Bill Jamieson: Not fit for purpose

Published on Saturday 5 December 2009 13:12

THREE big questions haunt discussion on the future of Scotland's economy.

First, is the Scottish Government's target for the growth rate of the economy to match or exceed the UK growth rate by 2011 in any way realistic? Second, is the current Scottish Government budget doing enough to help deliver this objective? And third, what are the policies that government should be pursuing in the longer term to meet this growth objective?

Two documents out last Friday provide some partial answers to these questions. There is the second annual report of the First Minister's Council of Economic Advisers (CEA). And there is the report of the Scottish parliament's Economy, Energy and Tourism Committee on the draft budget for 2010-11. It finds the draft budget unfit for purpose in meeting the challenges ahead.

Both documents have some positive and in some areas outstanding suggestions for policy, in particular the CEA's recommendation of a Fiscal Policy Commission to review the presentation of the public finances and the future fiscal position and outlook. As one who struggled to make sense of the draft budget for the finance and sustainable development department, Amen to that.

Others, however, will despair at the inability to alter the fiscal policy mixture much, if at all. Our budget and borrowing situation is dire.

In a paper out tomorrow, Michael Forsyth, former secretary of state for Scotland and a member of the House of Lords Select Committee on Economic Affairs, calls, inter alia, for a slashing in corporation tax to 20 per cent. Both reports deliver realistic if somewhat bleak assessments of the impact of the financial crisis and recession. The CEA Report, taking a broader sweep, notes that in the years 1977 to 2007 annual economic growth in Scotland was about 0.5 percentage points lowerthan in the UK.

The focus of the parliamentary committee is necessarily more immediate and all the more stark. Dr Andrew Goudie, the Scottish Government's chief economic adviser, presented analysis showing that most independent forecasters did not expect GDP in Scotland to return to positive growth until 2010 or 2011 at the earliest and, even then, for a growth rate of less than two per cent to be the norm until at least 2012.

The committee also drew on analysis by the independent Fraser of Allander Institute and observed that "the resultant potential for a severe squeeze on public expenditure in Scotland is therefore marked".

It is perhaps not surprising that one of the recommendations of the CEA report is for a revisiting of the government's over optimistic population growth targets. And the future? An exodus of young people, combined with a sharp fall in the numbers of immigrant workers, would suggest that we are heading for a future in Scotland located somewhere between a residential care home and a depopulated wind farm.

All told, the committee concluded that "we do not believe that the budget proposed is the right one for the economic challenges ahead". It sees "little sign of the tough choices that are needed to return to sustainable economic growth … almost all the relevant budget lines relating to the economy have been reduced and reduced in excess of the near 1 per cent overall reduction of the draft 2010-11 budget compared to the existing financial year."

That would suggest quite a disconnect between the worlds of present policy and future direction as wished for by the First Minister's economic gurus.

Finally, some CEA recommendations are worthy of note. It calls for a review of the contribution made by the whisky industry to the Scottish economy "with a view to ensuring that Scotland benefits fully from the activity and development of then sector". This reflects a concern in the body of the report that questions the overall value of the whisky industry to Scotland.

I understand some prominent members of the CEA feel that Scotland is not capturing the uplift in value from raw material to finished product – a concern similar to that in South Africa over mineral beneficiation. One private suggestion for Scotland to capture more of the value added in the industry is for the levy of a tax on the water that whisky distillers use. It is a highly controversial notion but one that may find support in an era of fiscal austerity and tight government budgets.

Finally there is a recommendation for public accounts to be presented in a clear and fair view and for the establishment of a Fiscal Policy Commission "to review the presentation of public finances and the future fiscal position and outlook".

Excellent recommendation – but it sounds rather like what Audit Scotland is or ought to be doing. Perhaps the Audit Scotland budget should cover this new role. Since 2000-01 the Audit Commission has shot from a staff of 195 and a payroll of 7.9 million to a payroll of 293 and a staff cost of 14.4m.

Clearer focus on just how dire a state we're in may seem an uninspiring objective. But it is a vital first step in tackling the worst economic and fiscal outlook in Scotland for more than 70 years.