Scott Macnab: Scottish slump not down to Brexit

When the Alex Salmond made history almost a decade ago by winning power at Holyrood and becoming Scotland's first pro-independence leader he immediately sought to bolster the country's economy.

The West Phoenix rig stands amongst others which have been left in the Cromarty Firth  as oil prices continue to decline having a major impact on the UK's North Sea oil industry. Picture Getty Images
The West Phoenix rig stands amongst others which have been left in the Cromarty Firth as oil prices continue to decline having a major impact on the UK's North Sea oil industry. Picture Getty Images

Scotland’s growth must be brought up to the same level as the rest of the UK, the former oil economist proclaimed. He judged that prosperity and the job security that follows was the best way to show Scots how a Nationalist administration could be trusted with the reins of power.

And in fairness to Salmond he did exactly this. For the bulk of his time in office Scotland’s growth largely matched, and often topped that of the UK, providing an economic platform which the Yes side could camapign on in the 2014 referendum.

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Fast-forward two years and a widening gulf is now once again emerging between the economies of Scotland and the rest of the UK. The growth rate north of the border is now a third of that being experienced UK wide, official figures last week showed, and the situation is only predicted to get worse in the year ahead.

The oil and gas industry crisis which has hit the country’s growth so badly in the last couple of years can hardly be laid at the door of Nicola Sturgeon.

The First Minister has admitted that the downturn in the North Sea has left Scotland facing an “economic shock”. But it comes as Ms Sturgeon has taken to issuing weekly clarion calls for Theresa May to set out her plans for Brexit and bemoaning the lack of action to deal with the fall-out from the shock EU referendum vote.

Meanwhile, business organisations north of the border like the Chambers of Commerce and the Federation of Small Businesses warned last week that more needs to be done here in Scotland to address the slide which saw growth of 0.7 per cent in the year to June – compared with 2.2 per cent across the whole of the UK.

Perhaps most worrying, Scotland’s economy actually shrunk by 0.1 per cent in the first three months of the year. The other flagship target of the SNP Government to match the growth rate of smaller independent EU countries has also hit the buffers.

Scotland’s GDP was 3.3 per cent lower than these countries in March this year. That means jobs and livelihoods for working Scots struggling at a time of ongoing austerity. It prompted the former Scottish Government advisor Professor John McLaren to warn last week that if the flatlining Scottish picture had been replicated across the UK, the Bank of England governor Mark Carney would almost certainly be looking to step in to address the situation with measures like interest rate cuts.

Of course, action to tackle the slump in Scotland in recent years has been taken by the Scottish Government. The First Minister herself unveiled a national action plan in February aimed at reviving Scotland’s dwindling manufacturing base after a spate of closures saw the disappearance of long-established Scottish factory bases for Texas Instruments in Greenock and Polaroid Eyewear in West Dunbartonshire.

Entitled A Manufacturing Future for Scotland, it set out how ministers aimed to increase investment in the sector in order that it can “compete globally”, along with a centre of excellence and skills academy for the next generation of “makers.” And although this sector then showed some growth between March and June, it was only half the UK rate of 1.6 per cent.

More worryingly for Scotland – once such a manufacturing powerhouse with its shipbuilding and heavy industry heritage – the role of our “makers” shrunk by 3.6 per cent over the year, while showing growth of 1 per cent across the UK.

The latest national economic strategy unveiled by Ms Sturgeon and John Swinney pledged to “foster a culture of innovation” to develop the future technologies which would provide the economic bedrock for the years. But a report by the First Minister’s hand-picked team of economic guru’s last week warned that Scotland now “lags behind the leading regions of the EU” both in terms of introducing new innovations and benefiting from the wider economic boost.

The Council of Economic Advisers said Denmark, Sweden and Finland were among the nations which have higher innovation levels than Scotland and said a review is now needed of the way government in general supports this key sector. And of course, all of these problems long pre-dated the Brexit vote which Ms Sturgeon has shown such urgency in identifying as an economic threat with warnings of a “lost decade.”

She set out her own measures to tackle this threat at the SNP conference last week with a tranche of new Government posts being established in Edinburgh and across Europe aimed at boosting trade.

The aim is to ensure Scotland is seen as being “internationally competitive” with an “open economy.” But it comes in the week that many of the country’s leading chartered accountancy and finance giants have warned MSPs that “uncertainty” over the tax regime in Scotland could prompt many firms to leave and damage economic growth.

Scots middle earners will face higher taxes than elsewhere in the UK under Ms Sturgeon plans next year, while Labour and the Liberal Democrats have set out plans to raise the basic rate of income tax. Labour is also calling for the top rate to be upped to 50p, with Ms Sturgeon saying she is supportive of the idea, but reluctant to introduce it in Scotland alone.

The policy is to be kept under annual review and it is this inclination towards tax hikes from Scottish political leaders which prompted Susie Walker, head of tax at Johnston Carmichael to call for a “fundamentally different approach to avoid a “long term harmful impact on the economy of Scotland”. Other major finance houses also called for greater certainty on the issue as Holyrood takes control over income tax rates and bands next year.

The post-Brexit plummeting pound and soaring inflation is certainly a cause for concern, but the underlying economy across the UK remains strong. In Scotland, less so. And it is surely here where SNP ministers should be focussing their immediate concerns.