I beg to move,
That this House
has considered the future of the Scottish economy.
It is an honour to serve under your chairmanship, Mrs Main, and to bring such an important and timely debate to the House. I am pleased to see so many colleagues here, although I am disappointed that the Under-Secretary of State for Wales is the only Government Minister who could join us. I know the Government take a rather apathetic view of devolution these days—[Interruption.]
I must point out that this is a debate about the Scottish economy, so I am not sure whether the presence of the Minister, albeit welcome, is an indication of diary conflicts, or that we are all the same in the eyes of the UK Government. It would have been nice to see someone from the Scotland Office or perhaps a Treasury Minister here to answer the debate.
It has been 10 years since the financial crisis, and in an ideal world we would be looking back on the crisis from a renewed position of strength, with the fundamentals of our economy strong, and with optimism for the future. Sadly, that is not where we find ourselves. Following a decade of economic mismanagement of Scotland by the Scottish National party and Conservative Governments, Scotland’s economy has failed to recover to above pre-crisis levels in a number of areas. The fundamentals of the economy are structurally unsound, with built-in constraints on future growth, and we appear to be trapped between two economic futures: one a Tory hard Brexit, the other supercharged austerity under the SNP’s growth commission.
The Scottish people have lost a decade of economic growth. Under the projections of the Scottish Fiscal Commission, that lost decade threatens to turn into a generation. However, I remain optimistic, because there is a third way: a Labour vision for the economy—an economy driven by investment, not cuts, and a vision that has an optimistic outlook for the Scottish economy, rather than one of managed decline. Today, I will set out where the Scottish economy stands; the two visions before us as posed by the UK and Scottish Governments; and the third way offered by the Labour party.
Ten years on from the financial crisis, the Scottish economy is in a difficult position. Economic growth remains heavily stagnant. GDP growth in Scotland has averaged out at less than 1% per year since the financial crisis, while the rest of the UK has done only slightly better. Unfortunately, things are not expected to get much better, because the Scottish Fiscal Commission does not expect growth to rise above 1% until after at least 2023. If that is the case, Scotland’s economy will not just have been at a standstill for a decade, but will have remained in the freezer for a generation.
Does the hon. Gentleman acknowledge that the consequence of this slow growth in our economy is that an estimated £1.7 billion projected to be raised in tax will not be raised at all, and that we will have a deficit in the revenue that is expected to fund the public services we all depend on?
I thank the hon. Gentleman for his point. We have a serious issue with how we expect to finance public spending in Scotland, and I will come on to that later.
Unfortunately, the story is the same when we turn to productivity. While the productivity puzzle on these islands has been a problem for both Scotland and the rest of the UK, the most recent figures show that in Scotland the puzzle is even more complex, and while UK productivity has risen by 0.7%, trend productivity in Scotland is zero. On key indicators for growing our economy and making our workers more productive, the SNP Government have an even poorer track record than the UK Government. That means that the country is not reaching its full potential, and the average person’s wages are being squeezed more and more. In the real world, in terms of how far towards the end of the month people’s pay reaches, when it comes to buying food, paying bills and socialising, the average Scot is worse off now than they were 10 years ago and is doing worse than the UK average.
The hon. Gentleman makes a point about take-home pay and how much workers have in their pay packets, but when the SNP and Scottish Parliament announced their “Nat Tax”, his Labour colleagues in the Scottish Parliament argued that it did not go high enough. They wanted to take greater taxes off the hard-working Scots. How can he complain about how much people are taking home in their pay packets, when he wants to increase tax and take more money out of those pay packets?
I thank the hon. Gentleman for his comments; I know we have very different views on tax and spend, and I do not think we will resolve them here.
To add to all that, Scotland is more unequal than ever. The wealth disparity means that the average household would need to save every penny of their income for 43 years to enter the top 10% of wealthiest Scots. A failure to increase wages, build more houses or spread wealth means that the most significant factor in determining whether a person will own their own home or secure a top-tier job is not their skills and talents, but who their parents are and where they live. A Scotland where circumstances of birth will take people further than their skills and talents is not the kind of country we should aspire to be, but that is the situation we find ourselves in.
Despite those facts, the vision put forward by our governing parties is not for the radical transformation that is clearly needed. On one side, one of Scotland’s Governments supports a damaging Brexit policy that will cut the ties of Scotland and the rest of the UK to the EU’s internal markets and the customs union. The Fraser of Allander Institute has modelled that with each degree of separation from those two tenets of the EU, Scotland will be more and more damaged. Scotland faces being between 2% and 5% worse off in GDP terms as a result of this Tory Brexit, while in the worst of cases, under a no-deal Brexit, in which we default to World Trade Organisation rules, wage growth will go into reverse, the economy will shrink and, most worryingly, Scotland’s successful food and drinks exporting industry could suffer as much as a 26% reduction in trade.
I thank the hon. Gentleman for his comments; he is obviously not paying very close attention in the Chamber. The UK Governments have very clear red lines drawn all over the place, and none of them seem to reach any kind of consensus. [Interruption.]
Thank you, Mrs Main. The Labour party position is quite clearly putting jobs and the economy first. If Neil Gray intends to contribute to this debate, perhaps he can explain why it is very important for Scotland’s economy to remain in the European Union, but his party wants to take us out of the United Kingdom. That is something I would find difficult to square.
The UK Government, the Scottish Government, the Institute for Fiscal Studies and the Fraser of Allander Institute have all warned of serious damage to Scotland’s economy as the result of a no-deal Brexit. Worryingly, recently it has seemed that some members of the Conservative party believe that that is an acceptable outcome. In no circumstances should any public representative be recommending that that risk be taken in pursuit of gains that, in my view, are vastly outweighed by the negatives.
On the other side of the equation we have the SNP Government, who have produced a growth commission to set out how they want to see Scotland’s economy grow in the future. In 2015 and 2017, the SNP stood on a manifesto that claimed that they were anti-austerity. The publication of the growth commission and the endorsement of its policies by the First Minister should represent the day when the mask slipped and the SNP was shown to be the party of austerity that we know it to be.
In the growth commission, the Scottish Government propose reducing Scotland’s budget deficit through an approach that would see spending on public services and benefits fall by about 4% of GDP over a decade. Compare that with the policies of the Conservative UK Government, as set out by the Office for Budget Responsibility. The UK Government’s projections see spending on public services and benefits over a five-year period, from 2018-19 to 2022-23, falling by 0.9% of GDP. The plans set out by the SNP in the growth commission would mean the Scottish Government cutting public expenditure on public services and benefits close to five times faster than this Conservative UK Government.
In its model for the future of an independent Scottish economy, the SNP has given up on monetary policy as a tool for stimulating the economy. By not proposing a new currency and by setting public spending and borrowing targets that even George Osborne would have considered ambitious, the SNP has baked serious public spending cuts into its preferred future economic model. Relying on fiscal policy alone to reduce Government debt and budget deficits, they will have to introduce spending cuts, raise taxes or do a combination of both. That is the dictionary definition of austerity.
Those are the most optimistic of figures. The IFS says that, with an ageing population adding to the pressures on the health, social care and state pension budgets, keeping to the growth commission’s targets would likely require cuts to many public services, with the commission not taking the time to spell out exactly where the axe would fall and who would lose out as a consequence. Furthermore, the IFS also said what all know to be true:
“It is also inconsistent to claim that these plans do not amount to austerity but the UK government’s current policy does”,
particularly while the growth commission’s plans
“imply slightly slower real growth in spending than the UK Government is currently implementing.”
I am sure that the SNP will not cease to call itself the anti-austerity party, even after the growth commission’s publication. However, the facts speak for themselves. These are empty calls and stolen clothing. The growth commission is most disappointing because of its lack of ambition. The two Governments of Scotland have produced plans for the future of the Scottish economy that leave much to be desired, and it is therefore up to the Labour party to present a true alternative.
The Scottish economy has three core structural problems: stagnant GDP growth, low productivity and demographic challenges caused by a projected significant increase in the over-65 population and a shrinking in the relative size of the economically active population. Labour has a vision to address all three problems. The problems of growth and productivity cannot be separated; they are twin problems. The Scottish labour market is strong—we have a relatively low unemployment rate by European standards, and an exceptionally low youth unemployment rate.
