Chamber
Meeting of the Parliament 19 September 2013
19 Sep 2013 · S4 · Meeting of the Parliament
Item of business
Scottish Economy
It is now five years since Lehman Brothers collapsed and the United Kingdom, along with much of Europe, tipped into recession. No one should underestimate just how challenging those years have been for the Scottish economy. Construction output fell by almost a fifth, and our gross domestic product fell by 5.6 per cent from its peak in quarter 2 of 2008 to its trough in quarter 4 of 2009. That is a smaller fall than in the UK, where GDP fell by 7.3 per cent, but there have still been severe impacts for Scottish businesses and Scottish families.
The recession called for dramatic action and for a serious response to the problems of the economy by those who had their hands on the levers of economic growth. Unfortunately, our recovery in Scotland has been hindered by the actions of the United Kingdom Government. In 2010, the chancellor had a choice, but instead of following our advice to invest in infrastructure, he cut capital expenditure. That decision has had a significant and negative effect on our economy. Had capital spending been maintained at 2009-10 levels, that would have produced cumulative increased investment of £7 billion over the five years to 2014-15, supporting 19,000 jobs in each of those years. It could have supported hard-pressed sectors such as construction, maintained skills and supported confidence.
Countries such as Germany, the United States, Sweden and Norway took a different approach and have now all passed their pre-recession levels of output. The UK, on the other hand, is still 3.2 per cent below its pre-recession peak, almost five years since the recession began. In my view, a key reason for that is the approach that the United Kingdom Government has taken in establishing the wrong balance on fiscal consolidation, and the difficult impact on capital expenditure in the Scottish and United Kingdom economies.
In recent months, however, there have been indications of a brightening economic outlook. Gross domestic product in Scotland grew by 1.2 per cent over the four quarters to 2013 quarter 1, compared with growth of 0.3 per cent for the UK as a whole over the same period. Construction, production and services all experienced growth over the year to the first quarter of 2013.
There have been improvements in the labour market. Data that were released last week showed that employment had increased by 45,000 over the year, with unemployment falling by 19,000 and inactivity falling by 20,000. Scotland now has a higher employment rate and lower unemployment and inactivity rates than the United Kingdom.
Employment has increased by 98,000 since the start of 2010. However, we accept that unemployment and underemployment are still too high and are factors that are too significant in our economy. There has been a fall of 12,000 in youth unemployment in the past year and Scotland’s youth employment rate of 57.2 per cent is higher than the UK’s rate of 49.8 per cent.
Business surveys point to an improving outlook, into the bargain. Last week, the Bank of Scotland Purchasing Managers Index indicated that private sector output continued to expand in August, and at the fastest rate in the survey’s history. The PMI, along with the recent Bank of Scotland labour market barometer, pointed to continuing strengthening in the labour market. The Federation of Small Businesses’ most recent index also shows improving levels of confidence among Scottish small business.
Just last week, the world university rankings placed three Scottish universities in the top 100 in the world, with Edinburgh in the top 20.
Those are positive developments, but we must keep in mind that the recovery remains in its early stages. As the Scottish Government’s chief economist noted in the recent state of the economy report, alongside the positive recent developments in the global economy there are still a number of risks that we have to manage. In particular, we need a sustained upturn in demand to generate employment opportunities for all our citizens.
Last week, I set out the Government’s draft budget, which shows that we are focused on accelerating recovery by supporting investment and taking direct action to boost employment, create economic opportunity and enhance business confidence, and that we are taking steps to rebalance the economy through boosting innovation, internationalisation and the transition to a low-carbon economy.
As I indicated, the UK Government’s spending plans have significantly affected our ability to support capital investment in Scotland. Our capital budget has been reduced by 26 per cent in real terms between 2010-11 and 2015-16. Despite that, we have been able to make real progress on improving Scotland’s infrastructure.
The recession called for dramatic action and for a serious response to the problems of the economy by those who had their hands on the levers of economic growth. Unfortunately, our recovery in Scotland has been hindered by the actions of the United Kingdom Government. In 2010, the chancellor had a choice, but instead of following our advice to invest in infrastructure, he cut capital expenditure. That decision has had a significant and negative effect on our economy. Had capital spending been maintained at 2009-10 levels, that would have produced cumulative increased investment of £7 billion over the five years to 2014-15, supporting 19,000 jobs in each of those years. It could have supported hard-pressed sectors such as construction, maintained skills and supported confidence.
Countries such as Germany, the United States, Sweden and Norway took a different approach and have now all passed their pre-recession levels of output. The UK, on the other hand, is still 3.2 per cent below its pre-recession peak, almost five years since the recession began. In my view, a key reason for that is the approach that the United Kingdom Government has taken in establishing the wrong balance on fiscal consolidation, and the difficult impact on capital expenditure in the Scottish and United Kingdom economies.
In recent months, however, there have been indications of a brightening economic outlook. Gross domestic product in Scotland grew by 1.2 per cent over the four quarters to 2013 quarter 1, compared with growth of 0.3 per cent for the UK as a whole over the same period. Construction, production and services all experienced growth over the year to the first quarter of 2013.
There have been improvements in the labour market. Data that were released last week showed that employment had increased by 45,000 over the year, with unemployment falling by 19,000 and inactivity falling by 20,000. Scotland now has a higher employment rate and lower unemployment and inactivity rates than the United Kingdom.
