THE SCOTTISH ECONOMY is in a desperate state. It has long been lagging behind the UK economy but now the prognosis must be considered as dire. In 2019 Scotland’s GDP was 8 per cent lower that of the UK as a whole. While GDP in the UK grew at a rate of 1.7 per cent between 2000 and 2019, in Scotland it grew at a much smaller 1.3 per cent. Employment from 2000 to 2019 grew at 0.9 per cent in the UK as a whole, but only at 0.6 per cent in Scotland.
People might think this is small beer, that the economy will naturally pick up or there are other issues that must take priority – such as secession from the UK – but whatever one’s political views the hard fact is it is only a growing economy that makes it possible for public services to help the disadvantaged – while a shrinking economy must result in belt-tightening austerity.
Tightening the belt around your waistline might be uncomfortable in the belief you might adjust or be able to loosen it in time, but tightening a straitjacket that restricts your ability to exist is beyond sense. The economic statistics now tell us we have moved from the former to the latter.
There was a time, as Scottish economist Ewen Stewart wrote on ThinkScotland’s pages, that during the halcyon days of Union, Scotland’s record in entrepreneurship, business and creativity was literally world leading. Not just besting the rest of the Britain but outranking the world. It was through taking advantage of the opportunities of Union that this was achieved – why could it, why should it not be our goal again?
Kelvin, James Watt, Watson Watt and McAdam are names that stand out, but there were so many others such as those who innovated and championed the rise of advertising for Haig’s and Johnnie Walker’s whiskies and Sandeman’s port so they dominated the world. While there remains centres of excellence in Scotland they are too few and far between. Do not expect a new Dolly the Sheep to come along any time soon.
Scottish politicians in Holyrood have fallen to worshipping the precautionary principle, preferring ever more regulations that hold back advancement and economic progress. Is it any surprise then that Scotland’s economic growth lags the UK average and revenues suffers as a result?
Scotland has the smallest number of businesses per head of any part of the UK with the exception of northeast England. The Scottish business environment, according to the Hunter Foundation, “is characterised by a low business birth rate, relatively low levels of business investment and a low rate of scale-ups.” Statistical data shows that Scotland has a particularly low rate of business scale-ups and the number actually fell between 2015 and 2018. In 2018, there were 40.3 scale-ups per 100,000 people in Scotland, compared with a UK average of 51.
Innovation is key to business growth but data from the 2019 UK innovation survey showed that the proportion of Scottish businesses that were innovation-active fell between 2016 and 2018.
It is a sad and depressing picture. Scotland has been slowly strangled by an increasingly centralised and highly bureaucratic state whose only response is to tax more or launch a new spending initiative. In short, the Scottish Government that wants ‘independence’ paradoxically has ceased to trust its own people. No wonder it wishes to throw its lot back in with a European Union that similarly does not trust its member states.
Today Scotland is taxed more highly than any other part of the United Kingdom and at a higher level proportionately than at any point since the 1960s. The inconvenient truth is that despite much larger public spending and taxation the outcomes are getting worse, again as regularly reported on ThinkScotland.
Scottish GDP growth has steadily worsened since 2007, when the SNP came to power, falling to a miserable 0.9 per cent in 2018. This failure to match (or better exceed, as it used to) the UK average really matters and has cost the Scottish people some £11bn of beneficial economic activity every year and with it £3.9bn of lost tax receipts – enough to fund a housing budget twice the current level.
Just imagine that; £3.9bn more to spend irrespective of what Westminster sends…
Scotland’s underperformance is even more stark compared with our Australian and Canadian cousins, as can be seen from the chart above. There is absolutely no good reason for this and we must raise our sights.
There are a number of reasons for Scotland’s abject economic record in recent years but a key one has been how the SNP has tested the tax and spend thesis to its limit. Run by people who have never run a business – not even a not for profit business – SNP finance ministers response to any problem is to announce a new spending initiative, regardless of how effective that may be. In most cases they then fail to implement it properly. For example a commitment by Nicola Sturgeon in 2015 to distribute £500m in bank loans, seven years later this has still fallen short by a third.
The SNP’s economic management of the Covid pandemic has been similarly poor. Implementing the strictest lockdown the UK while failing to distribute relief funds supplied by the UK Treasury, the effect on Scottish businesses has been dire. In December, the Scottish economy was 7.2 per cent below pre-pandemic levels, compared to 6.2 per cent in the UK economy.
While Britain has the longest tax code in the world the Scottish version is even more complex, with a generally higher income tax and an absurdly onerous and expensive Land and Buildings Tax both of which penalise greater productivity and dynamic mobility that drive an economy to expand and grow. These anti-growth policies are what stifle the productive private sector that ultimately pays for the NHS and a good state education.
The SNP is not only failing to tackle the underlying causes of poorer economic performance but is actually making them worse. Productivity is lower in Scotland than the UK average, moreover as the Hunter Foundation points out, Scotland has “fewer high productivity sectors, and lower productivity within the majority its sectors, compared with the UK as a whole”. The worsening education system is a key contributor to low productivity. Scotland has a higher than average proportion of people without any qualifications and Scots in work are less likely to be in managerial or other senior occupations than in the rest of the UK. The proportion of the workforce in job-related training has declined compared with the rest of the UK.
The SNP may have thought that they could rely on the oil and gas sector to bail them out, but it is suffering significant decline as a result of lower oil prices, lower viable reserves and a shift away from carbon fuels. Instead of adopting deregulation policies that would encourage the development of innovative new industries, the SNP throws money into businesses that then fail or foolish vote-buying schemes such as free bus travel.
Of course many adherents of the SNP’s economic management will seek to blame the British Treasury or more likely simply dismiss my (and Ewen Stewart’s arguments) as those of free market Tories. Well, neither Ewen Stewart nor I are actually Tories, but more importantly the truth is others such as Oxford Economics and the Fraser of Allander institute have issued reports that see Scotland’s problems in similar fashion as we do. A consensus is growing that the Scottish economy is broken and the SNP cannot mend it.
Scotland’s economic future looks indeed dismal with the level of mismanagement and lack of understanding on the part of the SNP government. Radical change is long overdue.