However, while unemployment has decreased over the years, wages have stagnated and economic output has not matched the increase in the labour force that would usually be expected. That is because, while jobs have been created, they are predominantly low-skill, low-wage jobs that have not helped to accelerate growth; nor have they been productive enough to increase wages. By introducing a minimum wage of £10 per hour, we can reverse the trend of low wages and encourage investment to improve labour productivity. If we increase the minimum wage, companies will have to invest in technology and training to improve the output of their workforce to match the demands they are under. No longer will low-wage, gig economy jobs serve to undercut the advantages of investment.
The hon. Gentleman talks about raising the minimum wage, which is a laudable aim for us all to strive for. However, we are talking about Scotland’s economy, and he will of course realise that this area of economic policy is reserved to the UK Government, so this is not in the gift of the Scottish Government to enforce.
The hon. Gentleman will of course realise that we are in the UK Parliament. Scotland has two Governments, and I am talking about Labour’s vision for both. [Interruption.]
Perhaps the hon. Lady will tell us in her remarks how her party intends to change employment law, if it is devolved to the Scottish Parliament.
Scotland suffers from under-investment. While the Scottish Government have produced many investment packages, they are often too small, too numerous and too unfocused to deliver the outcomes they are set up to achieve. Those are not my words but the conclusions of recent reports by the Fraser of Allander Institute and the Scottish Parliament’s Economy, Jobs and Fair Work Committee.
Under the current Scottish Government, we have had economic development plans governed by press release. Labour proposes real investment to correct the problems of stagnant labour productivity and GDP growth. We aim to stimulate investment more widely through a national plan that focuses long-term investment on local and national infrastructure, such as information, communication, services and production technologies, as well as in physical infrastructure, such as roads, buildings and town and city centres. That will not only correct the decade of under-investment that led to the productivity problem, but begin the vital future-proofing of the Scottish workforce against the challenges of automation and increasing digitalisation.
Furthermore, we plan to examine the possibility of public sector pension funds using their resources to establish a Scottish public provident fund, which could invest in local production and infrastructure, boost local supply chains and stimulate employment.
We will implement our industrial strategy and invest in Scotland’s economy. We will also encourage and incentivise firms in Scotland to raise the percentage of turnover invested in research and development. Scotland is only ninth in the UK in R&D spend per head, so such measures are sorely needed, and will be vital in solving the productivity puzzle. Those kind of investments will encourage the growth of new industries. An excellent example of that is CST Global in my constituency—a photonics manufacturer that I believe represents the future of jobs in Scotland.
CST Global has shown itself to be a significantly high-growth, high-skill business. It has sustained strong annual growth, with revenues increasing by 88% in a year to £6.7 million in 2017. It is a strong exporter, and the photonics industry is one of the UK’s most productive. On average, each employee in the sector contributes £62,000 to the economy in gross value per year—three times the UK average. These companies also have some of the highest export rates of any industry, exporting an average of 75% of their manufactured output.
Such companies are often city-based, and we would not typically expect them to be found in smaller towns, such as Blantyre in my constituency. However, CST Global has proven that that need not be the case; when conditions are right, those companies can not only do well but thrive in these places. CST Global is very welcome in Blantyre. Supporting such businesses is central to the investment-based economic model. If we want to see the future of the Scottish economy defined by high-skill, high-wage and high-tech jobs, we have to invest.
If the hon. Gentleman is genuinely interested in growing the Scottish economy, he should support the devolution of powers to set VAT and national insurance rates, and to collect fuel duties, capital gains tax, interest on dividends and export duties, as well as all the other powers that the Scottish Parliament does not possess and is therefore unable to use to grow our economy.
It is nice to see that both the hon. Lady and her favourite pantomime villains have turned up to continue the set-to that we often see in the Chamber. I am here to make a speech on what I believe is right for the Scottish economy. She will clearly disagree on several areas, and she can set those out in her remarks. As always for SNP Members, independence is the answer, no matter the question. I am surprised to hear SNP Members now talk about devolution so much, given that they have always opposed it. [Interruption.]
Order. This is becoming somewhat intolerable. No respect is being shown to the hon. Gentleman, who is trying to make his speech. This is not a conversation among Members; it is a debate, which will be held in the proper manner. I ask all colleagues to respect the hon. Members making speeches and to keep their remarks to themselves or to voice them in the proper manner—through interventions.
Thank you, Mrs Main. While we invest in a productive workforce, we must also attract talent to fill those spaces. All of Scotland’s population growth from 2016 to 2041 will derive from inward migration, as deaths will outnumber births in each year. Brexit therefore presents a risk, as it could reduce inward migration from the EU. However, even without Brexit, population growth is too slow and lags behind that of other parts of the UK, both in terms of birth and death rates, and through inward migration. We can correct that by supporting a needs-based immigration system. It is simply unhelpful to focus on an abstract number, as the UK Government are doing—or are failing to do.
However, we must also build the communities that attract the best talent. That is why we have called on the Scottish and UK Governments to get on with the completion of the city deals projects. People move to cities and communities. The delivery of more than £1 billion of funding and the devolution of further powers will allow our cities and communities to make themselves attractive to international talent on their own terms, rather than having terms dictated by Holyrood or Westminster.
Overall, 83% of Scotland’s population—4.5 million people—live in areas covered by existing or planned city region deals. That is a huge amount of talent and aspiration to be unlocked, and we simply cannot wait any longer. However, those deals have been bogged down as both the Scottish and UK Governments cannot bring themselves together to settle the matter. We have seen in the wrangling over the devolution settlement that the SNP and Conservative party can lock themselves in disagreement if it is politically opportune to do so; dare I say that we have seen that today? However, the people of Scotland should not be punished because of the narrow interests of the two governing parties.
In conclusion, Scotland has lost a decade of economic progress under its two Governments. If nothing changes, this decade threatens to turn into a generation of stagnation. However, an opportunity exists to turn this around, and the pathway to growth is best fulfilled by an investment-based economic model.
It is a pleasure to serve under your direction, Mrs Main. I congratulate Ged Killen on securing this important debate on a matter that is close to my and many of my colleagues’ hearts.
I will begin by looking at some of the statistical indicators for Scotland’s current economic performance, starting with GDP. Scotland’s GDP was 1.7% in 2015, plummeted to 0.2% in 2016 and rose marginally, to 0.4%, in 2017. In comparison, UK GDP was 2.3% in 2015, 1.9% in 2016 and 1.8% in 2017. The employment rate in Scotland in the first three months of 2018 was 75.2%, compared with a UK rate of 75.6%. The unemployment rate in Scotland was 4.3%, slightly higher than the UK rate of 4.2%, over the same period.
Not just now. According to figures provided by the House of Commons Library, the unemployment rate for my constituency of Ochil and South Perthshire is 0.5% higher than the UK unemployment rate. Meanwhile, the Scottish Fiscal Commission’s predicted growth rate for Scotland is 0.7% in 2018, 0.8% in 2019 and 0.9% thereafter until 2022. In comparison, the Office for Budget Responsibility forecast the UK growth rate to be 1.5% this year, 1.3% next year and to rise thereafter to 1.5% over the same period.
The more observant among us will have noticed that for every single one of those economic statistics, Scotland lags behind the UK in terms of economic performance. However, it is not just in GDP, employment and unemployment rates or forecast growth that that is the case. Scotland’s median weekly earnings are also lower than those of the UK. When it comes to small business confidence, Scotland lags about 23 percentage points behind the UK. Meanwhile, Scotland has higher public sector expenditure per head yet lower public sector revenue per head than the UK. Put simply, Scottish taxpayers are not getting value for money from their public sector.
Under the guidance of the SNP, the Scottish economy has grown at half the UK rate. It has failed to meet its targets to match the UK GDP growth rate and succeeded only in overseeing the slowest growth rate of any country in the EU.
Does the hon. Gentleman agree with his right hon. Friend the Secretary of State for Business, Energy and Industrial Strategy that the responsibility for the growth of all the nations of the UK sits firmly with him?
