Scottish economy needs a ‘£6 billion Covid-19 crisis kickstart’

The Scottish Government could take ownership of struggling firms to help them weather the economic crisis resulting from coronavirus.

The proposal is among the key recommendations of a report by the Advisory Group on Economic Recovery, which was commissioned by First Minister Nicola Sturgeon and published yesterday.

The chairman of the group, former Tesco Bank boss Benny Higgins, warned Scotland may need a £6 billion stimulus package to kick-start the economy and that GDP will shrink by a third for each month the lockdown remains in place.

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The group has produced 25 recommendations, which will now be considered in detail by the Scottish Government. These include an “accelerated review” of the Fiscal Framework, which governs Holyrood’s spending powers, to allow Scotland to borrow more than the £450 million in capital spending currently allowed. The report also calls for a “Scottish jobs guarantee”, 
partnering business and government, should be introduced to address unemployment among 16 to 25-year-olds.

The Scottish economy faces a huge challenge to recover from the Covid-19 crisis. Picture: Andrew Milligan/PA Wire

The Scottish Government should also build its professional capability to “manage ownership stakes in private businesses” which are likely to arise out of the crisis, the reports says.

At her daily coronavirus briefing yesterday, Ms Sturgeon said: “We will look positively at whether Government intervention, including taking a stake in companies, can help keep productive companies that have a future beyond this crisis from going bust.

“I’m not going to link my answer to any specific companies, it would not be appropriate to do that.”

“I would point to the interventionist approach that the Scottish Government has already taken in the last few years.”

Commuters return to work in Italy. Scotland is facing a similar challenge to get employees back into work and to restart the UK economy. Picture: Claudio Furlan/LaPresse via AP

Ministers have previously taken ownership of Prestwick Airport and Ferguson Marine to save them from closure.

Ms Sturgeon added: “We have been prepared to intervene either with stakes or innovative financial interventions to try to stop companies from going out of business. We will be open-minded to that.”

But she warned that the Scottish Government operates within constraints of state aid and the need to ensure vale for taxpayers’ money.

She said: “There is always a very rigorous assessment that has to be done before we come to decisions like that but we will be open-minded and as inventive and creative as possible as we steer our way through this crisis.”

Professor Graeme Roy of Strathclyde University-based think tank the Fraser of Allander Institute described the recommendation to take over struggling companies as “eye catching”.

But he added: “It remains to be seen how this will be funded at scale under the current constitutional arrangements.”

Mr Higgins pointed to stimulus funding announced by Germany of more than £300bn.

He said: “If Germany needs 4 per cent of its economic output to stimulate the economy, then you’d think that we’d need at least that.

“That’s £6bn and the current limit through the fiscal framework is £450m so there’s a long way to go from where we are to where we need to be.”

The report said: “There is a strong case for the Scottish Government to have greater autonomy to use targeted fiscal measures to stimulate demand or incentivise behavioural change in the recovery period.” Mr Higgins said the Scottish Government must be prepared to “have a repayment of debt approach that takes a very long time”.

He added: “We’ve got to adopt that approach but it makes it all the more important that we focus our energy on the systemically important parts of Scotland that will form the basis of a stronger, better Scotland in future.”

The report warns that the prospect of a “quick rebound” in economic activity following the lockdown may be unlikely, echoing a warning from Scotland’s chief economist that output may not recover to pre-crisis levels until 2023.

The Scottish Jobs Guarantee proposal, for those aged between 16 and 25 would mean they are assured of two years of work paid at the real living wage. This programme could be a partnership between the private sector, local authorities and the Scottish Government, giving those employed access to apprenticeships and training.

The report described the Covid-19 pandemic as “a scar across (young people’s) working lives if there is no urgent, ambitious and focused intervention to address it”.

The Scottish government said it would “develop a detailed response to the report which will be published before the end of July”.

Ms Sturgeon said the jobs guarantee proposal was “potentially very significant as we seek to ensure young people get the opportunities they deserve”.

Further recommendations include prioritising a green recovery, strengthening the relationship between business and government and investing in digital infrastructure.

Labour leader Richard Leonard back the jobs guarantee proposals which has been a Labour policy since the scale of the outbreak became clear.

He said: “The Scottish Government must waste no more time in establishing a jobs guarantee scheme, which should be tailored to ensure it provide necessary additional assistance for women, young workers and BAME and disabled workers, who are all likely to be hit hard by this economic crisis.

Tory Economy spokesman Maurice Golden said a decade of “economic incompetence” from the SNP is now coming back to haunt the country.

“All the indications show Scotland’s economy was 
lagging behind before the coronavirus, and now it seems the impact will be harder here than elsewhere.

Tracy Black, CBI Scotland Director, backed the calls for a “jobs first” recovery in the report.

“Urgent interventions are required to create jobs, especially for young people affected by significant disruption to the labour market, and to catalyse investment – either from home or abroad,” she said.


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