Economic policy post devolution ‘more style than substance’, experts say

Economic policy in Scotland post devolution has often been “focussed upon style rather than substance” a group of experts – including a former chief economic adviser to the Scottish Government – has claimed.

Andrew Goudie, who left the Scottish Government in 2011 to join Strathclyde University, worked with Glasgow University economics professor, and Scottish Fiscal Commission chairman, Graeme Roy, for a paper examining policy in this area since Holyrood was established in 1999.

The paper, also authored by Glasgow University lecturer David Waite, saif there had been a a “remarkable degree of similarity in approach” to economic policy in the past 25 years.

The experts said that where changes have been made – such as changes to the income tax regime in Scotland or social security reforms – these have had “motivations beyond economics, including funding of public services and perceived fairness of the tax system”.

In a paper, published by Edinburgh University Press, they also complain that “despite a churn of initiatives, there has been a lack of evaluation of what has worked, what has not, and how effective delivery has been”.

The experts added: “One is left with the impression of the economics of devolution as often being focussed upon style rather than substance.”

They highlighted a “lack of a shift in the weaknesses” that had been evident in Scotland’s economy prior to 1999, saying while Scotland continues to do well at attracting inward investment projects, business investment “remains in the bottom quartile” for countries in the Organisation for Economic Co-operation and Development (OECD).

Scotland has the lowest number of firms per 10,000 of the population of any devolved nation or English region, with the experts also noting that despite “strengths” in sectors such as distilling, petrochemicals and financial services, “Scotland remains in the bottom OECD quartile for international exports as a share of GDP”.

And while Scotland has one of the highest shares of the workforce who have gone to university or college, the paper states there are still a “range of labour market challenges, most notably in skills shortages”.

It also finds Scotland’s economy was in a “in a relatively weak position to cope” with the series of “shocks” that included Brexit, the Covid pandemic, and the cost-of-living crisis.

While Scotland’s economy had enjoyed “strong growth” of an average of 2% a year in real terms until 2008, in the following decade economic growth fell to just over 1% a year.

As a result of this, the experts said that “by the end of 2023, Scotland’s economy was just 2% larger than it had been in 2019”.

The paper states: “It is hard not to reach the conclusion that post-devolution economic policy has tended to be rather timid.”

Adding that there has been a “remarkable consistency in approach” over the past 25 years, although the “language and presentation has differed”.

The experts continued: “New ideas have come and gone, but the underlying economic challenges and opportunities remain.

“Whether this reflects a consistency of approach, or lethargy for change is an open question.”

They also said that the “lack of scrutiny on what has worked and what has not worked is particularly noteworthy”.

Deputy First Minister Kate Forbes said: “Since 2007 GDP per person has grown by 10.7% in Scotland, compared to 5.6% in the UK. Over the same period productivity has grown at an average of 1% a year compared to 0.4% in the UK. And Scotland remains the top UK location for foreign direct investment projects outside of London.

“However, we are currently tied to a UK economy which is characterised by low growth. Scotland’s trade and competitiveness has been hit by the loss of the full and free access it once had to the European single market.

“With the full powers of independence, Scotland could rejoin the European Union, focus further on attracting more foreign direct investment and take control of tax and fiscal policies which are currently reserved to the UK Government.”