That is why we are having a debate in this place—because growth is the responsibility of the United Kingdom. The problem is the claims of the SNP Administration that they champion economic growth in Scotland. Scottish Enterprise is devolved. Much of the tourism is devolved. The scream for powers has meant that so many levers have been denied to this place and put into Edinburgh. Although I agree that accountability —[Interruption.] If you want to make an intervention, stand up and make one, madam.
The hon. Lady repeats the point, and it is as weak as it was the first time.
The Scottish economy is not forecast to grow by more than 1% at any stage over the next five years. As a result, the Scottish economy will be more than £18 billion smaller by 2022. It is not helped one iota by any devolved power, whereas in this place we have been trying to help the Scottish economy.
Does my hon. Friend agree with the conclusion of the Economy, Jobs and Fair Work Committee of the Scottish Parliament, which includes, I think, four or five SNP Members? It states:
“If we are to reverse this trend then the Scottish Government must use all of the levers at its disposal to bring a sharper focus on growing the economy, and ensuring that growth is inclusive.”
That is something they are failing to do currently.
I thank my hon. Friend for his intervention; I could not agree more. One point on which I do agree with the hon. Member for Rutherglen and Hamilton West is that Scotland has two levels of government—one in Edinburgh and one in Westminster—and they should work together productively to try to improve Scotland’s economic performance, which lags behind that of the UK. As a Member who has just negotiated a city deal for his region, I can say honestly, hand on heart, that the two levels of government are not working well together. The relationship is dysfunctional; it does not work. Powers are being hoarded in Edinburgh and not given down to the local authorities, as they should be.
Productivity is lower than it was in 2010 and the gap between Scottish and UK productivity is wider than it was in 2009. Scotland has the lowest rate of business growth in the UK and is forced to pay the highest business rates in Europe. In addition, the SNP broke a major manifesto promise and raised tax on more than 1 million Scots earning over £26,000, ensuring that Scotland’s wealth creators have less of their wealth to create more through further investment.
We talk about powers a lot in this place; the issue dominates a lot of our debate, but let us be clear. The only power given back was that to vary income tax by 1p, and it was given back to Westminster by the SNP, having originally been devolved under the Scotland Act 1998. The Conservatives do not give away powers; the SNP does. [Interruption.] Between 2010 and 2016, Scotland’s economic growth rate was 1.7%, compared with—[Interruption.]
Scotland’s economic growth rate was 1.7%, compared with 1.9% for the UK, and that was even before Brexit, showing that Scotland’s economy consistently performs worse than that of the United Kingdom.
Last year the SNP Administration set up the Scottish growth scheme—a £500 million fund designed
“to help businesses thrive and grow”.
They have spent only £25 million of that fund. Similarly, they have failed to spend a single penny of the £36 million digital growth fund since it was announced in March 2017. Meanwhile, last Thursday, the Cabinet Secretary for Finance and the Constitution, Derek Mackay, announced that there was a £453 million underspend by the SNP Administration in the last financial year. It is the fourth year in a row that the SNP Administration have underspent their budget. In total, it is more than £1.2 billion that they have chosen to deprive the Scottish economy of since 2014. That is unacceptable.
Meanwhile, my local councils in Clackmannanshire and Perth and Kinross are forced to increase council tax and cut services for our local residents. That means cuts to music tuition, public transport and the upkeep of our paths and roads. It is unacceptable and it cannot go on.
This is not about Brexit. It is about the deliberately dysfunctional devolution overseen by the Scottish National party. The SNP is failing our constituents through its woeful mismanagement of the Scottish economy and its refusal to invest the money that we already have and the money that comes from this place, which should be going directly to our constituents. If they do not want to use the levers of administration to improve the Scottish economy, perhaps it is time to stand aside for the Conservative and Unionist Opposition, who certainly will.
It is a pleasure to serve under your chairship, Mrs Main, for what I believe is the first time. I congratulate my hon. Friend Ged Killen on securing this very important debate.
A key component missing from the plan for the future of Scotland’s economy is an appropriate and robust industrial strategy, on which I will focus my remarks. Neither the UK Government nor the Scottish Government have a coherent strategy for industry in Scotland. As a result, Scotland’s economy is declining. Economic growth has slowed to well below its historical average. It was 0.2% during the first quarter of 2018, according to figures released today. Real wages are lower today than they were in 2010, and closures continue.
One of the areas where the lack of an industrial strategy is clearest is the construction sector. Crummock, a construction firm in my constituency of Midlothian, recently collapsed and its closure led to the direct loss of almost 300 jobs.
Does the hon. Lady share my concern that the industrial strategy that Scotland requires needs a strong, well-functioning and delivering education system? Over the past decade, Scotland’s education system has been undermined to the extent that one in five children now leave school functionally illiterate.
I thank the hon. Lady for her intervention. I absolutely agree that education is a fundamental part of growing industry in Scotland.
The collapse of Crummock in my constituency is just the latest example of the deep problems surrounding the financial health and stability of the Scottish construction industry.
The hon. Lady is speaking very well about the economic challenges that Scotland faces. Does she agree that those challenges would be turned into complete misery for the people of Scotland if the SNP had its way and ripped Scotland out of the United Kingdom?
I thank the hon. Gentleman for his intervention. He will know that I would agree with that.
To focus on the construction industry, the collapse of Crummock is just one of many that we have seen recently, with many job losses, in Scotland. The closure of large employers such as Crummock will have a significant impact on local economies. A number of suppliers and service providers have spoken to me about their worries. A small electrical company and those providing cleaning services have expressed to me concerns about the future of their businesses following Crummock’s closure. Such closures reflect the failure of an economic strategy that is over-reliant on free-market forces, as well as an absence of joined-up Government policy and action, especially in public procurement.
You mentioned the lack of free-market forces. Do you agree with your shadow Chancellor when he says that he wants to overthrow capitalism and bring down Britain’s system of free enterprise? That would mean fewer jobs, less money for public services and untold damage to the Scottish economy. Do you agree with his position?
Thank you, Mrs Main. I think that overthrowing capitalism is a matter bigger than this debate. Perhaps we can debate it some other time.
Crummock’s recent accounts noted that the absence of public sector contracts was the biggest risk to the firm’s future. That includes Scottish Government contracts and local authority contracts, which have been declining as local government budgets are slashed. That suggests the need for an investigation into how public institutions can best use the resources available and better support the construction sector and the wider industry in Scotland. It also suggests that the decline in council revenue funding overseen by the Scottish Government, which has fallen in real terms by 9.6% since 2010, is having a severe impact on Scotland’s local economies.
By contrast, Scottish Labour plans to invest in Scotland’s economy. Labour policy would see £70 billion of investment in industry in Scotland. We would create a national investment bank that would see £20 billion of capital structured in Scotland for industrial strategy and investment. That is the scale of investment required to get the sector to where it needs to be. We need to be investing to the tune of billions of pounds, not just the millions of pounds put forward by the SNP.
Closures in the construction industry have further highlighted the vital need to proactively plan for the sustainable development of our industrial base. Rather than simply reacting to market failure, we must plan ahead. As part of that, the Scottish Government need to properly investigate why well-established Scottish construction companies are collapsing.
The focus of that investigation should include any changes to the way in which banks finance companies. We need to look at why it is taking so long for subcontractors to be paid by client companies, which is another huge issue raised with me. The investigation must also look at office-based workers and administration staff who are affected by construction sector closures. The construction industry already displays the largest gender pay gap. Once again, female workers are disproportionately and adversely affected by the collapse of construction companies.
Another area where there is a clear need for a coherent strategy to support our economy is our struggling high streets. We need to mitigate the effects of RBS bank closures and post office closures. The Secretary of State for Scotland needs to work with the Scottish Government to develop an appropriate industrial strategy for Scotland. Both Governments must work with our local councils and properly fund them, so that our local economies can be supported.
Order. The wind-ups will start at 3.30 pm. I hope not to impose a time limit on speeches. If all hon. Members confine their remarks to about five minutes or less, we will not need one.
