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As I See It

Meddling ministers are a brake on higher productivity

Brian Monteith portraitIt used to be said that ‘if a Scotsman can’t make money in London he can’t make it anywhere”, such was the opportunity in the metropolis. Nowadays, I fear that saying needs to be turned around to become, ‘If a Scotsman can make money in Scotland he can make it anywhere’, such are the obstacles to becoming successful.

This week some depressing economic statistics were published that point to what those obstacles are, and chief amongst them are more regulations and higher taxes than in the rest of the UK.

Conservative MSP Murdo Fraser produced research that showed the Scottish Government had missed five of its key economic targets; including not matching UK GDP by £1.5 billion, not matching small EU nations’ GDP by £4 billion, missing R&D target increase by £600 million and missing the exports target increase by £27.8 billion. 

For me, the key target missed, because it impacts on all the others, is raising productivity.

The latest figures released on Wednesday show Scottish annual labour productivity in 2017, as measured by output per hour worked, fell by 1.9% in real terms compared to 2016. To put that in perspective it means that labour productivity is now at a lower level than in 2010. 

How does that impact on real people? Well it means that on average Scots are working longer than any other time since 2007. The average weekly hours per job in 2007 was 31, after which it started to fall, but last year it climbed back up to 30.9.

What about the rest of the UK, you might say in an attempt to show Scotland isn’t all that bad. And you would have a point, for productivity has been poor in Britain since the impact of the 2008 recession – but it does not explain why in Scotland it is worse. The gap between UK and Scottish productivity is now larger than it was in 2009 and the rest of the UK is turning itself around while Scotland regresses – UK output per hour grew in 2017, but fell in Scotland.

And just to confirm these figures represent a poor international comparison that we need to take seriously, the figures showed Scotland has fallen three places down to 18th in the international rankings of GDP per capita. 

Poor productivity eats away at business success. Whether it’s manufacturing or services poor productivity means that output by competitors in other parts of the UK or internationally is cheaper or quicker and probably both. It means that if investors are looking to locate they will think about other places where better productivity means the returns on investment are probably higher and easier or quicker to achieve. Higher productivity leads to higher profits, higher earnings, higher disposable incomes – it is the basis of creating real wealth. 

And let’s not forget that without real wealth, the added value that can be financially measured, tax revenues cannot fund the public services that we all enjoy, including paying for the salaries of those who work in them, or for the welfare bill that grows every year.

So what’s the particular problem in Scotland that is different from the rest of the UK?

One thing we can start with is the size of the state sector in our lives. You do not have to look far to see that Government has a hand in practically everything that happens and it enjoys a larger share of the economy than government does in England, for instance. 

Fortunately, there is positive news. You will be aware of the many good news stories around in Scotland, be it the drinks business – such as the success of distillers Eden Mill in St Andrews or BrewDog and its unique brand marketing approach. There are the many computer game and application designers– or the culinary stars like Tom Kitchin who, by raising standards, are attracting more people to our country. 

SkyscannerBusinesses, be they Scottish or Scottish companies that have become international, like Rockstar North and Skyscanner –  whose products are now household names to kids and travellers –  all add to that successful mix.

There needs to be more of them, however, and to make that happen the Scottish Government has to abandon its damaging business regulation and taxation policies, such as those on property. Improving productivity is key and the simple way to start making a difference is to ask of every decision it makes “does this raise or lower our productivity?” 

I hazard a guess that too much of what it does works against improving productivity. Will a new regulation, a new or higher tax, a spending decision, a subsidy. be good or bad for productivity? 

The same can be said of any government’s priorities; is the spending being targeted at areas that aid productivity – such as improving our roads by filling all the potholes and making the country more interconnected –  or are funds going to projects that make people feel good but have at best no impact on productivity – such as putting up Gaelic signs when everyone can read the English ones? 

Let’s face it, being successful in business is tough, there are many challenges to overcome, more than there are in many other parts of the UK. We have many advantages but our self-inflicted disadvantages hold us back. 

Fortunately, the financial and personal rewards of seeing the benefits that your success can bring to others as well as yourself – through providing a product or service people want, by creating jobs and putting prosperity into the community remain attractive enough for many entrepreneurs to take the risk and go into business themselves. It’s time for the Scottish Government to stop getting in the way. 

Brian Monteith is a former member of the Scottish Parliament  

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