, Scottish Power, Scottish Water, Lothian Buses and others have, broadly, been good organisations in public ownership. I realised only recently that the water and sewerage systems are in public ownership in every country in the world except England and Wales.

Of course, there are other models of ownership. There are family businesses such as Scottish Leather Group, which is one of the top leather businesses in the world. The Scottish Family Business Association pushes for the continuation of family-owned businesses or models other than flotation. Employee ownership is another model—for example, John Lewis Partnership, and now WEST Brewery again in my constituency. Social enterprises and co-operatives are other options—I note that Paul Sweeney has lodged a motion on co-op fortnight, and I was happy to put my name to it.

Does it really matter who owns a business and where the HQ is? Some would say that profitability, productivity and efficiency are the only things that matter, yet the HQ function means that the highest paid jobs, and the taxes that those in them pay, will be in the home country. Auditors, lawyers, consultants and other suppliers tend to be there too, and there are usually spin-off benefits for local hotels and restaurants. We see that with the Scottish Parliament, as many of us use Edinburgh hotels, restaurants, and pubs during the week.

I will finish with a few points and quotes from academic and newspaper articles over a number of years. In The Herald on 2 June, Scott Wright talked about the loss of headquarters representing a loss of

“prestige and the global reputation of”

Scotland

“as a place where businesses of significant size can be built and, crucially, remain.”

However, he said that, arguably, not a lot can be done to stop a takeover, as boards

“have to maximise shareholder value”.

Again in The Herald, on 17 June, Colin McLean writes about how

“change of corporate control in the UK”

is

“easier than in other European countries.”

He notes that, while there is

“potential ... for headquarters to move or activity to be relocated ... too often takeover promises have later been set aside.”

He points out that both

“Ireland and Denmark ... have major listed companies on a scale well beyond Scotland’s sector”,

and he says that

“the takeover trend is concerning.”

To finish on a more positive note, I highlight that it was good to see that Inverness-based Carlton Bingo, with 209 staff, is becoming Scotland’s largest employee-owned firm—I say well done to them.

Maybe I am raising more questions than giving answers today. However, as I said, this subject has concerned me for a while, and we, as a Parliament, should look at it going forward.

18:58  

I thank John Mason for bringing what is an important debate to the chamber. It should go without saying that all of us in this place, irrespective of our political views, are rightly very proud of our Scottish companies and their Scottish heritage. Mr Mason has spoken about several key companies that have a very distinguished and long-standing Scottish heritage, and whose names are renowned around the world.

Sometimes there are sound economic reasons, which are often related to economies of scale, as to why some Scottish companies may wish to give up some control of their assets. However, there are clear trends in which companies in Scotland are giving up significant control of their businesses to foreign firms, and I understand why Mr Mason has concerns about that. It is, therefore, of the utmost important importance that we in the chamber work together to provide support where it is needed and to ensure that as many companies as possible are able to remain independently competitive.

In my 15 years as an MSP, I have worked closely on a range of issues with companies such as Stagecoach in my Perth region. Most of my interactions with Stagecoach representatives have been entirely productive, and their willingness to engage constructively with me and other representatives, and with my constituents, has always been greatly appreciated.

Moreover, I was relieved to hear that—as Mr Mason mentioned—the new deal between DWS and Stagecoach means that the headquarters will now remain in Perth, which would not have been the case if the previous National Express merger had taken place. Many of the services that Stagecoach runs across Mid Scotland and Fife are absolute lifelines for elderly constituents attending medical appointments, for example, and for students attending their educational establishments. It is important, therefore, that we continue to support a company like Stagecoach through that transition so that those lifeline services continue to operate as frequently as possible.

Similarly, I commend the work of John Menzies most especially, as it has had to deal with the exigencies of the pandemic. Around the world, the aviation sector bore the brunt of Government policies—I am speaking of all Governments, not any specific Government—to stop the spread of the virus. It is obviously very worrying, although somewhat unsurprising, that companies in that sector will have to make significant compromises that would not have been the case in normal circumstances.

A year ago, I was one of the members of this Parliament—some of the others are in the chamber this evening—who stood outside the Parliament when various representatives from the aviation sector came to tell us exactly what their plight involved. It was not funny to listen to some of their stories about their experiences, and I was not surprised when the news came through of the full takeover of the business by Kuwait’s National Aviation Services.

Although it should go without saying that the examples of the loss of independent control of Scottish businesses are disappointing and, in some cases, very worrying, we have to ask ourselves—Mr Mason asked us to ask these questions—why it is that Scottish businesses feel the need to relocate and, in some cases, to forfeit considerable control to foreign investors.