East Renfrewshire is home to the thriving small businesses and micro-enterprises that power the British economy while also providing investment and employment for the local community. It is these companies that help make Britain one of the largest economies in the world, which helps provide our vital public services. We have more established names, such as Barrhead Travel and A. C. Whyte, which are based in East Renfrewshire but are world leaders in their sector, as well as dynamic, newer enterprises, such as J&M Murdoch & Son, which was recently recognised in the 2018 London Stock Exchange report, “1000 Companies to Inspire”. The Scottish and UK Governments must prioritise and support those companies and many thousands like them, if we are to encourage investment and continue to grow our sluggish economy.
For too long, however, a high oil price has hidden Scotland’s economic underperformance, allowing Scottish Governments of both colours to neglect fixing the Scottish economy’s fundamentals. Most recently, the Scottish Parliament’s own highly respected Economy, Jobs and Fair Work Committee unanimously agreed a report that stated that in Scotland,
“levels of GDP growth are marginal, productivity low and wages are stagnant”.
Scotland’s major problem, as the hon. Member for Rutherglen and Hamilton West has highlighted, is its productivity, which is at a lower level than it was in 2010. The gap between UK and Scottish productivity is larger than it was in 2009.
The Scottish Government do deserve some credit for setting up the new Scottish national investment bank. Ultimately, however, it was a rehashed announcement of something that has already supposedly been launched multiple times by this tired, separatist Government. If it does come to fruition, it will be a positive step for the Scottish economy, but we will have to wait and see what happens.
Last year, the Scottish economy grew at less than half the rate of the UK and slower than every single EU country. Future predictions are not particularly positive. The Scottish Fiscal Commission forecasts that Scotland will fail to match wider UK economic growth for the next five years. That is really important, because it means less money for the Scottish NHS, Scottish schools and other Scottish public services. It means less money in the pockets of those struggling to get by and businesses taking on fewer staff. It means less money circulating in the local economy, something which contributes to the picture of high streets across Scotland, where local businesses simply cannot continue.
Let us not forget that behind the economic data, this is a real story for people throughout Scotland. Entrepreneurs are risk takers, innovators and wealth creators. They need both our Governments to support them, but too often they are the victims of competing priorities. The UK Government have recognised the importance of increasing productivity with the publication of the industrial strategy, and city deals are an important part of solving the productivity puzzle. The Glasgow city region deal is investing £44 million in East Renfrewshire. I was pleased to visit a number of the projects recently. City deals also demonstrate the benefits of Scotland’s two Governments working together rather than pulling apart—we need a heck of a lot more of that.
Meanwhile, businesses in rural Scotland, including areas such as Eaglesham and Uplawmoor, continue to be hampered by poor broadband—a basic necessity in the 21st century. People across Scotland have been hit with a double whammy, as the SNP Government raise taxes on more than 1 million Scots—22,000 of them in my constituency—on top of significant council tax hikes. Local employers suffer under the highest business rates across Europe. I do not understand why the Scottish Government believe that when 80% of our economy is based in the service sector they can boost economic growth by taking more out of hard-working people’s wallets.
The truth is that the Scottish economy needs a kick. It is flatlining and the Scottish Government’s high-tax agenda may be the final straw. The UK Government have introduced various measures, including the national living wage, personal allowance increases and wider business initiatives, such as the industrial strategy, to help mitigate some of the damage, but they also can and should do more. We need a pragmatic approach and some better joined-up thinking between Scotland’s two Governments. Nine successive quarters of declining activity in the construction sector, for example, is not acceptable. Danielle Rowley dealt well with some of the challenges facing that sector.
Yesterday saw the departure from Holyrood of an Economic Secretary whose legacy is one of declining productivity, skills, job quality and investment, and an economy with one of the lowest GDP growth rates in the OECD. Scotland needs a Scottish Government prepared to invest and give businesses the opportunity and security they so desperately need. Roll on 2021, when we will finally get one.
It is a pleasure to serve under your chairmanship, Mrs Main. I congratulate Ged Killen on securing this important debate. What I am about to say might be slightly more boring than previous contributions to this debate.
I thank the hon. Gentleman for that point. I want to talk about the positive points of the Scottish economy, as well as some of the challenges we face. As always, I will turn hon. Member’s eyes to my constituency in the far north.
First, I want to talk about food and drink. There is no doubt that we have great strengths in the highlands, particularly in my constituency. I will take a leaf out of the book of Douglas Ross and name some distilleries in my constituency, which make the most excellent products: Glenmorangie, Balblair, Dalmore, Clynelish and Old Pulteney in Wick. If we combine that with the quality of food that is offered, all the way from the Cocoa Mountain in Durness, which makes the most delicious hot chocolate, to The Albannach, which has one Michelin star, in Lochinver, and from Luigi’s in Dornoch to Greens Market in Tain, we can offer a really good tourism product. The success of the north coast 500 is based on what we can offer. There is a message for a wider Scotland in that: if we can get these things right, we can boost the local economy.
Does my hon. Friend share my disappointment, in that although the highlands has successes, they could have been so much stronger had the Highlands and Islands Enterprise agency not been so undermined since 2007 by a Scottish national Government in Holyrood determined to centralise everything, including enterprise, and to tie HIE’s hands behind its back ?
My hon. Friend makes a valid point. Let us not forget that the Highlands and Islands Development Board, as it then was, was introduced by Harold Wilson’s Labour Government because, as was said at the time, the highlands were on the conscience of the rest of Scotland. Anything that undermines enterprise today worries me greatly. Highlands and Islands Enterprise did some research some years ago looking at the word “highland” and what it means. It is synonymous with an unspoilt environment with a particularly special culture. In marketing terms, the word “highland” is a strong tool to use.
I turn to slightly more problematic areas. When I was growing up in the highlands, pretty much all my generation left the area to find employment. They went to England, or abroad. Some went to Canada. My father used to say to me, “When you leave school, you will go away to find work.” Then Nigg came to Easter Ross and provided vital jobs. Some years earlier, Dounreay came to Caithness and offered the same, and the historical depopulation of the highlands, in which our brightest and best left, was halted and reversed. I brought up my family in Easter Ross. They went to school there, and that might not have happened if I had not had employment at Nigg.
How do we replace that employment? Hopefully, the price of oil will recover, and Global may yet get the contracts we crave. In the case of Dounreay, we have to work out—for not only the local economy but the Scottish economy—how we replace those jobs with high-quality jobs that build on the skills that we have in Caithness and parts of Sutherland. That is a challenge for the Government. It can be done, but it will require a leap of faith at both Scottish and UK level to say, “Yes, we will put a nuclear reactor at Dounreay,” or “Yes, we will approve putting in a big oil platform construction yard at Nigg.” That is what I am looking for on that front.
We had a debate on upland farming yesterday. We need to add value to the farm product. Again, that is linked into the image of the highlands. Upland farming in any other part of Scotland has a clean environmental image that is crucial to marketing, so thought needs to be given to that.
Our towns’ and cities’ infrastructure has been mentioned. Let us not kid ourselves: we have a crisis in many of our town centres, which are dying before our very eyes. Once thriving high streets have far too many charity shops and similar. The issue of bank closures was touched on by Danielle Rowley. That has in no way helped what has been happening in our Scottish towns. I have made this plea before, but for the good of the economy, we should have some sort of one-stop shop, in which the Scottish clearing banks combine to provide a human face offering services at a counter. At the end of the day, a hole in the wall cannot provide the advice that people need.
The challenge for Government is to modernise banking. I have written several times to the Chancellor of the Exchequer to ask whether a scheme could be introduced to stop the rot in our town centres. In the widest context of the Scottish economy, if our communities and town centres die, it not only shows rot in the economy, but damages our social infrastructure and our cohesion. With the best will and the best of intentions, we can head off those challenges, but we must all work together to deal with them.
It is a pleasure to serve under your chairmanship, Mrs Main. I congratulate Ged Killen on securing this important debate on the future of Scotland’s economy.
Scotland’s GDP continues to languish in the doldrums and is not forecast to grow by more than 1% per year until at least 2023. A critical indicator of an economy’s future success is the overall level of investment. In Scotland, although foreign investment is high, overall investment is low. That is not a healthy picture, and it is not a solely Scottish problem, but one that affects the entire UK economy. It is one of the key drivers of low productivity.
