Hansard

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.