We need an economic reset
The SNP government is failing to confront Scotland's deep-set economic weaknesses
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The Scottish Government needs to confront some hard realities if the post-covid economic recovery is to generate the wealth necessary solve ingrained income inequalities.
In December the CBI/KPMG Scottish Productivity Index was published. But while news coverage of its findings were sparse, what it revealed was shocking. The Index tracks Scotland’s productivity performance across 15 key indicators, in four different categories: business practices, skills and training, health and wellbeing, and infrastructure and connectivity.
Depressingly, but not entirely surprisingly, one of the takeaways from the index was Scotland is fundamentally uncompetitive vis-a-vis other parts of the UK. The index found that
“Scotland lags behind other parts of the UK or international competitors in 9 of the 13 productivity indicators for which comparable data was available (down from 11 out of 15 in 2020). This includes business investment, exporting and innovation.”1
Out of 13 key productivity indicators, Scotland lags behind. Most importantly, in business investment, exporting and innovation.
What ‘Business investment’ means, to put it simply is spending by private businesses and non-profits on physical capital. And by physical capital we’re speaking about investment into equipment, structures, intellectual property, research and development. So it’s actually a big deal that the productivity index is identifying Scotland as underperforming in such an important aspect of the economy.
But it’s worth noting that given physical capital becomes less productive over time, a lack of investment in it is suggestive in quite a negative way. For example, a restaurant prepares food over a given time period thus uses a grill. Over time that grill will need to be replaced as it breaks down, wear and tear rendering it less useful. So to read that Scotland’s economy is lagging behind on business investment is alarming. It suggests an economy where businesses are unable to properly invest in their own futures.
This will have implications on future job and employment prospects for many thousands of Scots in the future. And it speaks of a Scottish economy in decline under this Scottish Government.
As Scotland emerges from the pandemic, it’s important that we take the opportunity to overhaul our unproductive economy. There is an opportunity for an ‘economic reset’, where a renewed emphasis is placed on sorting out our woeful productivity, business investment and export statistics.
The Index reveals that Scotland has a thriving graduate jobs pool, with high numbers of graduate students. But we are failing to make the most of having a higher educated workforce. The index explains,
“We need to make the most of Scotland’s strengths, including the high numbers of university graduates, a thriving early-stage entrepreneurial scene and a growing share of R&D spending by businesses. And we need to make progress in areas where we lag seriously behind: particularly business investment; exports; and in-work training.”2
But have we heard anything about any of this from the SNP-led Scottish government? No. Instead we’re treated to the spectacle of Ian Blackford insisting that somehow the UK would continue to pay for Scottish pensions even if we voted for separation. And the Finance Secretary is going around actively denying the Scottish Government’s own GERS statistics, lying about us not having a deficit.
Given this sort of fantasy-land pseudonomics from the SNP, is it any wonder our economy is letting us down? We have an increasingly higher educated work force, we have an economy which has a lot of strong fundamentals. But rather than address key challenges as we move forward, the SNP continue to obsess about independence.
It’s worth noting that Scotland also faces an income tax shortfall of sizeable proportions in coming years too3.
So, we have an uncompetitive economy, a weakness in physical capital investment by businesses and income tax shortfalls. All alongside a notional deficit of over 22%. I don’t know about you, but yet another groundhog day referendum debate on independence just is not the appropriate priority right now.
Let’s put the economic recovery first. Not constitutional distractions.
CBI Scotland productivity index summary https://www.cbi.org.uk/articles/2021-scottish-productivity-index/
CBI Productivity Index, (2021, December 5), pg 5 https://www.cbi.org.uk/media/mondc3sh/scottish-productivity-index-2021.pdf
Scottish Fiscal Commission Report (2021, December), https://www.fiscalcommission.scot/wp-content/uploads/2021/12/Scotland_s-Economic-and-Fiscal-Forecasts-December-2021-Full-report.pdf