The Huddle: How do you expect the Scottish economy to change over the next five years?

As we chew over the details of the Scottish budget, Holyrood asks a panel of experts: How do you expect the Scottish economy to change over the next five years and what can the government do to help?

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

Given the looming black hole in Scotland’s public finances, the Scottish economy urgently needs to be rebooted back onto a healthy growth trajectory, and this will involve an economy-wide rebuilding of basic of skills and human capital, bolstered by a significant improvement in Scotland’s R&D spend and innovation performance. To support this, improved efficiency in the provision of public services will be necessary, particularly in the health and social care sectors, backed by the rebuilding of social capital thereby restoring societal trust, the ‘glue’ that is essential for a flourishing society. For government to support such changes, a radical reworking in its funding formula will be required and its financial mindset altered to one based on an efficient use of public funds. Decentralisation of political and economic power from Holyrood to the regions, along with the necessary local financial resources to support such change, will be critical to the overall process.

Stephen Boyd, director, IPPR Scotland

The only certainty about Scotland’s economic future is that it is frustratingly uncertain. But it’s difficult not to be gloomy about Scotland’s medium term economic prospects. Challenges around the public finances will intensify. Demographics and immigration constraints will conspire to exacerbate labour supply problems. The productivity dividend promised by AI advocates is likely to remain elusive. Global geopolitics will continue to threaten investment and growth.

Yet there are undoubtedly significant opportunities in emerging low carbon sectors and in areas where Scotland has long excelled, such as finance and business services and the creative sector.
To realise these opportunities, the Scottish Government needs to start again on economic policy. Scrap the muddled, overlong and widely ridiculed National Strategy for Economic Transformation. Make a serious effort to nurture a national consensus on economic development. Start to confront the difficult decisions and trade-offs that are unavoidable in the development and implementation of successful economic strategy. Not every job or industry can be protected.

Mairi Spowage, director, Fraser of Allander Institute

In five years’ time Scotland’s economy could be shaped most by whether the energy transition becomes a driver of jobs and investment or a source of lost opportunity. Offshore wind and grid upgrades could anchor a new industrial base in ports, fabrication, engineering services and long-term operations and maintenance – if projects move quickly enough and local supply chains win contracts. If not, Scotland risks, despite huge amounts of renewable energy generated here, higher-value activity and skills migrating elsewhere, leaving parts of the north east facing a sharper, more uneven adjustment as oil and gas work declines. The next few years are decisive: stable market signals, faster consenting, investable grid and storage plans, and clear workforce pathways would support a just transition that retains capabilities and lifts productivity across manufacturing and services. Whilst many economic levers here are reserved, the Scottish Government will need to actively collaborate with the UK Government – and give the same signals to attract investors – to grasp this economic opportunity. 

Aileen McLeod, director, Wellbeing Economy Alliance Scotland (WEAll Scotland)

Support for change to Scotland’s economy is growing. People are calling for an economy that delivers good lives for all while protecting our planet. This means moving towards an economy anchored in the five needs of a wellbeing economy: dignity, fairness, nature, purpose and participation. To achieve this, WEAll Scotland and its members are calling on the next Scottish Government to convene a citizens’ assembly to create a new economic strategy and turn this strategy into action. This should include rolling out a minimum income guarantee to ensure we all have what we need to live with dignity and enshrining a human right to a healthy natural environment in legislation, as well as scaling up support for community wealth building and inclusive business models, alongside investing in multi-purpose spaces in every community in Scotland. Read our manifesto on the WEAll Scotland website (weallscotland.org) to see how to deliver an economy that puts people and planet first.

Naomi Mason, Head of Scotland, Centre for Local Economic Strategies

Our economy isn’t serving the people of Scotland. Inequality is baked into the system, and there is little evidence that change is coming. So over the next five years Scotland’s economy is likely to continue growing unevenly as it faces the headwinds of external pressures. Sectors such as renewable energy, care and technology will grow, while inequality and insecure work will worsen. Scottish Government measures do not sufficiently address the root problem: divides between people and places, and the removal of wealth from the communities that create it.
We shouldn’t simply accept that poverty, inequality and environmental degradation are worth the price of a growing economy. We need to actively reshape the economy to serve people, place, planet and our collective wellbeing. We need politicians to use public spending to support democratic ownership, local supply chains, fair work and wellbeing. Community wealth building legislation will be the first step.

David Waite, senior lecturer, Urban Studies, University of Glasgow

Scotland’s economic prospects depend on its city regions working effectively, supported by clearer policy alignment between the UK Government, the Scottish Government, and local authorities. The UK Government influences the policy environment for regional development, while the Scottish Government’s devolved responsibilities – such as skills and inward investment – directly shape city region settings. Local authorities and regional partnerships contribute essential place-based insight and delivery capacity, drawing on collaboration developed through city region deals. Because Scotland has a distinctive devolved governance system, future city region arrangements cannot simply be imported from elsewhere; they must carefully balance and reflect the tripartite governance structure in effect. A tiered framework for regional policy – reflecting the varying capacities of different city region bodies across Scotland – would help to secure a more coherent, tripartite approach. Additionally, forward-looking local growth plans can bolster multi-level working around agreed commitments, while the emerging UK industrial strategy presents an opportunity to constructively shape policies for Scotland’s city regions.

Sarah Chisnall, director of Public Affairs, Icas

Our members are running and working in all kinds of businesses and organisations and so are uniquely placed to see what the economy needs, and they tell us that they don’t have confidence in the Scottish economy. We’re currently conducting a post-budget survey of members and non-members, and over 77 per cent of respondents so far say they don’t have confidence in the health of Scotland’s economy, with only six per cent feeling confident. Further to that, 83 per cent disagree that the current Scottish tax system is beneficial to our economy, with only eight per cent believing it’s of benefit. 

Icas wants to see a long term economic and tax strategy for Scotland, and a government commitment to look at sustainable public finances for the next two to three decades. Without long term, meaningful change we can’t address the much bigger picture of Scotland’s long-term economic challenges. Respondents to our survey also tell us they want to see greater emphasis on vocational skills and workplace learning, and more support for the professional services sector.

Laurie Macfarlane, co-director, Future Economy Scotland

For nearly two decades Scotland’s economy has been trapped in a cycle of weak growth, stagnating living standards, and deteriorating public services. 
The industries that once powered prosperity are now mature or in decline, while Scotland’s industrial base continues to shrink. Scotland will not escape this cycle over the next five years through minor tinkering. Instead, we need to start building a new economic model for the 21st century. The pathway is clear: a just transition to net zero. This is not just a climate imperative, but Scotland’s greatest economic opportunity. With the right ambition and delivery, Scotland can rebuild supply chains, create well-paid jobs, and support Scottish firms to compete globally. But this cannot be wished into existence – it requires wholesale changes to the way that policies are delivered and resources are allocated. In other words: Scotland needs a more ambitious industrial strategy, and it needs one now.

Sam Taylor, chief executive, These Islands

The politics of net zero will be pivotal to Scotland’s economic performance over the next five years. If the government is to play a helpful role, politicians (from all parties) must learn how to think about return on capital – perhaps the most important but least understood concept in the politics of energy in Scotland. We are moving from high return on capital businesses – oil and gas – to low return on capital businesses – renewables. The energy transition, and Scotland’s opportunities on that journey, cannot be properly understood without grasping the significance of this point. Glib assertions about Scotland having won the energy lottery twice over – first with oil and now with renewables – are not just false. They are actively harmful. 
Renewables are a good thing, but they are not a lottery-style windfall. The sooner politicians appreciate this, the better our chances of achieving the fabled just transition.