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R&D remains low

Public sector to spur growth in Scotland

Lindsay GardinerThe public sector is likely to be the spur to Scotland’s employment growth in the coming years, according to PwC’s latest UK Economic Outlook report.

Although  it is poised to outperform Wales, Northern Ireland and the North-East in economic output,  growth will remain below the UK average.

Aeas of concern include Scotland having below average growth in employment and business formation as well as lower spending on research and development in future industries, says the report.

Nevertheless, in line with the rest of the UK, education, health, and business services will lead the way, and collectively could add over 2.5 million jobs by 2025. However, the number of jobs in manufacturing could fall by a further 600,000 to around two million by 2025 as new automated technologies continue to boost productivity at the expense of employment and overseas competition remains fierce.

Around 150,000 jobs could also be lost in public administration, defence and social security as austerity measures continue at least until 2020.

Lindsay Gardiner, regional chairman for PwC in Scotland, said: “It is not only promising to see Scotland continuing to grow but also to look ahead and see education and health set to be large employment sectors. These are areas where Scotland is well poised to be incredibly disruptive over the coming years and make a huge difference.

“You just have to look at the impact companies in Scotland are already having to see the potential of what is possible.

“An area of concern for Scotland though – as has been highlighted in this report and our previous work with the Fraser of Allander Institute – is the low spending on R&D. Now, this in part reflects the decline of manufacturing, where there has traditionally been high spending in R&D, but as we transition to a more digital and flexible economy, we need to accept that spending in R&D must be far higher in all sectors to encourage growth.”

Scotland’s GDP is projected to grow by 1.8% of GDP in 2016 – below the UK average of 2.2% and far behind that of London at 3.1% – but ahead of Wales (1.7%), Northern Ireland (1.4%), the North-East of England (1.7%) and West Midlands (1.6%). Scotland just lags behind Yorkshire (1.8%) and the North-West and Midlands (both 1.9% respectively).

Where Scotland performs strongly is in terms of GVA per head of population – the measure of the value of goods and services provided – where it is second only to the London and the South-east.

A Grant Thornton study shows London continues to dominate the UK economy, accounting for 22.8% of economic output last year. While Scotland’s output is among the next highest it still lags behind at 8.7%.

It says one possible cause is the country’s current export outlook. The Scottish and UK Governments have placed increased emphasis on exporting in recent years, but Scotland’s share of total UK goods exports last year was only 6%,.

Grant Thornton’s research highlights that this could be – at least in part – down to the reluctance of smaller firms to explore export opportunities. London has about 10 large or medium sized companies per 10,000 adults compared to just 6 per 10,000 in Scotland.

Kevin Engel, Managing Partner of Grant Thornton in Scotland, said: “Today’s research backs up what we’ve been saying for some time now. Scotland’s economy has been pretty resilient in the face of global uncertainty, but much of the growth sits on fairly shaky ground. The data suggests there is a clear imbalance between London and everywhere else, and while Scotland performs far better than most other regions, there is still much to do to rebalance our economy with the British capital.

“We need to build on our positive employment figures and increasing exports. With no short-term end in sight for the Oil and Gas downturn, there’s no time like the present for business and government leaders to come together and collaborate to stimulate long term, sustainable growth.”

 

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