Bill Jamieson: Are City Deals any more than hype?

Growth hopes in Scotland are now pinned on a regional strategy that has much to prove writes Bill Jamieson

City Deals such as on Tayside, and the new money involved, are hailed as the future but have yet to convince. Picture Ian Rutherford

Wider still grows the gap between Scotland and the rest of the UK – but not in the way the SNP administration would wish.

When Chancellor Philip Hammond presents his budget next Wednesday, many north of the Border may be forgiven for thinking that he is talking about Planet Zog.

The forecasts he will cite might seem to bear no relation to the reality in Scotland. Estimates of UK growth in the final three months of 2016 have been revised up to 0.7 per cent quarter on quarter, rubber stamping the resilience of the economy over the second half of 2016 following June’s Brexit vote. Net trade made a significant positive contribution, with exports jumping 1.4 per cent quarter-on-quarter.

The IMF has raised its 2017 forecast for UK growth from 1.1 per cent to 1.5 per cent. And last month the Bank of England raised its growth forecast from 1.4 per cent to two per cent.

Now compare all this to the latest figures for Scotland. Official estimates of economic output in the third quarter of 2016 showed growth of just 0.2 per cent. The statisticians also revised down their estimates for the second quarter. Growth in the first three months of 2016 was reckoned at a big fat zero - clearly a very disappointing year for the Scottish economy and especially in comparison with the rest of the UK.

Nor does 2017 look any better. The Fraser of Allander Institute is forecasting growth of just 0.5 per cent this year; accountancy giant EY is predicting 0.4 per cent; PricewaterhouseCoopers is the gloomiest of all with a forecast of just 0.3 per cent.

Now even the most optimistic of Scottish economic forecasters, Inverness-based Tony Mackay, has lowered his 2016 estimate to 1.1 per cent against 1.5 per cent previously, with growth of just 1.2 per cent forecast for this year.

These are well below the long term average of about two per cent and strikingly below those for the UK. The two reasons most commonly cited for this widening gap are the recession in the North Sea oil and gas industry and the impact of the Brexit vote.

The oil industry recession highlights a far greater dependence on oil related activity than previously thought on Scotland’s overall performance. As for the impact of the Brexit vote, so frequently trotted out as an excuse for our deeply disappointing performance, were this true then the whole of the UK would have been dragged down just as much as Scotland. Yet the UK has managed a much more resilient performance.

Now there was a time when such a glaring disparity would have had the SNP up in arms. I remember the sharp denunciations from the party’s former economy spokesman Jim Mather when the Labour administration presided over a performance not nearly as lacklustre as the one we now face. His mind maps would now be flying through the air like poison darts.

Yet on today’s miserable figures there is near silence. All we hear is yet more insistence on a second independence referendum, the latest charge being that the UK government is using Brexit as a means to undermine the devolution settlement. Clearly Donald Trump’s fevered paranoia is catching.

What makes this underperformance relative to the rest of the UK all the more worrying is that Hammond will sound clear caution on the growth outlook. And most independent assessments agree that this year and next will experience a notable slowdown. This suggests that Scotland is set to enter this period in a particularly vulnerable state with little of the resilience seen in other parts of the UK. What then?

That Scotland’s economy faces deep structural problems in the absence of a sustained oil price recovery - a 25 per cent uplift to $70 a barrel from the current $56 - is clearly evident. Its grip on business policy has been mixed - the administration’s failure to foresee the outcry over business rate increases in the north-east was dismaying for a party that so loudly championed the cause of small business.

Growth hopes are now pinned on City Deals. These are said to involve “new money” but it is difficult to verify - most seem to be repackaging or re-presentation of previous spending commitments.

The plans have come under excoriating attack from Tony Mackay. Why, he asks, have City Deals at all if Scottish Enterprise has been doing its job? A partial answer, he says, is that Scottish Enterprise’s regional offices have been seriously downgraded in recent years, with more staff and resources concentrated in Glasgow. Understanding the needs and potential of local businesses and other parts of local economies has deteriorated significantly.

The Tay Cities Deal plan is for £1.84 billion expenditure over ten years, which it is claimed will create 15,000 jobs. However, he writes, “there is no justification for this claim. There is no underlying economic strategy in the Tay Cities document and in particular no objective assessment of why the Dundee economy has done so badly over the last decade and how best to remedy the problems.”

He is particularly scathing about the plan to establish a “World Class Oil and Gas Decommissioning Industry”, which it is claimed will create up to 7,754 FTE jobs and add up to £228 million a year to regional economic output (GVA).

“These claims are ludicrous….to be polite. The plan shows a very poor understanding of the North Sea oil and gas decommissioning industry, which I am sure will not develop on a large scale in the Tay region. Also, why predict 7,754 full-time jobs instead of say 7,750 or 7,500? That is typical of the superficial and misleading economic analysis in the Tay Cities Deal report.”

Highland Council, the lead body for the Inverness City Deal, has “made a mess of it so far” and the Development Department’s study of Inverness’ economic prospects “an appallingly poor piece of work”.

Subsequent proposals have been a “hotch potch”, with no coherent strategy and little evidence of significant improvements to local economic growth.

Will they narrow that gap between Scotland and the rest of the UK? “The evidence to date,” he concludes, “suggests that most of the City Deals are more hype than good economic development plans.”