According to World Bank figures, investment in the UK from public and private sources sits at 17% of our GDP, which put us 118th in the world. The United States invests 20% of its economy, and Japan invests 24%. The arguments on the need to improve our levels of investment are well rehearsed, but I would like to focus on the need for a fully functioning, effectively organised UK national investment bank to shape the future of Scotland’s economy, and to invest in enterprise—especially, of course, in Scotland. Let me strike a chord of bipartisanship here. I know the Scottish National party has a plan for a Scottish investment bank, and it is a worthy concept, but I want to advance the case for a UK national investment bank.
Jim McColl is one of Scotland’s most successful business people and we should listen to him. He recently commissioned a report from University College London entitled “A Case for a UK National Investment Bank”, and I recommend it as a thoroughly sound read. I would be very happy to supply every Member of the House with a digital copy of the report, from which I wish to make three quick points. First,
“By making strategic investments and nurturing new industrial landscapes, a modern industrial strategy focused on solving important societal challenges can help to rebalance the economy and reinvigorate the industrial base.”
“This requires not just any type of finance but patient, long-term, committed finance. This can take different forms, but in many countries, patient strategic finance is increasingly coming from state investment banks...By developing new financial tools and working closely with public and private stakeholders, state investment banks can—if structured effectively—play a leading role driving growth and innovation.”
“The European Investment Bank...has long been a key source of finance for infrastructure projects in the UK, financing £7 billion of projects in 2016.”
As we leave the EU, we clearly need to consider options to replace the European Investment Bank.
A national investment bank of the type found in many European countries would ensure the availability of quality patient capital. Entrepreneurs have to have access to patient capital, because they need immediate investment for longer-term returns. If businesses do not have access to that quality of capital in our country, they move to where they can get it. If they do not physically move, the ideas that need to be nurtured by patient capital move, and we see the continuation of the old cycle. Britain, and Scotland in particular, is a magnificent nursery of imagination and creativity. New products and concepts start off on their journey of commercialisation on these shores, but end up being fully deployed and exploited somewhere else. That cycle must be broken for good, and the availability of patient capital is crucial.
The hon. Gentleman mentioned Jim McColl; I met him recently to discuss the future of commercial shipbuilding in Scotland. The example he cites is exactly the point that the hon. Gentleman mentioned. In Germany, they have access to patient finance, and can finance the capital cost of a ship—up to £1 billion apiece—whereas in Scotland there is simply no facility for that. Does he not agree that a Scottish investment bank, although a laudable proposal, would not be on anywhere near the scale needed to achieve the massive industrial growth that we need?
I absolutely agree with the hon. Gentleman. That is why I am advocating, for the future of Scotland’s economy, a UK investment bank. I have had many dealings with Jim McColl, and I agree with the direction of his argument.
Patient capital instils long-term support, builds confidence in the whole commercialisation process from ideation to launch, and fosters the entrepreneurial spirit of our brightest and best. The return on patient capital invested is a measure of financial success, but when it comes to measuring social good, those things are exponentially better.
I prepared a much longer speech on this subject. I know the Minister might refer me to the British Business Bank, but to me it is not really operating to its full potential as an actual real bank. The resource available is too low. It is £200 million a year from the taxpayer for the whole UK economy; that will do little to address the investment shortfall in our economy. Essentially the British Business Bank needs to be reformed to become a real bank with the ability to issue bonds and raise funds.
Finally, in the interests of time—I might have already gone over my time limit, for which I apologise, Mrs Main—I want to ask the Minister a couple of simple questions as we consider the future of Scotland’s economy. Do the Government accept that British businesses and entrepreneurs need an additional source of good quality patient capital—capital that is not currently available in any quantity? What is our Government’s considered view on the proposition that the British Business Bank be converted into a fully functioning national investment bank, on the same basis as the national investment banks in other countries? To agree further with Mr Sweeney, Germany is an example: the KfW is worthy of close examination by the Government, especially as we leave the European Union and have to consider how we will support British businesses—and Scottish businesses in particular—to compete on the global scene.
It is such a shame: I was going to offer some unusual, uncommon praise for Stephen Kerr, with whom I commonly duel across the Chamber, where we fervently disagree. However, his speech today was unusually positive. It may have been slightly off track, as he admitted, but judging by its tone he was at least looking for some opportunity.
I would also almost make an honourable exception of Jamie Stone. Until he took an intervention, which unfortunately did not point out that Highlands and Islands Enterprise still operates exactly as it did in the past, or mention the new south of Scotland enterprise agency to go with it, he was talking about Scotland’s strengths. Otherwise, what a desperate collection of speeches talking Scotland down—
I will not give way just now. We are short of time.
Scotland has strong economic fundamentals. We heard nothing about its vast natural resources, the innovation there, or the talent of our people. Scotland has the most inward investment of anywhere in the UK outside London.
I am going to make some progress.
That inward investment is happening in the face of Tory austerity, during which time the Scottish Government have focused on building an economy of the future—taking measures to unlock innovation and drive productivity. As we have heard today, productivity is the key, but what we have not heard today is how UK productivity has flatlined for the past decade. As economists will agree, productivity is not everything, but it is almost everything, to an economy.
Luke Graham talked about the city deals, but not about how, for example, when one of those deals was put together in Inverness, the Scottish Government put in £135 million and the UK Government—in a so-called partnership—put in only £52 million.
No, I am not going to give way. I am going to make some progress; there is limited time in the debate.
The hon. Member for Ochil and South Perthshire also talked about the Scottish Government having a surplus this year. The Scottish Government work with a fixed budget; they cannot overrun on that. Other Members have mentioned Governments working together, but the present Tory Government cannot even work with the other parties in the Scottish Parliament on Brexit, so how can they be trusted to work with the Scottish Government? The other falsehood—I am sorry, I will take back that word. The other erroneous suggestion made was that Scotland is under a high-tax agenda. That was to forget conveniently that 70% of people in Scotland now pay less tax than they did last year.
The biggest threat to Scotland’s economy comes from the Tory Government’s reckless—[Interruption.]
Thank you, Mrs Main.
The biggest threat to Scotland’s economy comes from the Tory Government’s reckless obsession with a hard Brexit. That is not being challenged by the Labour Front Bench. We have no protection from it. The Scottish Government have put forward, in “Scotland’s Place in Europe” an option to enable Scotland to avoid the worst effects and stay in the single market and customs union. Incidentally, this week the EU chief negotiator Guy Verhofstadt said that that would be entirely acceptable. Scotland is likely to be hammered by a hard Brexit.
No, I am going to carry on, because I have only a minute.
The UK Government are paying no real attention to stimulating the oil and gas industry. Fortunately there is now an upturn in oil and gas prices, and we need investment from the UK Government.
I have much more to say, and as we are the third party in Parliament I should have hoped for more time to say it, but unfortunately that is not the case—
I would not want the hon. Gentleman to misunderstand me. I do not decry the efforts being made by Highlands and Islands Enterprise. However, anyone who thinks that despite its best efforts it is more than a poor shadow of what went before, in the Highlands and Islands Development Board, is in dreamland. Surely hon. Members agree with me about that.
I disagree, and so do many businesses that I interact with in the Highlands on a daily basis.
Production efficiency in the oil sector has risen for the fifth consecutive year, reaching 74% in 2017, demonstrating sustained efficiency improvements and maximising the economic recovery. Oil & Gas UK’s “Business Outlook for 2018” shows growth in investment and a further 5% increase in the forecast production for that year. Recent industry announcements about BP’s successful working discoveries in the Capercaillie and Achmelvich wells and Shell’s redevelopment of the Penguins field demonstrate the investment potential that the UK fields still hold. Over the next decade our oil and gas sector can capitalise on the decommissioning market, which is forecast to reach £17 billion; but that is only if the right decisions on investment are made.
The hon. Gentleman points out the challenges for the oil and gas sector, but on Monday when the Scottish Affairs Committee was taking evidence on the sector in Aberdeen, we heard people saying they wanted fracking to be expanded in Scotland. Does he support the industry in making that call?
