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Growth Plan Needed to Avert £2bn Black Hole

Scotland urgently needs a new long-term plan for growth or else governments will be forced to impose increasingly higher taxes on a permanent basis, a new report for Our Scottish Future warns today.

The paper, written by leading Scottish economist John McLaren, estimates that, on current trends, Scotland faces a £2bn budget black hole at the end of this decade as lower growth relative to the UK leads to lower tax revenues than under Barnett.

“The reality is likely to be that, instead of this shortfall feeding through as Budget cuts, the Scottish Government will keep on imposing higher taxes than are seen elsewhere in the UK,” he concludes.

Among a series of recommendations, McLaren says Scotland needs to lay down and – crucially – stick with a plan for growth, headed by a new powerful “Scottish Treasury” department, and backed by a beefed-up and refocussed Scottish National Investment Bank.

He also calls for much deeper collaboration between the UK and Scottish Governments. “Instead of working with each other in a single market setting, the Scottish and UK Governments are often working in isolation and at times in an actively confrontational, rather than collaborative, manner,” he concludes.

Commenting on the report today, Eddie Barnes, campaign director for Our Scottish Future says:

“This report shows Scotland has all the ingredients to be a smart, successful nation which can be a magnet for talent and investment from around the world.”

“But John McLaren makes it clear – that to become that nation, we have got to get serious, right now, and focus on a long-term plan for growth.”

“We have spent too long wasting time and money on quick fixes, passing fads, and half-hearted policies. We need to commit, right now, to the sectors and skills which will result in a return to productivity growth in Scotland – and then stick to it.”

“This is an ambition we can all get behind, whether we want to remain in the UK or leave it. Whatever our views on the constitution, we will all benefit if we boost Scottish growth.”

“McLaren’s report says that greater cooperation with the rest of the UK is an important part of the solution to a high growth future for Scotland. Our Scottish Future agrees. We urge both our Governments, and all our political parties, to set aside the political games and get behind this clear, focussed plan to rebuild Scotland for the better.”

The report shows that since 2014, Scottish GDP growth per capita has been growing at half the rate of the UK as a whole. With Scottish income tax receipts now feeding directly into the Scottish budget, the report echoes findings by the Scottish Fiscal Commission which have warned about the impact on government spending.

McLaren estimates this will hit £2 billion by 2030 – more than the total sum Scotland spends on GPs and dentists.

McLaren’s report highlights that:

  • Economic development spending is higher in Scotland than anywhere else in Great Britain: 60% higher than the UK average
  • The higher spend is not feeding through to higher productivity or growth because of a “quick turnover” of policy and strategy
  • Economic policy is also ill-focussed, with too much attention on the “social” rather than the “growth” side of policy
  • Long-term economic problems include low start-up rates, low private sector R+D spending, a mismatch of skills to jobs, and poor management skills.

Its key recommendation is that Government Ministers must set out a more focussed plan for growth, and then stick to it.

McLaren declares:

“The most important recommendation is to have a consistent and long-term approach to economic growth policy, as few of the recommendations here will make a difference quickly. Rather, they have the capacity to make an impact over time, as has been experienced in other countries who have taken a patient approach. The alternative approach, chopping and changing over time and with funds dispersed widely and intermittently, will inevitably lead to familiar failure experienced in the past.”

On specifics, the report proposes:

  • a refocusing of the SNIB’s remit, an increase in its budget and improved coordination with equivalent UK institutions
  • creating a new Scottish ‘Treasury’ department in order to improve the prioritisation of spending, introduce more growth incentives and to enforce better value for money
  • Leveraging in more private sector R+D spend to match current UK levels.

John McLaren is a leading commentator on the Scottish and has worked for the Scottish Government, H.M. Treasury as well as being a contributor to the SNP’s Growth Commission Report.

Our Scottish Future was set up to provide a progressive vision for Scotland within the UK, based on greater cooperation between Scotland and the rest of the country.

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