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Academics question report

Higgins: Scotland needs £6bn for Covid recovery

Benny Higgins

Benny Higgins: ‘few opportunities for policy autonomy’ (pic: Terry Murden)

Former banker Benny Higgins admitted Holyrood would need to raise up to £6 billion for Scotland’s economic recovery after publishing a report that drew heavily on Scotland’s dependency on Westminster.

Acknowledging that the Scottish government is “entirely dependent on UK spending decisions”, the report by a group of eight advisers led by the former Tesco Bank boss raised more questions about the ability of Holyrood to cut through tensions with the UK government.

“Even though Scotland now raises a large portion of its budget through Scottish income taxes there are limited opportunities for policy autonomy, given that UK tax policy decisions fall back onto Scotland through the block grant adjustments,” says the report.

“Moreover, the Scotland reserve and borrowing limits are extremely low in relation to the overall budget, limiting further any deviation from the UK’s budget stance.

“In a time when governments are providing unprecedented levels of support to their citizens, Scotland’s capital borrowing is to less than 0.3% of GDP.”

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The 77-page report, commissioned at the start of lockdown notes that there will need to be changes in the current fiscal framework in order to underpin the recovery.

It says “there needs to be a plan to unlock financial borrowing at the exceptionally low prevailing long term interest rates. We are agnostic on how the Scottish and UK Governments choose to achieve this outcome. A case of what matters most not being at the mercy of what matters less.

It adds: “The current UK fiscal policy framework was not designed for times of emergency.

“The carry-over and borrowing capacity for the devolved administrations was designed and calibrated for normal economic cycles. It was not designed to enable decisions based on a long-term ‘capital-based’ approach as described in this report.

The current UK fiscal policy framework was not designed for times of emergency

– Advisory Group report

“It would benefit both the UK and devolved governments to design a model for investment in the economic recovery period, which enabled an appropriate flexibility to allow different priorities to be pursued.

“There is also a strong case for the Scottish Government to have greater autonomy to use targeted fiscal measures to stimulate demand or incentivise behavioural change in the recovery period.”

Speaking at the daily briefing alongside the First Minister, Mr Higgins pointed to the £300 billion stimulus announced by Germany.

He said: “If Germany needs 4 per cent of its economic output to stimulate the economy, then you’d think that we’d need at least that,” he said.

“That’s £6bn and the current limit through the fiscal framework is £450m so there’s a long way to go from where we are to where we need to be.”

The report sets out 25 proposals to create new employment opportunities and growth, including a jobs guarantee for 16 to 25-year-olds lasting at least two years to avoid “long-term scarring” of a generation.

It also calls for a “significant increase” in infrastructure investment, particular in digital technologies, and targeted measures to support the hospitality and tourism industries.

The Scottish government said it would “develop a detailed response to the report which will be published before the end of July”.

First Minister Nicola Sturgeon said the jobs guarantee proposal was “potentially very significant as we seek to ensure young people get the opportunities they deserve”.

She said the government would “look positively” at a proposal for the government to take a stake in struggling key businesses similar to the support taken by the UK to prop the banks and her own government to keep Prestwick Airport in business.

The report rejects suggestions of a broader restructuring of economic development. The parliamentary consequences – in a year ahead of Holyrood elections – would be to run the risk of a bureaucratic vortex when we can least afford it,” it says.

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“The right answer is to redefine and repurpose the existing model to meet the new challenges and opportunities that we confront today. We can do so by considering our national, regional, local and international needs and by adapting the thrust of existing activity to empower regions, cities, and local communities”.

Business groups welcomed the overall direction of the recommendations but academic analysis was less supportive. The Professor Graeme Roy at the Fraser of Allander Institute, who has already questioned the effectiveness of taking stakes in ailing companies, was lukewarm on the report.

“There’s little in the report of substantial policy insight that is new, or different to what has gone before,” he said.

“Many of the recommendations would not look out of place in a summary of the existing Scottish Government Economic Strategy.

“Lots of areas to prioritise, from digital through to skills, employability, the environment, infrastructure and the like, but little discussion about what areas must be cut back to fund new investment or recognition of the challenges of delivery.

This document is woefully inadequate at articulating the main problems facing SMEs or providing policy makers with a strategic road map

– Ross Brown, St Andrews University

“There is little in the way of push-back to the government on past priorities or outcomes.”

Ross Brown, Professor of Entrepreneurship & Small Business Finance in St Andrews University School of Management, was equally blunt, noting that the report mentions SMEs only once (page 39).

“The current Advisory Group on Economic Recovery has largely (and surprisingly) neglected the crucial issues facing SMEs at the present time,” says Prof Brown in his own new paper making a series of recommendations on how to help this key sector.

“This is probably of no great surprise given the lack of formal representation on the group from the small business community such as the Federation of Small Businesses,” he says. 

Prof Brown compares the report’s proposals to what he calls “similarly vague plans for the new Scottish National Investment Bank,” saying it “offers vague goals such as a green and investment-led recovery.”

He concludes: “Consequently, this document is woefully inadequate at articulating the main problems facing SMEs or providing policy makers with a strategic road map of how to help the vast majority of the business sector recover from the crisis.” 

Comment: Higgins promised an action plan but gave us a wish list

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