I certainly do not support fracking. I do not believe that a country as rich in natural resources and renewable energy as we are—and indeed one with the oil and gas industry that we have at the moment—needs to go for fracking. I absolutely support the ban on fracking in Scotland. [Hon. Members: “There is no ban!”] There is a ban in Scotland. As to an effective ban, a court ruled in the past week that that is the case: fracking cannot go ahead in Scotland under the current situation.
Unfortunately I am a bit late to the debate, but I have been paying attention. I am amazed by the efforts of Conservative Members, in relation to thinking of Scotland as a country. They are the people who want to see Scotland as a region. [Interruption.] They should remember that the Norwegians have an oil fund, whereas they have squandered Scotland’s oil.
Thank you, Mrs Main.
The other issue I wanted to touch on was the opportunity for carbon capture and storage development in Scotland. There is a measure of co-operation between the UK and Scottish Governments, but there is nowhere near the required level of ambition from the UK Government. The rug was pulled out from under Peterhead, where £1 billion of investment was supposed to be put into the carbon capture and storage operation. At the time, that was judged to be just about enough. Now, the UK Government’s overall investment in carbon capture and storage is set to be about £100 million, which is desperately insufficient for the needs of the carbon capture industry, and nowhere near the amount needed to show the ambition that we should be showing to lead that industry. I will draw my remarks to a close, and I thank you, Mrs Main, for allowing me the extra time.
The hon. Gentleman was not on a time limit. With the permission of the Front Benchers, I will take four extra minutes from them and place a two-minute time limit on the last two Back-Bench Members, who have been here for the entire debate.
I will be brief. I congratulate Ged Killen on securing this debate. He started with a tettie point, which was repeated by Drew Hendry. A UK Minister is present to respond on the UK Government’s behalf, and I do not see any problem with that.
The hon. Member for Rutherglen and Hamilton West said that in his speech, he would mention a third way—a Labour way—and I was excited about that, because on Monday night, the small rump of Scottish Labour MPs voted three different ways in the Heathrow debate. Some voted for it, some voted against it, and others joined the Scottish National party in sitting on their hands. In a debate about the future of Scotland’s economy, it is interesting that not a single SNP Member who has spoken or intervened has mentioned their last-minute decision to change their mind about Heathrow on orders from Nicola Sturgeon and to stop the investment into Scotland’s jobs and economy.
The hon. Gentleman spoke for 10 minutes; I cannot take an intervention from him.
SNP Members sat on their hands and abstained, despite talking in the debate about all the positive interventions that would come to Scotland as a result of Heathrow’s expansion.
It is good that some SNP MSPs can speak out against their party. My hon. Friends have quoted a report, “Scotland’s Economic Performance”, by a cross-party committee of the Scottish Parliament and supported by SNP MSPs, which says:
“Levels of GDP growth are marginal;
productivity is low and wages are stagnant.”
No—I will not give way to some Johnny-come-lately.
Eleven years of SNP power in Scotland have resulted in its own MSPs criticising it. We have two Governments in Scotland—a UK Government and a Scottish Government—who should be working together, but all we get from the SNP is its obsession with independence and picking fights with Westminster, rather than standing up for my Moray constituents and others.
It is a pleasure to serve under your chairmanship, Mrs Main. I congratulate my hon. Friend Ged Killen on securing this debate.
After a decade of the Scottish National party and eight years of a Conservative Government, what will the future of Scotland’s economy be? Where are the jobs, the finance and the security for our next generation of young workers as we enter the uncharted waters of life outside the European Union? After a recent trip to Brussels, we were told that Brexit is over. In Europe, we have already left—only the paperwork has to be filled in. Deal or no deal, we are out of the European market.
Section 11 of the European Union (Withdrawal) Act 2018 should have been fixed in time for Scotland’s voice to be heard, but without the SNP’s approval, and with a Tory party that could not make amends or recommendations, the buck was passed to the House of Lords. The SNP could only huff and puff and walk out of the House for five minutes as it was blowing down, with their instructions to walk out following behind them.
I sympathise with the Scottish Government, who, like us, waited on our amendments to section 11. For the Tories to fail to deliver on the will of the Scottish people puts our devolution settlement at risk, with fewer powers and a breakdown between the two Governments.
What will the future of the economy be when we have low wages, fewer working hours, temporary jobs, agency work and, of course—the way to get unemployment figures down—zero-hours contracts? What chance do our Scottish youth have of building a future, securing housing, raising a family or providing for themselves before caring for others? It really is a game of survival. In 2018, it is sad that the only growth and development in Scotland is in food banks.
I will try, Mrs Main. It is a pleasure to see you in the Chair. I thank Ged Killen for securing this spirited debate. Hon. Members have lots of ideas about the Scottish economy, which is always something to welcome.
I take issue with the hon. Gentleman’s analysis of a decade of lost opportunity. It is no coincidence that that decade has also seen Tory austerity writ large and a financial crash caused by the previous Westminster Administration. We have had to put up with the consequences and do the best we can with one hand tied behind our back.
My time is constrained, and there are a couple of hon. Members I want to mention, but I will try to take an intervention from the hon. Gentleman if I can.
I would also take issue with anybody who says that the Scottish National party has a lack of ambition; we could not have more ambition for our country than to take control of all the financial levers to improve the conditions for our people. With the powers of independence, that is exactly what we would do.
Scotland’s economy is performing relatively well on many indicators. It is a country with many economic strengths: it is an attractive place to work, live and conduct business.
The end of property business rates relief in Aberdeen is doing a lot of damage to the business community, which is having, essentially, to knock down buildings. Does the hon. Lady agree that that policy went too far, and that there have been consequences that the Scottish Government did not foresee? Would she recommend that Scottish Government Ministers reverse it?
I am sure that the hon. Gentleman has made those representations to the Minister and that the Minister will take them on board.
We have one of the lowest youth unemployment rates, not just in the UK, but in the whole of the EU. We have been described as the most highly qualified population anywhere in Europe, and we are the most successful part of the UK outside London when it comes to attracting foreign investment. Our exports have gone up 44.7% under the SNP, to more than £29.8 billion in 2016, which is no small feat. Scotland was the only part of the UK where employment went up in the last year.
We have a well-deserved international reputation in a range of growth sectors of the economy, such as life sciences, the creative industries, and food and drink, as Jamie Stone mentioned. Those sectors are an asset to our country. We are also making great strides in renewable energy. Through Scottish Enterprise, we have invested an additional £45 million in business research over the next three years.
There is no doubt that Scotland is a wealthy nation, but challenges remain. Like other advanced economies, we face long-term structural inequality. The Glasgow Centre for Population Health has found that the decisions taken by the Tory Government in the 1980s are still having repercussions. [Interruption.] The post-industrial impact that hon. Members on the Government side are chortling about has had a long-term effect on my constituents and constituents across Scotland.
It is not only possible to grow the economy while tackling that inequality; it is absolutely imperative. The type of growth that is built on the backs of the poorest and most vulnerable, and that comes at the expense of the environment, is almost not worth having.
The OECD estimates that, between 1990 and 2010, rising income inequality in the UK reduced our economic output per head by 9%. Inequality stunts economic growth, and Scotland is no exception. It is time to shift the focus of the debate away from short-term reckless growth and towards a more sustainable model built on inclusion, dignity and respect. Economic choices are not just about the bottom line; they should reflect the society that we want to live in.
My colleagues in the Scottish Government have received international attention for the work they have done so far on inclusive growth. Putting that at the heart of our economic strategy has led to different outcomes in Scotland. We want to make choices such as a Scottish national investment bank, and I am glad that the hon. Members for Stirling (Stephen Kerr) and for East Renfrewshire (Paul Masterton) welcome that. The hon. Member for Stirling mentioned KfW, a bank in Germany that I visited when I was on the Communities and Local Government Committee. It was set up as part of the Marshall plan in 1945. We know that it works, but we have never done the same for ourselves. It makes absolute sense for us to do that, and it is interesting that the hon. Gentleman looks to pinch the Scottish Government’s ideas for the UK. There should be more of that in future—why not?
We are also researching a citizen’s basic income, and we invest in human capital by keeping university tuition free for all. We also pay better in Scotland. We have more living wage employers per head than anywhere else in the UK, and we seek the real living wage, not the Tories’ pretendy living wage, which has age discrimination baked into it. Although the Labour party might wish to have a £10 living wage, it did not give the Scottish Government power over that policy; we asked for the devolution of employment law, and it stood firmly against that.
