Scotland's Economy Blog

This State of the Economy Report comes after a disappointing 2012 – a year when it had been hoped that economic fortunes would improve and momentum would finally return to the global economy. However, the economic outlook is more positive than this time last year. The Report focuses on the business sector, as in a climate of deleveraging by both governments and households and with world trade remaining fragile, the performance of the business sector will be key.  Therefore 2013 could be pivotal for business and recovery in Scotland.

Recent Global Economic Developments

 The Euro Area was a source of uncertainty throughout 2012 though some relative calm was restored in the second half of the year with European Central Bank purchases of short-term sovereign bonds and progress toward formation of a banking union.  However, on-going political uncertainties, along with remaining underlying structural weaknesses, will lead to economic conditions in the Euro Area remaining fragile for the foreseeable future.

The US narrowly avoided a steep fiscal cliff at the end of 2012. Although fiscal retrenchment is still necessary, this has been delayed and will be more gradual than feared. This will still however, act to dampen growth in the world’s largest economy and a key export market for Scotland.

The UK economy is estimated to have fallen back by 0.3% in the final quarter of the year, following a bounce-back in the economy in Q3. Given the prevalence of temporary factors influencing individual quarterly growth rate figures, it is perhaps more informative to consider growth over the year as a whole, with output growing by just 0.2% in 2012. Nearly five years on from the start of the crisis, output remains some 3.0% below pre-recession levels.

Recent Scottish Economic Developments

The most recent data for the Scottish economy showed welcome growth of 0.6% in the third quarter of 2012. This was encouraging as it appeared to reflect evidence of a degree of underlying strength in the economy. The UK figure was slightly stronger though this was influenced somewhat by the temporary impact of the Olympics which boosted growth to 1.0% in the same quarter.

The labour market in Scotland has shown mixed signals in recent months; the unemployment rate has fallen recently but employment and inactivity levels have worsened in the past few months with fewer people in employment and seeking employment. There has however, been a substantial drop in youth unemployment from a peak in late 2011 and early 2012.

An increase in self-employment has been reflected in a rise in business start-ups. As part of the assessment of the business sector in Scotland, we analyse the structure of the business sector in Scotland, start-ups, insolvencies, investment trends and export performance.

 Future Prospects

The global economy faces a number of challenges over the long-term, however, the uncertainty that characterised much of last year in terms of the immediate outlook for the global and Euro economies has undoubtedly improved compared to Summer 2012.

Forecasts for global growth in 2013 are still low by historic standards but an improvement on 2012. There is even the possibility for the growth outlook to be revised up as the year progresses.

Therefore, 2013 has the potential to be a pivotal year for business in Scotland within the context of the recent recession.

The Scottish economy has already experienced a significant period of deleveraging and in some parts of the corporate sector there are excess cash holdings. This means that in an environment of increased confidence and less short term uncertainty, investment by business may be likely to pick-up.

Headwinds of course still exist, however an improving external environment, coupled with the full effects of the deleveraging process beginning to ease, has the potential to improve business confidence and investment. Such a cycle can drive a sustainable recovery in the medium term.

As last year, we still expect the Scottish economy to return to near trend growth by the end of 2014 as well as returning to pre-recession levels of output close to the end of that year.

Yesterday I visited a project that showed me how innovative and creative ideas can provide real opportunities for our young people. I visited the Streetleague project in Glasgow which exemplifies the Scottish Government principles of reform. Simply put, it delivers improved outcomes for local people through partnership working and a focus on prevention.

Streetleague specialise in changing the lives of disadvantaged young people through the power of football. The project engages with the ‘hardest to reach’ young people in a structured football and education ‘Academy’ programme and is aimed at young people who are at risk of disengaging from the labour market. As a result these young people may find themselves with a lifestyle that is difficult and that would make it very hard for them to reconnect and progress without substantial cost to the public purse. This activity is therefore one of both prevention and progression.

For me it is a perfect example of the type of innovation in the design and delivery of public services that the Scottish Government wants to see across Scotland. In the last 12 months through focused intervention, a programme has been developed in conjunction with Glasgow Life to secure a number of jobs for the young people in the City’s sports centres, including the Emirates Arena.

I met two young people who were ex-participants of the Streetleague programme who have gone on to secure employment at the Arena. They live locally and are working in an environment that is developing their skills and experience and earning a wage. We need to prioritise investment in preventative approaches to help all young people engage in employment, education or training and prevent negative outcomes.

There are positive signs of this type of innovation happening all across Scotland which are helping to re-shape public services in line with the Government’s reform approach to improve outcomes and I look forward to seeing more of them in the months to come.

One of the most commonly asked questions in the debate over Scotland’s future is about our economy, whether we can afford to be independent and what it means for our economic future.

Over the coming months we will be answering those questions, setting out Scotland’s finances as they are, the economic opportunities ahead of us and the difference independence will make.

Today we’ve published figures that show the actual position of Scotland’s finances.  Essentially they show how wealthy Scotland would have been in the last year if we’d had full control of all our revenues and spending.

The document,  Government Expenditure and Revenues Scotland, show how much public sector tax revenue was raised  in Scotland and total public sector expenditure in Scotland in the five years to 2011/12.

