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Economy watch: Executive should follow Scotland model

By Esmond Birnie

Published 09/06/2015

Esmond Birnie, PwC chief economist
Esmond Birnie, PwC chief economist

Last year's Scottish Independence Referendum and May's General Election focused the spotlight on Scotland and the nation's seeming willingness to take much greater responsibility for tax raising and fiscal management.

That infers no small measure of confidence in the performance of the Scottish economy so, how far do the long run performance and prospects of the Scottish economy differ from those of the rest of the UK?

In fact, over the half century since the early 1960s Scotland's GDP growth has been very similar to the UK average. Personally, as someone born in the "land of Adam Smith", one of the frustrations of the recent political debates was that no party gave much attention to how to raise that long run growth rate.

What is - or at least what should be - of great interest to Northern Ireland is that in March 2015 the Scottish Government published its economic strategy, which we can compare to the one the Executive published back in March 2012.

Unsurprisingly, there are similarities. The Scottish strategy aims for "…a more successful country, with opportunities for all of Scotland to flourish, through increasing sustainable economic growth". The Executive's strategy had a vision of: "An economy characterised by a sustainable and growing private sector, where a greater number of firms compete in global markets and there is growing employment and prosperity for all."

In fact, the baselines for the two strategies do differ, as the following table illustrates - see Table 1.

The areas in which we could learn from the Scottish Strategy include:

1. Productivity

Scotland's productivity (GDP, or gross value added, per worker or per hour worked) actually increased slightly relative to the UK average since the mid-2000s. In Northern Ireland, relative productivity has fallen. Northern Ireland now has no official target to improve productivity (the 2011-15 Programme for Government, unlike the previous programme, had no target). Scotland, in contrast, does have a target based on international rather than UK benchmarks to move into the top quarter of Organisation for Economic Co-operation and Development (OECD) performers.

2. Inclusive growth

The Scottish strategy is emphatic that greater competitiveness and equality of opportunity can be realised together. They are, argue the Scots, mutually reinforcing, based on studies produced by, for example, the IMF and OECD. These emphasised how much better health and educational outcomes and hence GDP per head were in more equal societies. Might the Northern Ireland Executive consider this approach to setting targets for economic policy? At the same time, the Scottish strategy will face challenges and possibly trade-offs as its attempts to achieve balanced growth at the sub-regional level. The extent of geographical inequality in Scotland is as great as in Northern Ireland and may even be greater: the richest and poorest sub-regions of Scotland and Northern Ireland, levels of GVA per head in 2013 (as percentages of the UK average) - see Table 2.

3. Performance measures

The Scottish strategy is set in the context of "Scotland performs", the National Performance Framework. By looking at the Scottish Government website ( one can very quickly see how outcomes compare against targets for 50 indicators. The Northern Ireland Executive has provided a strategic online report on the outcomes of the 2011-15 Programme for Government but it is much more difficult to get a sense of whether performance is on track or not.

4. Corporation tax

It is obviously interesting to note the Scottish Government's position on corporation tax. With reference to the Scottish Parliament possibly acquiring such powers the strategy says: "…we have no intention to engage in a 'race to the bottom' ... we will use these powers to create long-term competitive advantage… by using targeted changes in tax allowances to encourage higher levels of investment in capital or R&D, and encourage the growth of SMEs."

Apart from an element of keeping their options open, what the Scottish Government may have recognised is that it is not just the headline tax rate which matters but other aspects of the way the tax is framed.

In summary therefore, setting aside the difference in actual economic performance between the two regions, the Scots have linked economic growth to social inclusion, set clear and measurable performance targets and, above all, recognised that driving up productivity is the real prize that creates wealth, sustainable employment and improved social outcomes. When it comes to the next Programme for Government, the Executive could do worse than emulate that.

Esmond Birnie is chief economist with PwC

Belfast Telegraph

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