Like the rest of the UK, Scotland has an ageing population. It is great that people are living longer, but it presents several challenges to our economy—not least an increased old-age dependency ratio. With fewer working-age people in proportion to the number of older people, tax revenues become lower and public spending on pensions and healthcare becomes higher. That makes it more difficult to keep public finances stable for the future. There are two ways to improve the situation. One is to increase labour market participation, which we are trying to do. We have created free childcare services, which are a known driver for getting women into work. Increased female employment has also been linked to higher productivity, to economies that are more resilient to recession, and to a multitude of improvements to health and wellbeing outcomes.
The other way to protect our economy from the problems arising from an ageing population is to increase immigration. The Tories have stood against devolving immigration law to Scotland, despite our particular circumstances, which the hon. Member for Rutherglen and Hamilton West recognised in his speech. Immigration law is a reserved matter. At constituency surgeries every single Friday, I see the impact of a Government keen to decrease immigration and ignore the large net contribution to our economy of those who choose to come and make their home in Scotland. I see the devastating effects of a hostile environment created by a UK Government Home Office hellbent on reducing migration for no economic purpose whatever. That includes the highly skilled migrants group, on behalf of which I have been campaigning. They come here, pay taxes and have not taken a day’s benefits in their life, yet the Government see fit to deport them for making entirely legitimate changes to their tax returns.
At the Home Affairs Committee yesterday, we had experts in. We questioned them on a separate immigration policy. They used the word “shambles” directly to describe having a separate immigration policy in any region of the United Kingdom. Does the hon. Lady agree that the SNP should maybe start listening to experts? We would then see the best outcomes for Scotland.
Coming from the party that regularly likes to run down experts and their views, that is a bit rich. What is a shambles is the situation I see for my constituents week in, week out. Their lives are made an absolute misery by the Home Office. My hon. Friend Stuart C. McDonald has been to Canada and has spoken about how a differentiated immigration policy can work in practice. There is no reason why Scotland cannot do that.
No, I am conscious of time, and I am running out of it. It is estimated that each additional EU migrant working in Scotland pays £10,400 in tax towards our NHS and other public services. The Fraser of Allander Institute at the University of Strathclyde used advanced modelling techniques to estimate the impact of reduced migration after Brexit on Scotland’s economy. In its Brexit scenario, aggregate GDP is 9% lower by 2065, all other things held constant.
If there is one thing that is certain for Scotland after Brexit, it is that all other things will not be held constant. It is estimated by the Scottish Government that leaving the single market—a position backed by both the Conservatives and Labour—will reduce output by 8.5% by 2030, which is equivalent to a loss of £2,300 a year for each person in Scotland. Of course, the UK Government do not agree with the figure, having conducted their own analysis into the impact of Brexit on Scotland’s economy. Their analysis presents an even worse scenario, with output reduced by 9% over the next 15 years.
We are at a crucial point in determining the future of our economy. We have to take into account that we are having Brexit as a result of an internal debate within the Conservative party that got out of hand. Only one party has a clear and meaningful vision for the future of Scotland’s economy: the SNP. We have looked at the issue. We have the Sustainable Growth Commission, a suite of recommendations and a robust plan for the type of Scotland we would like to see. The report calls for more investment to grow Scotland’s economy by increasing population, participation and productivity. Some of that can be done now, but some of it cannot. We require cross-party support for some of the things we want to see, whether that is devolving some of those powers to Scotland to let us get on with the job, or whether it is independence, where we could have the full suite of powers without having one hand tied behind our back. Through that, we could make changes for the benefit of all our population, not just the Tories and their cronies.
It is a pleasure to serve under your chairmanship for the first time, Mrs Main. I start by thanking my good friend and comrade, my hon. Friend Ged Killen, for securing this debate and for making a speech that cut to the very heart of the problems that will face the Scottish economy in the decades to come.
With the impending threat of Brexit and the threat of a second Scottish independence referendum always on the horizon, it strikes me that once again people in Scotland are caught in a vice between two Governments who are absolutely intent on causing them economic harm in pursuit of their own nationalist and constitutionally driven agendas. We have seen that writ large today. It is not about talking Scotland down. In fact, speeches today have reflected the passion that Members have for standing up for their constituents and their economic interests. My hon. Friend Danielle Rowley talked about the real issue of the massive job cuts her constituents face. Calling that “talking Scotland down” does a real disservice to Members in this Chamber.
People in Scotland have been let down on two counts over the past 10 years. First, a UK Government have taken the political choice—I emphasise that it is a choice—to implement austerity. Secondly, a Scottish Government, rather than use the powers they have to alleviate and mitigate those austerity measures, have consistently chosen to use the Scottish Parliament as a conveyor belt simply to pass that austerity on and, indeed, amplify it at the local government level. That is not what the Scottish Parliament was meant to be and not what those of us on these Benches who fought long and hard for its creation envisaged.
We envisaged a Parliament in Edinburgh that would be a bulwark against Tory austerity, would stand up and be counted and would chose a different path. Trends show that the Scottish economy is lagging behind that of the rest of the UK economy in terms of growth, productivity and employment. In 2017, growth stood at just 0.8%, while the Scottish Fiscal Commission predicts that growth will remain at less than 1% until 2024—something that the Fraser of Allander Institute have labelled as “unprecedented in a generation”. It is the slowest period of long-term growth in the Scottish economy in over 60 years.
I would of course like to caveat that with the fact that statistics released this morning show that growth has increased by 0.2% during the first quarter of 2018, which is slightly higher than in the UK as a whole. That news is of course welcome, but I should like to think that everyone in the room today would like to see improvement and would agree that the long-term growth trend remains insufficient. Productivity was mentioned by several Members, and it has dropped by 2.2% in the past year alone. It is a fundamental economic principle that to generate economic growth, a country must increase productivity. To increase productivity, two very important factors must be addressed: investment and an interventionist industrial strategy.
Scotland’s productivity ranks in the third quartile of OECD countries, and the rate of productivity growth in Scotland lags behind that of many of our competitors. To catch up, Scotland must expedite a significant increase in its rate of productivity growth. Achieving the required growth would be truly transformational for the Scottish economy. Increasing Scotland’s productivity to the level of the top quartile of OECD countries would grow GDP by almost £45 billion, which is an increase of 30%. Annual average wages would be more £6,500 higher, which is an increase of 25%. That is the prize if we can address the structural problem.
Just 10 businesses in Scotland account for 45% of all private sector R&D activity in Scotland. Almost 70% of R&D investment is by non-Scottish-owned businesses. Despite higher education R&D rates in Scotland being among the highest in the world, we have seen a significant disconnect between academic innovation and its application by industry in Scotland. There is obvious potential to increase industrial interaction with higher education, and addressing that is a major focus of the innovation centres, such as the advanced forming research centre, that were set up by the last Labour Government.
Much work is still to be done. To match the rate of the top quartile of OECD countries, business R&D investment in Scotland would need to be 90% higher—an increase of £10 billion a year. Companies that are looking to grow are not considering external funding, and that raises questions about the level of growth ambition and whether ambitions can be achieved through internal funding alone. Poor competitiveness in productivity, innovation and capital investment also hinder the scope to drive export sales and grow overall industrial production. Around 60% of Scottish small and medium-sized enterprises trade only within Scotland. Scotland’s exports are also highly concentrated. Just 15 businesses account for 30% of all international exports, and 70 firms account for 50%. Scotland’s key international export markets remain Europe and the USA, with sales to emerging markets relatively low, and five sectors account for 50% of exports in Scotland.
Labour is absolutely committed to addressing the problems we see in our growth and productivity levels, not only in Scotland, but across the entirety of the UK. In our manifesto, we detailed the investment we would make in economic development in the event of a UK Labour Government. In Scotland, that would mean £70 billion over a 10-year period: £20 billion through our proposals to enhance the Scottish Investment Bank, providing patient long-term finance to industry, which Stephen Kerr mentioned; £20 billion through our national transformation fund; and £30 billion that Scotland would benefit from through enhanced Barnett consequentials. If the hon. Gentleman is so enthusiastic about Labour policies, I encourage him to consider crossing the Floor, instead of having to lobby his Ministers for the same policies.
