AS I SEE IT: TERRY MURDEN says the new FM will face the same obstacles to growing the economy until the system is changed
Scotland’s business representatives are calling, predictably, for the next First Minister to make economic growth and productivity their number one priority. They will probably be disappointed. SNP ministers have never been eager to find ways of earning the wealth required to feed their spending habits. When policies have failed, it has been easier to pass the blame on to Westminster. Kate Forbes, the business community’s preferred victor, is among the more vocal advocates of grievance politics.
That said, there has been a focus on building a renewables sector, albeit Scotland’s ownership of the capital and the level of public investment behind it leaves something to be desired. Likewise, the push on the digital economy is making some progress and has the industry’s support.
Aside from this, the SNP government’s excuses for under achievement in growing the economy deserve to be heard. It’s all very well the CBI, Chambers, FSB and others demanding that “something must be done” about low growth and productivity, but as highlighted here previously nothing much can be done until there is a fundamental change to the devolution settlement.
To boost growth and productivity requires control over business taxes, such as corporation tax, various tax reliefs, VAT, R&D incentives and national insurance, as well as employment law, including immigration. It needs an ability to influence monetary policy which in turn affects the cost of borrowing.
Scotland has, at best, limited access to all these big economic levers. It can offer a few grants and loans, tweak business rates and property taxes, speed up planning and address skills issues. All of these might encourage investment and improve the quality of labour, but they may only have a marginal effect on growth and productivity.
Furthermore, how is Scotland supposed to improve its performance when the Westminster government can’t move the dial? The UK economy has been plagued by anaemic productivity growth since the 2008-09 global financial crisis.
Between 1974 and 2008, productivity grew at an average rate of 2.3% a year, a much higher rate than the growth rate between 2008 and 2020 at around 0.5%. If the Westminster government is incapable of firing up the economic furnaces with all of its powers, what chance does Holyrood have of doing it on fewer resources?
Holyrood could help itself and the rest of us by being less hostile towards business – its opposition to new oil and gas exploration, the legislation on rented property, its worthy but damaging approach to the drinks industry and its bungled attempts at controlling waste. All of these are undermining confidence, creating a poor impression overseas and deterring investment.
It could encourage the Scottish National Investment Bank to make bold investments, free from the limitations of its remit and it could stop using business as little more than a cash cow for its pet projects.
More worrying for the long term is the pressure to finance its ever-expanding public services. The Scottish Fiscal Commission’s latest report shows that under current Scottish and UK fiscal policies, if public services in Scotland are to continue being delivered as they are today, Scottish Government spending over the next 50 years will exceed the estimated funding available by an average of 1.7% each year.
The SNP and its current leadership contenders believe Scotland can be free of these constraints through independence, but without the two governments working together to expand the economy the mis-match between creating wealth and financing services will become more critical.
In the short to medium term it means ensuring Scotland is able to draw on the greater strength of the union to give some real meaning to devolution over and above the few sweeteners currently available.
That could begin by offering some greater control over those issues mentioned above. It’s a good bet that if she gets the top job Ms Forbes will make a play for further borrowing powers and probably control over immigration.
Until then, the calls for Holyrood to perform an economic miracle will just go round and round and nothing much will change.
Terry Murden held senior positions at The Sunday Times, The Scotsman, Scotland on Sunday and The Northern Echo and is now editor of Daily Business