Report: Scotland’s productivity has ‘stalled’ in past 15 years

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Scottish productivity has all but stalled in the past 15 years and the health of the economy is at risk unless more consensus is built between government, business and unions.

The verdict on Scotland’s economy has been delivered in a report by the David Hume Institute, which says a turnaround is required if living standards are to improve.

Politicians were urged to make choices guided by evidence. Picture: Lesley Martin

Politicians were urged to make choices guided by evidence. Picture: Lesley Martin

The report says Scotland is outperformed on productivity by many other advanced economies.

Scotland sits mid-table for productivity among OECD countries, and falls below other European economies such as the Netherlands, France, Italy, Germany, and Spain.

The report’s authors say that if Scotland wanted to move to the top quarter of the table, it would need to become roughly as productive as Denmark.

But in 2014, Scotland’s productivity was 20 per cent lower than the Scandinavian country.

The report said there had been “no progress” towards a target set by ministers in 2007 to improve Scotland’s productivity rankings to take it into the top-performing 25 per cent of nations in the OECD.

The think tank also warned there are “no quick policy fixes to Scotland’s productivity challenge” – saying nations which had successfully boosted this key part of economic performance had done so after a “concerted effort to get their act together”.

The Wealth of the Nation report – produced with support from the Scottish Policy Foundation – said Scotland is being outperformed by at least half of the OECD.

Although Scottish Government capital spending has been above the UK average, the report added it still “lagged considerably behind other developed countries” – with government investment in Scotland as a proportion of overall GDP roughly less than half of other OECD nations in 2015.

Institute director Jane-Frances Kelly said there needed to be a “turnaround” saying: “We are not the first country to face this challenge but – as our research shows – politicians and policymakers need to get their act together and make choices guided by evidence. Failing to do this will put the Scottish economy at risk.

“Our research has looked at London, Manchester, Sweden, Australia and Ireland – and in every case we found that a ruthless focus on evidence, building consensus across the political divide and creating strong institutions were crucial to turn things around.”

While she said attempts at short-term fixes would “only result in this problem being kicked down the road, at the expense of jobs and growth”, Ms Kelly stressed there was “much we can achieve if politicians, policymakers and businesses really turn their minds to it”.

Scotland has had higher spending on economic development since the Scottish Parliament was created in 1999, the report said, with the budget for it in 2016-17 at just over £1 billion.

The think-tank added: “Despite these intentions to boost productivity, no progress has been made on the 2007 target, with Scotland still far away from the top quarter of the most-productive OECD economies.”

It described economic productivity in Scotland as being “only middling when compared with other OECD economies”, adding that “despite sustained attempts by successive Scottish governments to raise productivity, there has been little productivity growth in Scotland over the last 15 years”.

The report suggested a number of factors for this, citing low economic growth, low business investment and low spending in research and development.

Tory economy spokesman Dean Lockhart said the study was “a vital and timely contribution to the single biggest challenge facing Scotland’s economy – how to get higher wages and create more jobs by making our economy work better”.

Public finance minister Kate Forbes said: “Over the last decade, productivity in Scotland has grown at more than three times the rate it has across the UK as a whole and our productivity growth has been higher than any other country or region of the UK, including London, with productivity increasing by 1.7 per cent in the first quarter of this year.

“Scotland’s economy is fundamentally strong but we are determined to strengthen it further and will consider the points raised in this report.”

She added that Brexit was the single biggest threat to Scotland’s economy.