Daily question: How quickly is the Scottish economy growing and could it do better?
- 29 August 2014
- From the section Scotland
As the people of Scotland weigh up how to vote in the independence referendum, they are asking questions on a range of topics.
In this series, we are looking at those major questions and by using statistics, analysis and expert views shining a light on some of the possible answers.
Here, we delve deeper into the issue of Scotland's economic growth and what might happen to it in the future, whether it be a "Yes" or a "No" vote in September.
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BBC news website user, Boyd Finlay, asks: "How will an independent Scotland increase innovation cycles to commercialise itself into economic growth? What can be done that cannot be done now?"
What are the most up to date figures?
Scottish GDP grew 1% during the first quarter of 2014, faster than the UK's 0.8%. Comparing that quarter to the same period in 2013, Scottish GDP grew 2.6%, a fraction less than the UK rate of 3%.
Scotland's economy has been growing and shrinking at a roughly similar rate to the rest of the UK over the last decade. BBC Scotland's business and economy editor Douglas Fraser has noted that Scotland's economy has tracked along the lines of the UK average in a number of areas for a long time. Its economy didn't dip quite as low during the recession, but the two economies have followed a similar trajectory.
Why does it matter?
Everyone wants the economy to be growing fast because it means that more money is being made, more people are in work, more taxes are taken, and the government has more money to spend.
Both sides in the referendum debate clap loudly when Scotland's quarterly growth figures are announced and claim responsibility. The UK government say that Scotland is experiencing the current bounce-back in growth figures that's being reflected in the UK figures, and the Scottish government say that Scotland is doing well because of specific policies being applied in Scotland. At the moment the reality is probably a little bit of both.
So is the UK government delivering growth for Scotland?
Although we've already seen that Scotland's growth rate has tracked the UK's, there are serious concerns about whether the Westminster policies are really able to spread growth across Scotland.
Just because the overall economy is growing that doesn't mean that everyone is experiencing the benefits, and there is big variance across Scotland.
The Scottish government points out in its economic plans that "under the current framework these regional disparities are often ignored in policy thinking at the UK level and while recognised in Scotland, the lack of levers constrains opportunities to fully address such challenges in a joined-up and truly transformational way".
Could an independent economy grow faster?
The Scottish Government's White Paper said faster economic growth could be achieved by specific decisions that could only be made with the powers of independence. Firstly they plan to boost the number of working people in Scotland. They also want to boost productivity, and increase employment by 2029.
1. Boosting Productivity - The Scottish government is aiming to increase productivity by 0.3%, which it correctly says would be worth £2.4bn a year in extra tax income. It's worth noting that this is a 0.3% increase for Scotland, on top of the 2.2% increase already predicted for the rest of the UK. So it's a 2.5% increase that they're aiming for.
There are a couple of ways to boost productivity as a country. Either you make companies work smarter through better research and development to streamline and speed up processes, or you get workers to work harder. The Scottish government say it'll be able to do that "by tailoring economic policy to maximise Scotland's economic strengths and to address the specific challenges that Scotland faces".
But boosting productivity is not an easy thing to achieve. The low level of productivity in the UK is a problem that economists have been trying to tackle for years, and certainly does not seem to be a simple issue to fix.
There's also the thorny issue of oil to throw into the equation. Although the rate of decline in North Sea oil is contested, all sides agree that the reserves will gradually run lower. That means that the rate of GDP growth in Scotland's onshore economy would have to be more than 2.5% to make up for that, which is a tall order.
Academics at Durham University Business School have argued that there is a serious and under-addressed productivity gap in Scotland, and that the 0.3% above trend year-on-year productivity increase would be extremely difficult to achieve post-independence.
2. Boosting employment
The Scottish government is planning to get an extra 3.3% of the population into work, from 71% to 74.3%. That would be worth an extra £1.3bn in income taxes by 2029-30. Although 3.3% might not sound like a lot, it's about 27,000 jobs.
The plan to do this involves attracting more companies to base themselves in Scotland, and to encourage local companies to grow by lowering the amount of tax companies pay. An independent Scotland would cut the tax rate businesses pay on their profits to three percentage points lower than the rest of the UK. The Treasury is setting corporation tax at 20% from spring 2015, so that would mean a 17% rate.
They also want to boost exports, encourage more people into work by making in-work benefits more attractive, and support more women in the workforce by providing more hours of free child childcare.
Nobody is really disputing whether these factors would improve economic growth - they would. What is in dispute is whether they are possible to achieve and pay for in the short term.
So would the plans work?
Making different choices in an independent Scotland would certainly impact on growth rates, but the reality is that no one can guarantee whether it would be boosted or hindered. The Scottish government has acknowledged that it's not likely that all of its targets for growth will be met, but it has laid out these plans to show the range that's possible. It's also worth noting that the policy choices of a different Westminster government could also significantly change Scotland's growth rates.
I'm not avoiding the question by saying that we just don't know what impact these policies would have, the bottom line is that lots of factors have an impact on economic growth, lots of them outside of a government's control.
If either side of this debate promises a certain growth rate, then don't believe them. A vote can't be made for economic growth of a certain percent, or a higher employment rate. The question is whether voters in Scotland would rather those choices were made in Westminster or in Holyrood.