Like other colleagues, I have had many meetings with business leaders throughout the Covid-19 pandemic, and I have attended several round-table events with key businesses, including one just this morning. It is clear that business confidence in many sectors is weak: some businesses even feel that policymakers do not see them as a priority, and they worry about the future of the Scottish economy.

Like me, Mr Mason and Daniel Johnson sit on the Finance and Public Administration Committee, and we know only too well what the in-depth analysis of the main forecasters is showing. It is not a happy picture—let us be honest about that. Businesses are facing rising costs, serious recruitment issues and rising debt, but there are also longer-term structural problems in the labour market, serious productivity issues and skills shortages. Businesses want as much stability and certainty as possible, as the Cabinet Secretary for Finance and the Economy herself said two budgets ago. At the moment, however, they have neither, and they now have another referendum threat, with the turmoil that that will create.

None of those things is helpful to Scottish business in enabling it to retain not only its discrete heritage, as we all want to see, but its economic viability. We should worry about that.

19:03  

I thank John Mason for bringing this debate to the chamber. I share his concern that the headquarters functions of Stagecoach and John Menzies may be lost. Those companies are well known in Scotland and have had a strong presence for many a year.

I worked for Bank of Scotland for 20 years, from 1990 to 2010, and I was working there at the time of the so-called merger with the Halifax, when the company became HBOS and then became part of Lloyds Banking Group. Decision making was changed overnight, and I mean literally overnight—that was very noticeable. It is very sad to see that the Mound building now operates only as a museum and corporate meeting venue.

According to Scottish Business Insider magazine, in April this year, the top 10 companies in Scotland included SSE, Scottish Power, Bank of Scotland, Aviva Insurance, Royal Bank of Scotland, Virgin Money, Arnold Clark, Weir Group and Chivas Brothers. Other notable companies include Scottish Widows, FirstGroup and Abrdn. Those are all companies that started in Scotland. How many of them are still headquartered in Scotland and, more importantly, where are investment decisions made?

How do we in Scotland compare with countries that have a similar population? We can look at two of our neighbours: Denmark and Ireland. They have roughly the same population as Scotland, and, notably, both are still in the European Union. The top six companies in Denmark are Maersk Group, Danske Bank, Novo Nordisk, Ørsted, Carlsberg Group and Vestas Wind Systems. The market capitalisation of those companies is $285 billion, with assets under control of $882 billion. The top 10 companies in Denmark make a combined profit of $16.3 billion.

In Ireland, the assets under control of the 10 top companies total $482 billion, with market capitalisation of $452 billion. The top 10 companies in Ireland have a combined profit of $19.6 billion. Irish Companies include Allied Irish, Ryanair and Townlink Construction.

Why is all that important? The Danish corporation tax rate is 22 per cent—that is a boost of $3.6 billion to the Danish treasury alone from the top 10 companies. The Irish corporation tax rate is 12.5 per cent, which is a boost of $2.5 billion, again from only the 10 top companies.

That is the prize Scotland could have. So, what do we need in Scotland in order to retain business headquarters in Scotland and attract further investment into the country? We need all the levers of an independent country such as Denmark or Ireland—we need macroeconomic powers and we need to be back in the EU.

What are those powers? The ability to set interest rates, the ability to set corporation tax rates, tax relief for investors, borrowing powers to support infrastructure, and, crucially, investment in research and development.

Do we have the ability to attract investment into Scotland? In an Ernst & Young survey on foreign direct investment relative to other parts of the UK and to countries elsewhere in Europe, which was published a few weeks ago, Scotland significantly outpaced UK-wide progress. Ernst & Young declared that Scotland had made “great strides” as a destination for FDI in 2021, and its survey revealed that the nation’s attractiveness rating from potential future investors had hit a record. It stated:

“Our findings suggest the outlook for Scotland’s FDI is exceptionally bright.”

Scotland achieved a 14 per cent rise in the number of inward investment projects, to 122, which really puts the 1.8 per cent increase for the UK and the 5.4 per cent increase in Europe in the shade. The increase in inward investment projects that were won by Scotland last year was the fourth consecutive annual rise. Ernst & Young stated:

“The past year has seen Scotland continue to make great strides as a destination for FDI, meaning it can look to the future with even greater confidence. Scotland’s record levels of attractiveness”

are

“underpinned by investors’ rising perceptions.”