Scottish Labour has also committed to a proper industrial strategy, which has unfortunately been sorely lacking in the UK and Scottish Governments’ plans. Our industrial strategy would generate high-skilled, high-quality, stable employment for men and women. It would encourage a diversification of ownership models and the governance of our industrial base, encourage and actively support the role of trade unions in the economy, and recognise and resource the critical role of innovation in developing sectors of our economy.
Critical to all those pledges is the investment I spoke about. We must recognise that the role of a Government is to be an enabler—part of a triple helix of private entrepreneurs, research-led universities and an entrepreneurial state, assisting where there is potential to develop sectors, create new high-skilled, high-paid jobs, and sustain and grow viable enterprises.
We must never forget the human cost of failing to address those issues, of a stagnating economy that results in unemployment, and of an economy that is propped up by low-skilled, low-paid jobs, meaning that we have the scandalous situation in which 52% of all adults living in poverty in Scotland are in employment. Whether people like it or not, it is a fact that the UK economy is propped up by low-skilled, low-paid jobs. The Office for National Statistics recently indicated that the number of zero-hours contracts has increased to 1.8 million. That is 1.8 million workers across the UK who do not know what their income will be from week to week. Is that really the way we want our economy to function—built on the back of low-paid and insecure work?
That takes me back to the points I made about our industrial strategy. We have been explicit in our desire to ban zero-hours contracts on the basis that they are exploitative and ensure that our economy is skewed in favour of big business while ordinary working people suffer. If we were in any doubt about the truth of that, we need only to look at the Scottish Fiscal Commission’s findings, which state that real wages are lower today than they were in 2010 and are predicted to continue falling this year. It is simply not good enough.
While the UK Government and the Scottish Government bicker over constitutional intricacies, people are struggling to feed their children. According to the Child Poverty Action Group, more than 230,000 children in Scotland live in poverty. Just let that sink in for a second: one in every four children in Scotland is in poverty today. That should shame every single one of us.
We are on the cusp of a great opportunity, with the fourth industrial revolution now under way. One of the great achievements in Scotland under the last Labour Government was to reverse Scotland’s historical population decline, but there is so much more to do. We need to enhance population growth in Scotland. In 1902, the Scottish Registrar General predicted that by 1962 the Scottish population would be 10 million. Clearly we never achieved that, so we have a great opportunity to make up for lost ground.
We are on the cusp of that opportunity. That is why I am proud to stand here today as a Labour MP who can say that when there is a UK Labour Government and a Labour Government in Scotland we will address the inequalities in our society and the structural problems that we have identified in today’s debate. It is time for the UK Government and the Scottish Government to stop burying their heads in the sand when it comes to such issues purely because they are deemed too difficult to deal with.
We are ready to govern this country in a way that works for the many, not the few. If others are not, I have one message: call a general election and let us get on with it, because we are ready to invest in Scotland and to ensure that Scotland’s economy and people do not suffer anymore due to the short-sighted nature of their current Governments.
It is a pleasure to serve under your chairmanship, Mrs Main. I congratulate Ged Killen on securing the debate. I am sorry that he is not as pleased to see me as I am to respond to the debate. I point out to him that, as my hon. Friend Douglas Ross said, I am a UK Minister. I am proud of being part of a Unionist UK Government, and I will work with my colleagues—and colleagues across the Floor—from Scotland just as much as I will work with colleagues from Wales and, indeed, from my own constituency.
No—I have very little time, in fairness, and I want to get through quite a few of the points that have been raised. This has been a very good and lively debate. I said it was a pleasure to be here. At the beginning of it, I was thinking, “What have I walked into?” However, it is a pleasure.
A fundamental change is going on in the global economy that will throw up both opportunities and challenges for Scotland and the rest of the UK. Automation, artificial intelligence, growing digital connectivity and the need to deliver environmentally sustainable growth will profoundly affect the way that we do business, how businesses function and how people work. As we plan for Scotland’s economic future, the UK Government are confident that Scotland is well placed to take advantage of the changes that will affect the entire economy. Scotland is an open and enterprising nation, with some of the best universities and research institutions in the world. As part of the UK, it has a global reputation for welcoming businesses with high standards, respected institutions and a strong rule of law.
It is the job of Government to ensure that business is ready to respond to change, and that is why we have created the industrial strategy, which is incredibly important. Through the four grand challenges that we have identified, the UK can become a global technological revolution leader in clean growth, artificial intelligence and big data, the future of mobility, and meeting the needs of an ageing society—something that Alison Thewliss rightly mentioned.
In all those areas, Scotland can make a fantastic contribution. Edinburgh is becoming one of the UK’s most important clusters for AI and digital technology. My right hon. Friend the Secretary of State for Business, Energy and Industrial Strategy has announced an AI sector deal, bringing around £1 billion of investment through public and industry funding. That will ensure that it is a vibrant sector and has the resources and structures in place to survive.
I am pleased that we have already made an announcement about the construction industry, which Danielle Rowley rightly highlighted. We will report back later in the year, once all the details have been agreed. I am glad that she raised that. Equally, there is the food and drink sector, which the hon. Member for Rutherglen and Hamilton West mentioned.
I am conscious that time is going fast, and I want to respond to some of the issues that were raised. The hon. Member for Rutherglen and Hamilton West talked about a “third way”. We heard that before with the previous Labour Government, which landed us with a £150 billion deficit. This Government have had to work hard to get that deficit down, which has not been easy. The Opposition Front Bencher, Mr Sweeney, said that those are “choices”. It is the reality of ensuring that we have an economy that is balanced and in which people have confidence, so that we can get the investment we need to create the growth that has brought millions of new jobs for people in this country. We are seeing record levels of employment. That is a record of which I am proud.
No, I am not taking any interventions, because I am very conscious of time.
Brexit was also mentioned. I have heard it said time and time again that the Government are hell bent on a hard Brexit. If anything, we are hell bent on ensuring that we get a deal that works for the UK and the EU. I have faith in my right hon. Friend the Prime Minister. She has achieved agreements when the media and people in this House thought that she could not. Let us have faith in her and support her as she goes to the June Council, and I am sure that we will have a Brexit deal that will work.
I agreed with what the hon. Member for Rutherglen and Hamilton West said about the deficit in Scotland. It is concerning that as a share of GDP the deficit is 8.3% in Scotland, compared with 2.4% for the rest of the UK. That needs to be addressed. Not dealing with the deficit really knocks confidence. People in business will not be confident if it is not being dealt with properly.
We also heard about low wages. I remind hon. Members that it was this Government that dealt with the personal allowance, which is benefiting some 2.5 million Scots’ wage packets. We have increased the minimum wage to a living wage—from £5.80, as it was in 2010, to £7.83—bringing £4,000 a year more to the lowest paid in the country. My hon. Friend Luke Graham was right to show the differing figures, comparing the UK performance with the Scottish performance. We on this side are determined to work with the Scottish Government. My right hon. Friend the Secretary of State for Scotland has worked closely with the former Economy Secretary in Scotland. That needs to continue.
Some of the comments that have been made today are absolutely right. We have challenges ahead of us, but we also have opportunities. As we can now develop trading agreements around the world, I want us to expand that for the whole of the UK, so that every part of the UK can benefit. Scotland is as important a part of this nation as any other.
As I said, the hon. Member for Midlothian was right to talk about the construction industry. She talked about overthrowing capitalism being a bigger issue. I would say that, yes, it certainly is—and one that would seriously damage the economy of this country. I hope that people will take note.
My hon. Friend Stephen Kerr talked about a UK investment bank. We are always open to positive proposals to support the economy. The UK Government will consider any such proposal, ensuring that it offers value for money. I will ensure that I raise those points with colleagues in the Treasury following today’s debate.
Drew Hendry said that we were talking Scotland down. We are determined to ensure that our economy works for every part of the UK, and we are working with the oil and gas industry to ensure that there is a sector deal. In the last 10 seconds I have, I say to the SNP that constant talk of independence does nothing to give confidence to business to invest in the UK.
Motion lapsed (