Employment has increased by 98,000 since the start of 2010. However, we accept that unemployment and underemployment are still too high and are factors that are too significant in our economy. There has been a fall of 12,000 in youth unemployment in the past year and Scotland’s youth employment rate of 57.2 per cent is higher than the UK’s rate of 49.8 per cent.
Business surveys point to an improving outlook, into the bargain. Last week, the Bank of Scotland Purchasing Managers Index indicated that private sector output continued to expand in August, and at the fastest rate in the survey’s history. The PMI, along with the recent Bank of Scotland labour market barometer, pointed to continuing strengthening in the labour market. The Federation of Small Businesses’ most recent index also shows improving levels of confidence among Scottish small business.
Just last week, the world university rankings placed three Scottish universities in the top 100 in the world, with Edinburgh in the top 20.
Those are positive developments, but we must keep in mind that the recovery remains in its early stages. As the Scottish Government’s chief economist noted in the recent state of the economy report, alongside the positive recent developments in the global economy there are still a number of risks that we have to manage. In particular, we need a sustained upturn in demand to generate employment opportunities for all our citizens.
Last week, I set out the Government’s draft budget, which shows that we are focused on accelerating recovery by supporting investment and taking direct action to boost employment, create economic opportunity and enhance business confidence, and that we are taking steps to rebalance the economy through boosting innovation, internationalisation and the transition to a low-carbon economy.
As I indicated, the UK Government’s spending plans have significantly affected our ability to support capital investment in Scotland. Our capital budget has been reduced by 26 per cent in real terms between 2010-11 and 2015-16. Despite that, we have been able to make real progress on improving Scotland’s infrastructure.
In the same item of business
The Presiding Officer (Tricia Marwick)
NPA
Good afternoon. The first item of business is a debate on motion S4M-07734, in the name of John Swinney, on Scotland’s economy.
The Cabinet Secretary for Finance, Employment and Sustainable Growth (John Swinney)
SNP
It is now five years since Lehman Brothers collapsed and the United Kingdom, along with much of Europe, tipped into recession. No one should underestimate ju...
Willie Rennie (Mid Scotland and Fife) (LD)
LD
I am glad to see that the cabinet secretary made it back from Culloden. The cabinet secretary has made a lot of play of the difference between the economic s...
John Swinney
SNP
The outcomes are not the same. As I just said to Parliament, Scotland’s GDP grew by 1.2 per cent in the four quarters to quarter 1 in 2013, while UK growth w...
Margo MacDonald (Lothian) (Ind)
Ind
I ask the minister—urge him, even—to let Mr Rennie explain why not.
John Swinney
SNP
Mr Rennie has made his contribution and I am sure that we will hear from him later.Willie Rennie rose—
John Swinney
SNP
Let us have another intervention from him now.
Willie Rennie
LD
How does Mr Swinney explain last month’s rise in unemployment? How does that tie in with his improvement in Scotland?
John Swinney
SNP
Month-by-month factors clearly affect the employment rate, which is why the Office for National Statistics suggests that it is valuable to compare annual sta...
Margo MacDonald
Ind
Will the minister give way?
John Swinney
SNP
I will give way one more time.
Margo MacDonald
Ind
Does Mr Swinney expect that, after the election, the incoming Westminster Government will cut a bit more?
John Swinney
SNP
We have heard that suggestion from the Office for Budget Responsibility and the UK Government, which gave clear indications during the spending round at the ...
Gavin Brown (Lothian) (Con)
Con
Given the figures that the cabinet secretary has and those that he has published, does he think that we will be in a stronger position over the next five years?
John Swinney
SNP
The debate around that point was reflected in the various scenarios in this morning’s report from the Institute for Fiscal Studies. The analysis that the IFS...
Ken Macintosh (Eastwood) (Lab)
Lab
Is control of interest rates one of the levers that Mr Swinney is talking about?
John Swinney
SNP
As Mr Macintosh well knows, no country that Scotland would compare itself to as a developed western European economy has interest rates that are under politi...
The Presiding Officer
NPA
I now call Iain Gray to speak to and move amendment S4M-07734.1. Mr Gray, you have 10 minutes.14:45
Iain Gray (East Lothian) (Lab)
Lab
Thank you, Presiding Officer.What could be more timely than a debate on the economy? After all, a recent opinion poll told us that the majority of Scots thin...
Patrick Harvie (Glasgow) (Green)
Green
Given that glowing list of attributes that we enjoy in the current climate, what on earth has been going wrong all these years—even before the recession—with...
Iain Gray
Lab
Mr Harvie’s question is really a question about political will. Interruption.
The Presiding Officer
NPA
Order.
Iain Gray
Lab
If Mr Harvie looks at the poverty statistics, he will see that the gap reduced between 1997 and 2007 but has now stopped reducing. It is political will that ...
Margo MacDonald
Ind
I take everything that the member said about Slovakia and the Czech Republic, but has he checked on the position now?
Iain Gray
Lab
I certainly checked on the facts that I have just given. Those are the things that happened when those countries separated.Even renewable energy—the SNP’s pa...
The Presiding Officer
NPA
Order.
Iain Gray
Lab
I even believe in our capacity to listen to other people’s ideas. I believe that we are good enough and smart enough and should be determined enough to seize...
The Minister for Energy, Enterprise and Tourism (Fergus Ewing)
SNP
Will the member take an intervention?
Iain Gray
Lab
I am sorry; I think that I have taken enough.We have the best of both worlds, and our obligation is to make the most of it. That is what the Scottish people ...
Fergus Ewing
SNP
Will the member give way?