The decision to split the post of finance secretary into two separate roles with the creation of a business development minister is a belated recognition that Scotland’s economy faces, in the First Minister’s own words, “some very significant challenges” and continuing “fragility”.
After an election campaign of shocking complacency over Scotland’s economic direction, this recognition is long overdue. The problems are these:
n Scotland’s joblessness rate rose by 20,000 over the last quarter, reaching 6.2 per cent, compared with 5.1 per cent across the UK as a whole.
n Despite record levels of government borrowing, the latest economic data shows that Scotland’s GDP fell by 1 per cent in cash terms last year.
n Since the 2008 recession the Scottish economy has grown in cash terms by only 4 per cent, in contrast to the UK growth of almost 23 per cent.
n This poor overall Scottish performance, in contrast to the continued growth of the UK economy, has led to Scottish GDP per head of population (including the North Sea) moving from well above the UK level – 15 per cent higher in 2008 – to a little below it in 2015 (–1 per cent).
n Scotland’s trade deficit last year spiralled to almost £15 billion, well above the previous record in 2007 (£11.7bn) and over £5bn worse than in 2013.
n Of particular concern to government ministers is that Scottish public sector revenues (onshore and offshore) fell in 2015 for the fourth year in a row and are now 5 per cent lower than in 2011. In real (inflation adjusted) terms this fall is closer to 12 per cent.
While the dramatic decline in the oil price has hit the North Sea hard, our problems are far from confined to the North-east. Scotland’s services sector grew by just 0.3 per cent during the latest period, with declines in retail and wholesale, professional, scientific, administrative and support services and public administration and defence.
The production sector contracted by 0.1 per cent and construction output grew by only 0.1 per cent. The previous quarter’s estimate was revised down by Scotland’s chief statistician from a gain of 0.1 per cent to a fall of 0.1 per cent, ending a sequence of 11 straight quarters of growth north of the Border.
Questions have also been raised over the credibility of some of the Scottish government statistics for construction, which has held up the overall figures. It grew by an impressive 10.8 per cent last year, and a stunning 20 per cent during 2014. This has been explained by public sector projects such as the M8 and M74 upgrades and the Queensferry Crossing. But with the crossing due to be completed later this year, this could impact both on construction data and overall GDP performance.
The slowdown is far from confined to Scotland – insofar as it is possible to define a distinctive entity of “the Scottish economy” at all. It is UK-wide.
And the trajectory is not looking good. The UK rang up a thumping UK £13.3bn trade deficit in the first three months of the year, the largest since 2008. The ONS also revealed the UK industrial sector fell back into recession as it shrank for the second quarter in a row. Industrial output fell 0.4 per cent both in the first quarter of this year and in the final quarter of 2015. And earlier this month a survey by Markit/CIPS also showed manufacturing in decline.
Construction output meanwhile has extended its poor start to 2016 into March when output nose-dived 3.6 per cent month-on-month, causing it to be down 4.5 per cent year-on-year. Indeed, manufacturing and construction – the sectors where growth is most needed to redress our unbalanced economy – are proving a drag on the whole economy.
Last week brought a downbeat assessment from the Bank of England – even if EU-referendum related uncertainties disappear. The Monetary Policy Committee sees UK growth slowing to 0.3 per cent in the second quarter and warns that it might take time for the pace of activity to pick up fully. GDP forecasts are also modestly weaker over the medium term on concerns that households will be less willing to run down their rates of saving, which impacts on consumer spending.
Thus the outlook for Scotland’s new business minister, both within and beyond the remit of Holyrood, is daunting. I am sure that Secretary for Finance John Swinney understands this and that enterprise supremo Fergus Ewing has no illusions. But who could possibly want to take on this new role and have any confidence that a difference could be made?
However, here are three positive suggestions that the new minister could consider that would help boost confidence and morale across the business sector.
First, lose no time in launching the review the First Minister has promised on business rates, with concerns that high street shops are being unfairly taxed. Indeed, for struggling town centres there is a compelling case for a moratorium on rate payments.
Second, give small and medium-sized enterprises a three to five-year break from taxes to encourage new business development. We have to encourage new sources of employment and growth rather than relying on the oil price bouncing back to previous highs.
And third, ensure all Holyrood legislation passes a “friendly to business” test. In this respect, it’s not enough that a business supremo is appointed. What’s needed is for all 63 of Holyrood’s SNP MSPs to be business conscious. The need to focus on economic growth must now become the parliament’s urgent and unfailing priority.