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Windfall from Westminster

Ministers told: use £1bn to boost productivity

scottish economy

Government urged to invest in economy


 

The Scottish government is being urged to invest a £1 billion windfall from Westminster in boosting economic performance.

Scotland is on course to receive the bonus from the UK government as a result of Barnett consequentials from the National Productivity Investment Fund.

The Holyrood Government confirmed the figures in a written answer to Scottish Conservative spokesman on the economy Dean Lockhart.

The answer states that Scotland has already received £110 million and is set to receive £206m this year, rising to £312m and £370m in the years to 2019 and 2020. The total Barnett bonus will be £1bn by 2021.

Last week the SNP made a number of spending promises designed to boost productivity in the programme for government.

Mr Lockhart said: “Yet again the SNP has taken money from the UK to fund its pet projects and eye-catching freebies and dressed it up as nationalist largesse.

“The SNP has totally failed to tackle the problem of low productivity in Scotland or the 11-year stagnation of the Scottish economy.

“The SNP’s obsessive short-termism is damaging the Scottish economy.

“No amount of money can hide that this tired and divided SNP government is out of ideas.

“Scotland’s poor economic performance is nothing to do with lack of money, it’s how the SNP are choosing to spend it.”

Poor productivity adds to Brexit fears

KPMG predicts UK GDP to grow by 1.3% in 2018 and 1.4% in 2019, the lowest rate of growth since 2008 and 2009.

These figures are based on an assumption that the UK government will achieve a relatively friction-free Brexit and transition deal. If a disorderly Brexit were to occur, KPMG predicts a rapid slowing of growth to 0.6% in 2019 and 0.4% in 2020.

The report also finds that Brexit uncertainty is not the only factor inhibiting growth. Poor productivity continues to be a drag, and businesses are finding it increasingly difficult to recruit because of dwindling spare capacity.

The manufacturing sector is still seeing low export levels despite the weakness of the pound, and retailers in particular continue to face a challenging environment. In addition, despite high employment levels, the report predicts workers can expect pay growth of around 3%.

Catherine Burnet, Scottish regional chairman for KPMG, said:Brexit will have a lasting effect on the UK, but economically it isn’t the only game in town.

“Echoing the sentiment of the Scottish Government’s latest Programme for Government, our own discussions with clients continue to raise issues such as improving productivity, reducing regional economic disparity, and ensuring workers have the skills to meet employers’ needs. Bringing productivity growth back to pre-2008 levels alone could see the British economy grow by more than 2%.

“If negotiations between the EU and UK result in a relatively friction-free agreement, then growth is likely to remain around 1.4% in the medium term as a result of relatively weak productivity.

“If we see a disorderly Brexit, growth will obviously slow more dramatically. If negotiations end well, the Monetary Policy Committee (MPC) are likely to raise interest rates to 1% at the tail end of 2019. If no deal is reached, the MPC will need to use interest rates to soften the economic impact.”

Private sector expands

According to the latest Royal Bank of Scotland PMI, private sector businesses expanded activity sharply in August.

New order receipts remained favourable, leading to a third monthly rise in backlogs of work. Firms continued to hire additional staff, but the rate of increase slowed to a mild pace.

Higher workforce numbers in conjunction with sterling weakness contributed to a further sharp rise in operating costs. Subsequently, output charges rose. 

Growth has accelerated in each of the past five months, and the latest figure was indicative of the strongest pace of expansion for just over four years, said the bank.

Scottish private sector firms recorded positive sales performances in August. New business expanded solidly and at a faster rate than the UK average, despite growth easing to a three-month low. Demand conditions were notably more favourable in the crucial service sector, however, while order book volumes in the manufacturing sector rose only mildly.

The backlog of work at Scottish private sector companies rose midway through the third quarter. The rate of accumulation, albeit only modest, was the second-strongest of all 12 monitored UK regions.

 

 



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