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Economy Q&A: Was there anything else you expected to see in the Scottish budget – and what advice would you offer the Finance Secretary?

Economy Q&A: Was there anything else you expected to see in the Scottish budget – and what advice would you offer the Finance Secretary?

Professor Charles Nolan, Professor Julia Darby, Professor Ronald MacDonald, Professor Jeremy Peat, Professor Catia Montagna - Image credit: Holyrood

Was there anything you expected to see in the Scottish budget that wasn’t there?

Professor Julia Darby, Head of Department of Economics and Fraser of Allander Institute, Strathclyde Business School:

The Scottish Government is pinning a lot of hope on the new National Investment Bank. There have been a number of false starts over the years in trying to establish such an institution. The budget was sparse on detail on how the bank will be run, how it will be funded, where it will invest, and how it will differ from the British Business Bank.

Further details are due in 2018. Beyond their current ‘vision statement’, the government urgently needs to set out the key focus and a detailed delivery plan for the National Investment Bank.

Professor Jeremy Peat, Visiting Professor, University of Strathclyde International Public Policy Institute:

I would really have liked to see an even stronger acceptance of the importance of regaining productivity momentum, along with clarity as to how the government planned to develop its strategy to achieve that end. This will require close contact with employers and the trade union movement.

Why is business investment so weak? What could our government do to encourage greater investment? Are the skills needed by business readily available, and if not, why not, and what are the key gaps? Why is it that Scotland is a world leader as far as HE investment in R&D is concerned, but in the remedial class for business investment in R&D? Have we focused unduly on higher education – in isolation rather than as an integrated past of our economy – to the detriment of our economy in the broad?

What can be done to encourage innovation in and by business? Why do many of our businesses grow so far and no further? Is there a key funding gap for business investment and if so, why and what? Why not agree to work intensively with CBI, IoD, STUC, FSB, the Chambers of Commerce and the like to examine evidence and access informed opinion and work towards the best way(s) forward?

If you could offer the Finance Secretary one piece of advice on the Scottish economy, what would that be?

Professor Julia Darby, Head of Department of Economics and Fraser of Allander Institute, Strathclyde Business School:

In a world of heightened economic uncertainty, it is incumbent on the Scottish Government to be much more up-front in setting out and explaining its long-term plans for Scotland’s public finances and taxation.

While some may not like paying more tax, if they can see a clear strategy for how their tax bills will evolve over the years ahead, and most importantly, where the collected revenues will be invested and what results can be achieved, the more confidence they will have in the government’s plans for the economy. 

Professor Jeremy Peat, Visiting Professor, University of Strathclyde International Public Policy Institute:

Please do not leap to the conclusion that the salvation of our productivity and business investment problem lies solely in the creation of a Scottish National Investment Bank (SNIB).

Unless the Finance Secretary has satisfactory, evidence-based answers to many of the questions posed above, he and his colleagues will not know what type of SNIB (if any) to establish, how it should be staffed and with what governance structure, and where any scarce resources allocated to SNIB should best be deployed. They will not be able to reach an informed view as to how a SNIB should inter-relate with the likes of the evolving enterprise network and Scottish Futures Trust. Public sector resources are becoming increasingly scarce.

Certainly we really need more business investment and cannot allow market failure to leave us with critical finance gaps. But we need to better understand why investment and innovation are so weak, and what market gap or gaps might be involved, before rushing to a solution.

Professor Catia Montagna, Chair in Economics, University of Aberdeen:

Make greater use of Scotland’s fiscal powers. The fragility of the Scottish economy reflects an ongoing aggregate demand deficiency resulting from falling private investment, low consumer confidence and reductions in government spending resulting from fiscal austerity.

The only way to stimulate growth and improve public finances in the longer term is for the government to step in to invest in skills, in education, in infrastructure and in public services. This cannot be done only via the reallocation of expenditure across categories in a cost neutral (or balanced budget) manner. And since the Scottish Government (unlike the UK Government) cannot borrow, greater expenditure can only be funded via higher taxation. 

Amid concerns about Scotland being perceived as a high taxation economy, the Scottish Government has been reluctant thus far in using its new fiscal powers. But higher taxation does not need to undermine growth and make the country less attractive to investors if the tax revenues are used to stimulate and sustain a productive and growing economy.

Professor Ronald MacDonald, Research Professor of Macroeconomics and International Finance, University of Glasgow:

Given Scotland is a small open economy, with high mobility of both capital and labour, it is crucially important that taxes on both capital and labour are competitive with our trading partners.

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