Scott Macnab: Scotland's ailing economy is a barrier to independence

The SNP Government has been struggling to find ways to reinvigorate the nation's fortunes, writes Scott Macnab.

Scotland's oil industry has been struggling in recent years
Scotland's oil industry has been struggling in recent years

It’s now almost two years since Nicola Sturgeon was forced to admit Scotland’s economy was in a “state of shock” after the crash in the country’s North Sea oil and gas sector. Ten of thousands of jobs were lost as the North-east economy spiralled into decline, while revenues to the UK exchequer were wiped out.

The oil industry now seems to be stabilising after a period of major re-alignment, but the outlook for Scotland’s economy remains grim. Growth is still barely a third of the wider UK level, with business leaders in Scotland warning just this week that the picture is far bleaker north of the border than across the rest of these islands.

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And the Scottish Government finds itself in the firing line today over a “confused and cluttered” approach to the economy which may be contributing to the country’s arrested growth. The past decade has seen a proliferation of different strategies, advisory groups and bodies which has resulted in a smorgasbord of policy-making, according to the respected Fraser of Allander Institute. This has created a “lack of alignment, duplication and weakened accountability”, as well as a general confusion about what actually works.

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Scottish economy grows, but still trails UK

It echoes a wider frustration among the country’s business community about the approach of Ms Sturgeon’s administration and the priority it really places on growth versus the party’s broader left-of-centre instincts. The recent overhaul of the tax regime will leave Scots, across the board, paying about £430 million more than the system it replaced, give or take a few tweaks. It has already prompted concerns that it may become more difficult to attract highly skilled workers who could enjoy lower taxes with a similar job down south.

Of course ministers in Scotland can point to free university tuition for their children, no prescription charges and broadly lower levels of council tax. But the general sentiment among industry leaders is that higher taxes send out the wrong message about Scotland being open for business. Bigger Scots firms are also paying double the rate of their rival firms south of the border for the Large Business Rates Supplement which has netted £189 million in recent years. Again, it simply damages perceptions of Scotland’s competitiveness.

When Alex Salmond became First Minister in 2007, he made one of his first priorities to raise Scottish growth levels to match the UK rate. And he not only achieved this, but maintained it for the bulk of his period in office. Ms Sturgeon has been hamstrung by a global collapse in oil prices which is hardly something she control. The North Sea industry’s woes may have eased, but it will never return to the halcyon days of a decade ago when revenues topped £10 billion. Few industry leaders expect annual revenues to reach the £1 billion mark again, while vital exploration for new fields – the future of the industry – remains pitifully low. The most recent revenues (2016/17) were actually £300 million in the red as tax breaks outweighed levies from the industry.

Co-incidentally this would have marked the first year of Scottish independence had the result gone for Yes in the 2014 referendum. The actual figures made a mockery of the £6.8-7.9 billion which the SNP predicted in their white paper on independence and saw Ms Sturgeon forced to defend claims the document was a “con” last year. In fairness to Ms Sturgeon, she has sought to set out her post-oil vision of Scotland’s economic future, laying out a plan last year for Scotland to be the “inventor and producer of the innovations that shape the future”.

A new drive was unveiled to help advanced manufacturing, energy and financial technology sectors along with additional support for graduate entrepreneurs. Food and drink has been an economic success story for Scotland, but many industry leaders are increasingly frustrated at the approach of Scottish ministers.

The decision to press ahead with a proposed ban on promotions of products deemed to be high in sugar, fat and salt is poised to disproportionately hit smaller Scottish companies struggling to compete on the supermarket shelves against multi-national competitors who are far better disposed to soak up the loss. The evidence base that such a measure will achieve the aim of tackling obesity remains inconclusive. This policy emerged after Scottish ministers had spent the best part of seven years locked in a legal battle with the country’s iconic whisky industry over minimum pricing. Again, it remains to be seen what impact this will have on the nation’s alcohol intake which was already falling.

The long-awaited Scottish National investment bank was finally unveiled by Ms Sturgeon last month and it will provide support to smaller businesses. What’s been less forthcoming is the SNP’s Growth Commission which was tasked with laying the economic foundations for a fresh independence campaign. This was first unveiled in September 2016 by the First Minister, but former Nationalist MSP Andrew Wilson’s report has yet to emerge. Scotland’s economy secretary Keith Brown likes to point out, with some justification, that Scottish GDP figures actually compare favourably with other regions of the UK. It is the massive imbalance in the UK which sees so much of the “real” economy based in London and the south-east which effectively drags down the figures in other areas.

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But this only holds if you accept Scotland is no more than a region of the UK, which the Scottish Government certainly doesn’t. For SNP ministers, it is an independent country in waiting. So the comparison of growth levels of 0.6% against 1.8% UK-wide is a fair one. Most countries have economic hubs which drive wider growth, such as Catalonia in Spain and the north of Italy. The finance and research hubs of Edinburgh and the Lothians are the most likely Scottish equivalent, but don’t provide a solution to the country’s relative underperformance.