Scotland is at a crossroads and no matter on which side of the political fence you sit it is difficult not to be both excited and a little wary of the choices Scotland is making. There is a palpable and growing sense of nationhood, and even confidence and positivity, running through the country that is complemented by rising awareness of inequality, fairness and environmental concerns. There is clearly also a majority for more meaningful self-determination for our nation and over the last year in particular a growing, if not yet a majority, support for independence.
Constitutional change is still in the air but how far that change will eventually reach is anyone’s guess. On the one side, and in the ascendance, we have the SNP looking to prize every bit of devolved power it can from Westminster. Opposing them the unionist parties desperately trying to put the genie back in the bottle. The UK Government hopes that yesterday’s command paper detailing what watered down parts of the watered down Smith Commission recommendations might actually make it into law will draw a line under constitutional change – it won’t. A devo-light solution that sits half way between what the Scottish people want and what the Scottish economy needs is nothing more than a constitutional fudge – the worst of both worlds.
Wednesday’s STV and IPOS Mori poll showing the SNP with a 52% Westminster voting intention demonstrates the mistrust that people in Scotland have in the Westminster government to deliver the meaningful devolution that they were promised. The defining political mood is that regardless of who the next Prime Minister is, the more SNP MPs are returned, the better it will be for Scotland.
Labour’s spokespeople are desperately trying to counter this with the message that “Only one of two men can be Prime Minister after the election” but it seems that the Scottish people have already decided that only one women will be First Minister of Scotland, and if Nicola Sturgeon’s 40 plus MPs hold the balance of power in Westminster then Scotland will be all the better for it. As Jim Murphy tries to turn that tide he is beginning to look as out of his depth as King Canute.
In campaigning for independence in last year’s referendum my motivation and that of Business for Scotland, was to ensure that Scottish Government’s of any colour have the powers necessary to grow our economy and create a new shared national prosperity. The driving force was always the realisation that the economic policies that work for London and the South East don’t necessarily work for the other regions of the UK and in particular for Scotland.
Regardless of the powers our Parliament has, we have to try to create a more prosperous, successful, confident, greener, more equal and fairer Scotland. If the SNP MP’s after the General election can work with the largest UK party in a coalition with to make sure that more of the powers we need are devolved, then our economy will progress more swiftly.
But what are the keys to creating that more prosperous Scotland?
A key difference between Scotland and the economic powerhouse of London and the South East is the need in Scotland to generate economic growth through helping smaller and medium sized companies to grow, encouraging best practice exchange, increasing confidence and ambition, innovation and internationalisation. In contrast to the City, where large corporates rule the roost, it is the SMEs, the smaller to medium sized enterprises that create the majority of added value employment in Scotland. They make up 99.3% of Scotland’s businesses, employ 1.1million people (54.7% of all private sector employment) and represent the single largest opportunity for Scottish economic growth.
In Germany they call the SME sector the Mittelstand and it powers the German economy. Control over all business taxation, in particular the ability to vary corporation tax rates (already promised to Northern Ireland), would allow the Scottish Government to offer additional tax breaks for investment in R&D. This could have a catalytic effect on our medium sized companies that represents a major opportunity for growth but again this is reserved to Westminster.
This is important because boosting innovation and productivity is key: Scotland lags approximately 3% behind the UK average in productivity terms but up to 40% behind comparable economies such as Norway’s, and significantly behind other Northern European economies such as Belgium, Ireland and The Netherlands. Improving productivity is essential to boosting prosperity, and the routes to productivity are getting the workforce to be more engaged and effective (see last week’s column on paying the living wage) and helping companies work to smarter through better research and development to streamline and speed up processes. Scotland spends 1.25% of GDP on R&D and the faster growing and more prosperous smaller nations we are lagging behind, such as Norway, Finland, Ireland, and Denmark, spend an average of 3.4%.
A report last year from the innovation charity NESTA stated that building towards an R&D spend of 3.4% of GDP over a five year period would mean that Scotland’s economy would grow by around £12bn a year. The high levels of SME manufacturing and exporting businesses in Scotland’s economy, versus the service and finance industry led rUK economy, mean that innovation and productivity represent a greater opportunity for Scottish economic growth versus the rest of the UK.
Scottish export figures are impressive but much of those exports are driven by whisky, food, and oil and gas services companies, which tend to be larger organisations. Too few smaller Scottish companies export internationally and encouraging exporting in smaller firms, as many competitive European nations have done, will be key to creating profitable and sustainable growth for our economy.
The promise of control over air passenger duty (APD) is a good thing as that will allow for more international direct flights to Scotland and make doing business internationally far easier. However, control over APD goes hand in hand with control over VAT, and the ability to reduce rates for key economic activities and sectors is missing from the control document. Tactics such as reducing VAT on tourism related activities, as most countries in Europe have done, would be a boost to many SMEs in rural areas in particular. Reducing APD will inevitably reduce the tax take for a while, but cutting VAT on tourism would bring new holidaymakers to Scotland and generate more flights and, in the medium term, increase the overall tax take. It is often not what is missing from the powers being devolved but the interconnectivity of the powers than can’t be maximised if some of the key ones are still retained by Westminster.
There are many other aspects to this recipe for growing Scotland’s economy, they include major investment in environmental industries and renewable power generation, improving income equality and fairness as well as personal confidence and finding ways to allow businesses to access finance outwith the broken commercial banking system. Some of which we can address with the powers we have, some we can’t. It is fair to say, however, that with the powers that the Scottish government has, and the limited additional powers now promised, they can build on their current successes and grow our economy more quickly, creating jobs and opportunities and protecting Scotland’s economy in some small way from the impact of Westminster budget cuts.
Scotland can attempt to follow the recipe for faster economic growth and prosperity detailed above, but not having access to many of the ingredients will impact on the final result. The question is, who will the Scottish people blame if their slice of the cake isn’t as large as it could have been? It seems to me that the die is cast and Westminster has lost control over Scotland, albeit more gradually than I or the current Scottish Government had hoped for.
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