The importance of such investment should not be underestimated: FDI often brings with it very high value jobs. Some projects are R and D led and can involve collaborations with Scottish universities.

The UK stewardship of the economy and its control of macroeconomic levels hinder Scotland in attracting companies to headquarter in Scotland. Scotland needs to be like Denmark and Ireland and have the macroeconomic levers to attract investment and to attract business to headquarter in Scotland. Denmark and Ireland do it successfully; why can Scotland not?

19:07  

I am really pleased that John Mason secured this debate, because it asks the important questions that we need to ask, including the ones that Mr Mason himself posed.

It matters where our business and industry are owned. In part, there is a sentimental reason, to which Mr Mason alluded. It is sad when we see companies such as John Menzies—my mother always told me to pronounce it Mingiss—and others go into foreign ownership.

However, there are other important reasons why it matters. When the investment decisions of those companies are being made in another place by other people, I feel, intuitively, that there are more likely to be reasons why they will not invest in the place where their acquired business rests, although they might do.

I agree with a lot of what Mr McLennan said. There are questions about the macroeconomic policies, but his contribution also hit on one of the tensions. While he was juxtaposing those downsides, he contrasted them with foreign direct investment. I gently point out the “F” bit of FDI . We are in a global marketplace and, regardless of our different views on the constitution, at the heart of the matter is how we strike the balance between indigenous growth—I am sure that we all agree that we must have an environment that allows businesses to be created and grown here—and acknowledging that there is a global economy, whether we like it or not.

The Labour benches are not full at the moment, but there are members who might be alarmed at some of what I am saying. We cannot undo the global economy, we cannot go back to the 1970s, and we cannot put up walls.

The example that I like to think about is that of Wolfson Microelectronics. It was founded in the 1980s and was very successful. Every time I pass its office building, I wonder whether it had to be the case that it got bought by Cirrus; however, if we think about it, there are still 300 people who are employed by the company in Edinburgh. On its jobs site, there are senior semiconductor engineers jobs being advertised. Therefore, there is a balance to be struck.

Ultimately, we need to question what we need to do to retain more businesses that are owned in Scotland. As part of that, we need to examine company law. We make it too easy. In 2004, France blocked the acquisition of Danone, a yogurt manufacturer, on the basis that it was of strategic interest to France. That is not the sort of thing that we see happening here, and we need to question that.

I highlight the fact that mergers do not tend to create value. We need to adhere to the market, so I do not think that we can just block mergers and so on outright, but there is an issue there.

We also need a to look at our own policies. Do we always use the right vehicles? Could we use golden shares when we are doing our co-investment through Scottish Enterprise and the Scottish National Investment Bank? Could we use joint venture structures so that we attract outside capital while actually building something here? That approach is used in other countries, and I wonder whether there are possibilities for us to use joint venture structures to build infrastructure in a way that means that we retain ownership at least in part in Scotland.

We also need to look at our wider policy landscape. When I talk to businesses, I hear that there are concerns that we are not necessarily retaining businesses in areas such as the life sciences; there is active concern about that. The issues there are not the big ones that Mr McLennan was pointing to but things such as planning and skills policy, which are absolutely within our control.

Some really good questions have been raised, some of which are outwith the competence of the Scottish Parliament but, ultimately, we are talking about growing businesses, growing jobs and growing wages. Although economic policy is complicated, it boils down to those simple things.

19:11  

It is a real pleasure to take part in this debate. It is perhaps a shame that more members do not want to take part in it, but the contributions have been excellent, by and large, and I thank John Mason for bringing the debate to the Parliament and for pursuing it in such a constructive manner.

I will start off by being clear that the Scottish Government’s objective is to strengthen our domestic economy. Our recently published national strategy for economic transformation is absolutely focused on action to make the Scottish economy and Scottish businesses more prosperous, more productive, and internationally competitive. The Scottish Government, alongside our enterprise agencies and partners, is prioritising the creation of a business environment in which home-grown businesses in key sectors can grow, develop, and compete for global market share. To do that, we have to create an environment in which businesses can thrive.

We recognise that investment in company growth and scaling can be difficult and limited in a small Scottish market that has few players, and Scottish companies often access international investment to support their growth ambitions. We are therefore working hard to create the economic conditions in which Scottish companies can realise the benefits of keeping control of their operations in Scotland.