Overall this report shows that Scotland has strong foundations to build on as an independent nation.

In 2011- 12 total public sector revenue in Scotland was estimated at £56.9 billion. That means tax revenue from Scotland accounted for 9.9% of all taxes raised from across the UK, despite making up only 8.4% of the population.

That figure alone shows that Scotland more than pays her way as part of the UK, and it’s not a one off.

In four of the last five years Scotland has paid in more to the Treasury, than has come back in public spending.

The report also shows how much is spent in Scotland, and that while we contribute 9.9% of taxes we receive only 9.3% of UK spending.

Again, that difference shows Scotland has the wealth we need not just to  be independent but to be a successful independent country.

And it shows the UK’s deficit of £121 billion or 7.9% of national GDP compared to only 5% of GDP or £7.6bn in Scotland.

But there’s more to independence than just having strong finances.  Independence for me is about taking the opportunities presented to you, and using your resources to build a stronger and more prosperous Scotland.

One of the most interesting things to come out of today’s report is the difference in the finances of Scotland and the UK.

Compared with the UK, Scotland is in a relatively better off position. Today’s figures show that in 2011-12 Scotland would have had £4.4bn extra, or £824 per head, compared to the UK, that we could have put to use in Scotland’s interests.

If we had been independent, we could have chosen either to pay off debt or cut borrowing with that money or to invest it in capital projects that would create jobs and boost the economy or to use it  to support households across the country.  As an independent nation, we would have made those choices in Scotland for Scotland.  Instead, as a part of the UK we are tied to economic plans from a Westminster government that are preventing real growth, hampering efforts to create jobs and increasing inequality.

There has been another financial paper in the news today.  As part of the detailed work the Scottish Government is undertaking on financial planning for independence we looked at the UK Government’s projections for the future, if there are no changes to the austerity agenda.  That paper is out of date, particularly as we are now looking at a second oil boom in the North Sea – but also as our preparations for independence have developed.

Since that paper was written the Fiscal Commission Working Group has been published – setting out how an oil fund could work and we have set our our budgets in areas like defence.  However one thing that paper did show us, is that even on the UK’s disastrous economic path between 2010 and 2016/17 Scotland would be a total of £16.9 billion better off than we are within the UK.  With independence that money could have been put to use in the interests of sCotland.

It’s for those reasons that I firmly believe that we can’t afford not to be independent.  Today’s figures demonstrate the strong foundations we have, from which to build independence.  There is no doubt that Scotland can afford to be an independent nation.  The opportunity we have in 2014 is to take on the powers that will allow us to build an even better economy, and a fairer and wealthier Scotland.

I attended a very special event this week – ‘The Gathering’ – a key date in the calendar for the third sector in Scotland. It’s a massive annual event that brings together Scotland’s social enterprise and voluntary organisation community.

The third sector are valued partners in our endeavours to boost youth employment. They have a distinct contribution to make and a particular gift in reaching out and supporting the young people who are furthest away from the labour market.

That’s why I was really pleased to announce this week, the third phase of Community Jobs Scotland (CJS). The Scottish Government will fund  another thousand opportunities for young people to work in the voluntary sector and receive training bespoke to the job role and individual needs. It’s a win-win scenario: young people gain valuable work experience, and the third sector increases its capacity at a time of increasing demand upon its services.

I have heard so many personal testimonies from young people who have had a life changing experience from their involvement in CJS. Speaking at The Gathering, a young man called Kevin Forest calmly and eloquently told an audience of 100 or so of his experience working in human resources and finance in APEX. I also met a young woman, working in an innovative environmental project in rural Scotland, another working as an administrator for the Scottish Council for Voluntary Organisations (SCVO) and another young man working as a painter and decorator with a housing association. Real experiences, real work, and real people in a sector which has depth and diversity and will touch every community in Scotland.

To date, the Scottish Government has invested £29 million in CJS, which is operated by the SCVO. CJS is an important part of our ‘Opportunities for All’ guarantee of a place in education or training to every 16-19 year old who needs one. As CJS has developed, lessons have been learnt from experience and the program has been refined accordingly. So I was also delighted to announce that for young people who have lived through, or are living with, disadvantage, the age criteria will be increased from 16-19 to 16-24. While young people claiming benefits should expect and demand support from DWP programmes like the Youth Contract and the Work Programme, I will enhance the Scottish Government’s offer to young people where I can.

Attending The Gathering also gave me the opportunity to listen and participate in discussion. There was a number of valuable points made by those who are on the front line in the third sector across Scotland.  What struck me was the genuine desire, despite the tough economic and financial climate, to roll our collective sleeves up and make a real difference. There is also a genuine commitment to partnership working and a willingness to pool resources.

Therefore, it is apt that a further development of CJS is the earmarking of 100 new opportunities this year for young people with a disability or a long term condition and continuing this focus next year. This is an innovative development as SCVO have partnered up with the Shaw Trust via DWP’s Work Choice Programme. Working together, they will offer a part time work opportunity for 18 months for eligible young people.

It is a great pity that the third sector has been largely excluded from the delivery of the UK Government’s Work Programme, a subject for another blog I think.  But meantime we can be assured that Community Jobs Scotland is changing lives in Scotland.