Scotland is missing out. We’re being robbed. London has dealt us a cruel hand. Such is the lamentation at the heart of the Scottish Government’s assessment of our national condition and a central pillar of its argument for independence.
Yet over the past year there has not only been a distinct and remarkable recovery in our economic state – far stronger than we had cause to hope – but also firm and increasing evidence that Scotland is enjoying its fair share of this upturn.
Yesterday brought the latest upbeat forecast from the Bank of Scotland’s Business Monitor – so positive indeed that the Scottish Government put out a press release drawing attention to its findings.
The survey found that business expectations for the next six months were at their highest level since before the recession in 2007. Both the service sector and manufacturers are showing signs of improvement. The report also said exports were set to rise, after a dip last year.
According to Donald MacRae, chief economist at the Bank of Scotland: “The surge in economic activity identified in summer 2013 has been maintained through autumn and winter, with the latest quarter showing the second best result in six-and-a-half years.”
A rogue poll? A bizarre outlier, unrepresentative of our true state?
Earlier this month the latest Business Trends report by accountants and business advisers BDO LLP in Scotland predicted that the economy is finally set to grow past its pre-recession level in the second half of this year. This growth, it says, “is fuelled by markedly strong optimism and hiring intentions across all sectors of the economy, with manufacturers in particular feeling very positive about the future.”
Meanwhile, labour market data for Scotland has not only surprised on revelations that Scotland’s unemployment rate has fallen below that for the UK overall. The number of people looking for work in Scotland fell again over the last quarter. In the November-January quarter, some 6,000 fewer people were unemployed, while the number of those in employment rose by 15,000. This puts Scotland’s unemployment rate at 6.9 per cent, lower than the UK average. The Office for National Statistics (ONS) data also revealed that, north of the Border, the number of people claiming Jobseeker’s Allowance is 30,400 lower than a year ago.
I cite all this for two reasons. First, it puts paid to the gloomy prognostications of some that the independence referendum is adversely impacting on Scotland’s economy and blighting our performance. The evidence shows little sign of this. While there are certainly areas to improve such as exports and productivity, Scotland is not just holding its own but doing well, thank you. Indeed, I cannot recall a period in the 14 years I have been covering Scotland’s economy and business activity such a marked period of encouraging business data and surveys. The recovery, as with the rest of the UK, has been slow in coming. But it has arrived with a vengeance.
But there is another reason why this evidence merits discussion. This centres on the charge that we are being “held back by London” or somehow underperforming relative to the UK.
Is this really true? Consider the recent assessment in the latest Fraser of Allander Quarterly Bulletin. Its economists can never be accused of being intoxicated with optimism. In fact, according to the FoA report, the scale of the recession was greater in the UK: a drop of 7.3 per cent in GDP compared with a fall of 5.6 per cent in Scotland. A stronger UK recovery to late 2011 was replaced by a stronger Scottish recovery during four of the five quarters between the final quarter of 2011 and the final quarter of 2012 – the exception being the stronger “Olympics effect” on the rest of the UK in the third quarter of 2012. True, the recovery across the UK as a whole was stronger from this low base. But Scottish and UK GDP – excluding oil and gas – are now almost identical in relation to their pre-recession peaks even though the scale of the recession was much greater in the UK as a whole.
Looking back over the past five years, GDP in Scotland in the third quarter of last year was 0.9 per cent below its pre-recession peak, whereas UK GDP stood at 1.9 per cent below its pre-recession peak.
A separate Bank of Scotland’s Report on Jobs last week reported “a continuing surge in demand for staff which has helped to boost starting salaries in Scotland.” The report – also singled out in a Scottish Government press release to make sure we didn’t miss it – found a survey-record increase in starting pay for permanent jobs. The growth in staff pay in Scotland, it found, continued to outpace the UK average. The report also suggested the temporary jobs market “remained healthy”, with billings, vacancies and hourly pay rates all rising on the month. Meanwhile, the number of people appointed to both permanent and temporary jobs rose sharply in February.
“Held back”? “Missing out”? Where, precisely?
The response of the Scottish Government is of course that all this could have come much sooner had not the London government been pursuing a policy of austerity. Cuts in government spending made the recession worse and delayed the upturn.
Now every historic event – in economics as well as war and politics – is subject to challenge by way of counter-factual: “If only” a different course had been pursued.
But I am not sure this carries much conviction here. Public expenditure in 2010 had to be constrained for a reason. That reason was the abject state of the government finances – an annual budget deficit north of £150 billion and a colossal explosion in overall government debt.
The coalition was created with a compelling mandate to take action to bring borrowing under control to prevent a potential flight of confidence and collapse in the pound.
Today debt continues to be a major concern of fiscal policy. It is still rising and set to hit £1.5 billion over the next two years. And even after it peaks as a percentage of GDP, the monetary total continues to rise across the full period of the latest OBR forecasts.
Debt is the biggest handicap we face in the years ahead. But “held back”? I think in the circumstances Scotland has so far managed very well indeed.