Productivity in Scotland broadly stagnant for 15 years, think tank warns

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Economic productivity in Scotland has been “broadly stagnant” for the last 15 years, with the country underperforming against many other European nations, a new report has concluded.

The David Hume Institute 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% 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.

It also said while the UK as a whole was “at the centre of a so-called ‘productivity puzzle’” which had seen growth slump to “virtually zero”, the slowdown had started earlier in Scotland.

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”.

She stated: “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, saying: “There has been little employment growth in our most productive industries.

“Scottish workers operate with less machinery, equipment and infrastructure than their counterparts in the most productive OECD countries, and there is low business investment, and low R&D spending.”

The report called for consensus and collaboration among political parties, policymakers, business and unions – saying without this any progress would be “fragile”.

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”.

Minister for Public Finance and Digital Economy Kate Forbes (Jane Barlow/PA)

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% 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: “Brexit remains the single biggest threat to our economy and it could cost Scotland’s economy £12.7 billion a year by 2030, with the UK Government poised to take Scotland out of the EU against our will – and out of a single market which is around eight times bigger than the UK market alone.”

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