Bill Jamieson: So where is our recovery plan?

Published on Saturday 15 November 2008 13:24

UK POLICY has now taken a massive lunge towards reflation. Inflation worries are dead. Budget 'golden rules' are scrapped. Interest rates are heading for epochal lows. The pound has slumped. And now comes a further potentially huge loosening of fiscal deficit with the Pre-Budget Report on November 24.

This will not prevent a recession and a blizzard of bad news. After a prolonged underestimation of the scale and severity of this downturn and a complacent mantra about Britain being soundly placed, the Government and the Bank are now desperately striving to find a circuit breaker that will prevent the bad news simply accelerating the slide in confidence and driving us into a long slump.

What can the Scottish Government do to mitigate the full blast of recession and ease the way to recovery? It does not, of course, have the fiscal and monetary powers to influence economic behaviour on such a scale. But there is much that it can do to clear structural blockages to development, ensure an early start to public works and help accelerate the drive to accessible and effective skills training.

And it can do much to ensure that we are getting the maximum output from Scottish Enterprise and the maximum out of EU funds and keeping overseas firms aware of the attractions of Scotland as a superb and competitive business investment location.

For an administration so articulate on the need for economic and business development, it is odd that more than a year into the crisis it has still not produced an economic impact assessment report identifying vulnerabilities and areas for action.

In fairness, few either in Britain or America forecast the scale and depth of this downturn a year ago. Indeed, up till a few months ago, most were convinced there was little likelihood of a prolonged downturn, still less a full-blown recession. It is only since the collapse of Lehman Brothers, when the crisis morphed into an intense worldwide credit seizure, that concern over serious recession hit home.

But that is now more than 50 days ago. And it was a point well made by Wendy Alexander that it was only last week that MSPs had an opportunity to discuss the impact of the credit crunch on Scotland's economy. This impact has been severe in the construction, housing and manufacturing sectors. Now, with the near collapse of Scotland's two banks, its impact on the financial services industry will be especially acute. And after Christmas the effect on retail and distribution will be fully exposed, with a slew of closures and redundancies.

Worrying as these individual contractions are, it is their overall collective impact that is of concern. Here the contrast between the reaction to the 9/11 terror attacks on America and the reaction to the credit crisis now could hardly be sharper. Back then, former first minister Henry McLeish launched and presented a detailed impact assessment report on the effects of a potentially marked economic slowdown. As it turned out, the impact was less severe than first feared. But that is certainly not the case now.

Scotland is entering a recession with several critical sectors fully exposed in a way that they were not in 2001-02, or in 1990-92. Scotland escaped relatively lightly during this latter period. But today, very little research has been done on the likely overall impact and how, for example, the slump in the housing sector will affect the wider economy. The same is true of financial services. Several well informed and insightful papers have been presented to Edinburgh Council by Dave Anderson, the city's director of economic development. But the effects will of course be felt much more widely across the country.

Stronger transport and economic links between Edinburgh and Glasgow have never been more vital. But the budget of campaigning Laura Gordon has been axed, and in the most maladroit manner.

The administration's response to the crisis thus far has been a one-page press release on a six-point recovery plan, released on October 14. This included headings on development and investment and "help for business" together with subsidiary points including support for tourism, etched out with scant detail.

Four weeks after its publication, the Scottish Parliament's Economy, Energy and Tourism Committee tried to find out how much money would be put behind this plan. There was little evident clarity on whether much would be forthcoming at all. In fact, as Alexander pointed out, the budget for tourism will be cut by 4.8% in real terms next year and by a further 2.8% the following year.

Moreover, it is unclear at this stage whether a single penny of the administration's 35bn budget has been reallocated to deal with the economic crisis. There is apparently some extra money on drives for energy efficiency and in tourism for a "Homecoming" project. It hardly adds up to a rousing Rooseveltian declaration to save Scotland's economy.

Alexander further questioned whether Point Three of the recovery plan – to ensure that all Government economic activity, including planning, supports economic development – has resulted in much of a change in planning policy.

Here it appears that every single deadline set for planning procedure improvement has slipped from the timetable set last year. It is one thing to declare a commitment to "speed up planning procedures". It is another to put such acceleration into practice in the face of institutional inertia and special interest resistance. The result is that Scotland may face a dearth of construction projects as unemployment soars. It is not a system capable of responding to a severe and prolonged recession when speed is of concern.

Meanwhile, there is a persistent delay in the release of official figures on Scottish Gross Value Added and sectoral performance. The result is that quarterly figures on Scottish GDP are routinely 'lapped' by UK data for the subsequent three months. This state of affairs – remarkable for an administration committed to economic development – does not suggest any degree of heightened concern or urgency for the health of Scotland's economy. Indeed, we will not officially know whether we have moved into recession until five months after the event, and arguably more embarrassing for the administration, it will be five months before it can officially declare that we are out of it.

It is to the private Fraser of Allander Institute – refinanced and supported by accountancy giant PricewaterhouseCoopers – that the public must now look for an informed and up-to-date appraisal of Scotland's economy and its prospects.

Its latest quarterly commentary was sobering. Its conclusion is that "there is a higher probability that Scotland will go into recession in 2009 and that the effects may be felt harder here than the rest of the UK. The impact on banking and financial services will be bigger here than in the UK and there may be a lingering negative effect in the long term".

Its central forecast is that 53,000 jobs will be lost, pushing up unemployment from 4.4% to 6.1%. Particularly worrying for the administration is the forecast that "from 2007 there will be five years of below-trend growth". This effectively consigns the administration's economic performance goals to the shredder.

There is no coherent economic policy address in Scotland. There is poor and out-of-date data. There is thin analysis. There is no credible recovery programme. And there is no evident strategic approach. Time, surely, to get on the case.