Give Scots more tax powers, top bank economist urges

SCOTLAND’s parliament should be given greater tax-varying powers in order to increase economic growth, one of Scotland’s top bank economists declared last night.

Professor Donald MacRae, chief economist of Lloyds TSB Scotland, told an audience at the University of Abertay Dundee, that reserved fiscal powers are limiting the potential of Scotland’s economy, and that the country is falling well behind its competitors in terms of business growth.

"Increasing fiscal devolution and making the Scottish parliament responsible for raising the taxes it spends would not only add to the range and scope of policy options available to tackle low economic growth but would create a powerful focus on the Scottish economy," he said in the inaugural lecture to the University of Abertay Dundee Business School.

"Fiscal devolution brings fiscal responsibility and accountability - tax and spend becomes truly tax and spend, not just spend. A direct consequence of greater fiscal devolution is a major reform of the Barnett formula for assessing Scottish government spending."

Much of MacRae’s lecture was devoted to a sombre analysis of Scotland’s economic underperformance. But he added: "I am emphatically not suggesting that the Scottish economy has failed. Instead, I propose that the potential exists for a much superior performance - to all our mutual benefit."

In terms of GDP per capita, Scotland is the eighth lowest out of the 26 countries in the Organisation for Economic Co-operation and Development, and fourth lowest in the EU after Spain, Portugal and Greece. Scotland’s position in the low middle-income group, says MacRae, is the result of years of relatively low economic growth.

The average Scottish yearly real rate of growth of 1.9 per cent from 1971 to 1999 is a mere 59 per cent of the American equivalent.

Scotland’s business birth rate continues to lag, with new VAT registrations per 10,000 population running around one-third lower in Scotland than for the UK outside London. He quoted research showing more resentment of successful entrepreneurs in Scotland and a higher than average fear of business failure.

There are real problems with Scotland’s education system despite ministerial assurances to the contrary. MacRae cited research showing Scotland comes third from the bottom out of 11 countries for both maths and science, behind Singapore and South Korea. She is behind Russia for maths and science and behind both England and the US for maths.

Meanwhile, research and development spending by business is running at less than a third of the US level and in 2000 accounted for just 3.5 per cent of the UK total. Average Scottish business spend on R&D was 250 per employee compared with a UK average of 600.

But Scotland, he added, still has the potential to become a tiger economy. It is a modern economy based inside the world’s largest trading bloc with access to one of the world’s largest consumer markets.

"We have world-class performers in financial services, biotechnology and academic innovation. Young Scots’ attitudes are as entrepreneurial as elsewhere."