Scottish Government-backed investment funds are designed to fill key gaps in the continuum of growth capital to enable Scottish companies to scale up. At the same time, that creates a busy ecosystem of private investors in Scotland that affords Scottish businesses more opportunities for growth here in Scotland. The strategic direction behind that and the policy action that we are taking is well articulated in our global capital investment plan.

Through our enterprise agencies, we provide a wide range of funding and support for Scottish businesses, including research and development grants, the Scottish co-investment fund, and the Scottish loans scheme. That provides domestic companies with an opportunity to achieve their growth ambitions in Scotland, as well as to increase productivity and enhance efficiency. However, funding growth should be appropriate to the type of business; it is not one size fits all. Such funding can come from a variety of sources—private and public, and domestic and international. It is important that business gets the right investment and support that it needs while we build an open and effective economy.

When they are right for the business, acquisitions give companies access to global technology, talent and markets, and support their growth ambitions. Just because a company is acquired does not mean that there is no longer a focus on Scottish operations. Often, it can mean that the acquired business is afforded the opportunity to flourish.

In fact, Scotland outperforms other countries on measures of business performance after acquisition, and there is little difference in the inward investment acquisition rates of Scotland and other small European nations. For example, Clyde Space was a Scottish start-up that kick-started the space sector in Scotland and that was acquired by a Swedish company, AAC, in 2019. The acquisition has seen continued investment in Scotland, which has provided AAC Clyde Space with access to new investment, skills and global markets. That investment was a catalyst for growing the talent base in the space sector in Scotland.

Another example that John Mason will be familiar with is Soapworks in my constituency. That business struggled for many years and had many difficulties operating as a private company. It was acquired by the Columbian Daabon Group two or three years ago, and it has since gone from strength to strength with further investment and access to new markets through Daabon’s global networks. It is a much more competitive business, which has saved more than 100 jobs as a consequence.

The Clyde Space example in particular illustrates the indirect effects that acquisitions can have on our economy. International investment can deliver a wide range of benefits, including improving Scotland’s reputation in certain key sectors, such as the space and life sciences sectors, among many others. It also helps to secure investment into supply chains in Scotland and unlocks learning and experience for business leaders on how to grow their businesses. It is worth noting the substantial financial contribution that mergers and acquisitions make to the Scottish economy. In 2021 alone, $2.8 billion in capital was raised from external investors.

It is also worth pointing out that it is a two-way street: Scottish companies that look to grow their businesses abroad can do so. In order for them to grow at an international scale, they often acquire companies in target markets internationally. Earlier this year, the Macfarlane Group, which is a Glasgow-based packaging distributor, acquired PackMann, which is a German business, as part of its growth strategy. That will help the Scotland-based firm to expand into European markets. That illustrates the importance of truly international economies.

Wood and the Weir Group, both of which are substantial Scottish businesses, have made significant acquisitions internationally over the years. Stagecoach, which has been mentioned several times in this debate, made acquisitions in Canada, the US and, indeed, Poland through the course of its growth trajectory. It is very important to recognise that there is a two-way street.

Our current approach to creating an open, outward-looking and internationally facing economy requires balance. Daniel Johnson made that point very well. The best investment ecosystems contain a diverse range of sources of capital, and mergers and acquisitions provide a key form of investment for fast-growing Scottish companies. Daniel Johnson also made a well-made point about joint ventures, which have a key role to play in many scenarios.

Members will be aware that the power to regulate corporate transactions, including the ability to restrict changes in ownership where it is in the public interest to do so, is reserved to UK Government entities, such as the Department for Business, Energy and Industrial Strategy and the Competition and Markets Authority, which I met recently to discuss those issues. The Scottish Government has, of course, no legal power to intercede in scenarios in which decisions are made that do not align with Scottish policy priorities. In Scotland, as part of the UK, the Scottish ministers have limited ability to protect, encourage, maintain and grow our desired wellbeing economy. Additional constitutional powers would enable us to make decisions that are tailored to Scottish business needs. In an independent Scotland, we would have more levers and resources at our disposal to support Scottish businesses and the Scottish economy. Paul McLennan made that point very well.

Through the delivery of our national strategy for economic transformation, the Scottish Government is working hard to ensure that Scottish businesses have access to the right support, including capital, to grow. We are focusing on the actions that can be taken within the current constitutional arrangements to transform Scotland’s economy, and we will continue to support our businesses and individuals in upskilling, as well as in utilising new digital technologies. Through creating a world-class entrepreneurial nation that is productive and innovative, Scotland’s businesses will have the best possible environment in which to thrive and grow, here in Scotland.

Meeting closed at 19:19.