Benny Higgins: likely to propose equity stakes (pic: Terry Murden)

Benny Higgins’ expected call for direct state investments in key businesses and sectors has been questioned by a leading think tank.

The former banker will present a report to the government early next week and is understood to be recommending a new organisation be set up to take equity stakes in strategic organisations at risk of collapse.

However, the Fraser of Allander Institute has raised doubts over the wisdom of such a policy.

“Investing a public share in private sector companies can help support growth and provide greater resilience, but there is a long-list of failed investments over the years,” it says in a commentary today.

“Managing these sorts of investments is also not easy, particularly given often complex political and ethical considerations, and requires a particular (expensive) expertise and skill-set.”

Mr Higgins will present the recommendations of the Economic Advisory Group set up by the government as the impact of the virus began to take hold.

He will present the report on Monday when he will join First Minister Nicola Sturgeon in the daily briefing on the coronavirus.

In today’s commentary the FAI also reveals that its regular discussions with the business community has revealed an “unease” over the government’s wider approach to the economy and its understanding of business priorities.

The institute will publish a series of papers next week, including the latest Fraser of Allander Commentary on the economy in partnership with Deloitte.

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It is reporting on the fiscal implications of COVID-19, discussions around poverty targets, inequalities and education.

Contributions from about 20 economists, business leaders and poverty campaigners have written their thoughts on the outlook and where the focus of policy should be in the recovery.

Caroline Gardner, Scotland’s retiring Auditor General, will publish a paper on public policy.

The main focus of the FAI’s assessment of the outlook – to be published on Wednesday – is the re-starting of the economy post-lockdown.

We have picked up some unease amongst many in the business community about the government’s wider approach to the economy and its understanding of business priorities.

– FAI

The FAI states: “What is clear is that there is now a much greater differentiation between Scotland and England, with the easing of lockdown restrictions and the pace of re-mobilisation slower here than south of the border.

“But the ramifications of a second wave mean that there are economic as well as health costs with restarting too quickly. Time will tell who was right.

“It is fair to say, however, that we have picked up some unease amongst many in the business community – and the businesses we speak to on a regular basis – about, not so much the pace of the easing of restrictions, but the government’s wider approach to the economy and its understanding of business priorities.”

The FAI says there has been much discussion about how the Scottish Government is constrained in its ability to implement whatever fiscal stimulus it sees fit.

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“This is true. But the Scottish Budget has been boosted by around £3.8 billion in 2020/21 from Barnett consequentials stemming largely from business rates relief given to English businesses at the start of the crisis.

‘Therefore, whilst the Scottish Government hasn’t borrowed per se, the UK Government has effectively borrowed billions of pounds on its behalf. So far, the Scottish Government has chosen to spend such monies in largely the same way as the UK Government.

“In total, adding in various job and business support schemes, the fiscal money that has gone into the Scottish economy is over 5% of Scottish GDP. Whilst this might not feel like a ‘stimulus’ – perhaps more an ‘insurance support package’ – it has increased the money in the bank accounts of businesses and their employees whilst the wider economy hibernates. Without this, there would be less cash and spending in the economy at the moment.”

The FAI argues that policymakers and politicians – on all sides of the political spectrum – “need to avoid a scatter gun approach that aims to prioritise everything”.

It says: “There needs to be a clear strategic direction tied to the outcomes that government are trying to improve.”

Likely candidates include employability and measures to tackle youth unemployment, be-spoke support for sectors and regions particularly badly impacted and the go-to policy in recessions (albeit with benefits that are often way below what is claimed) of accelerating capital projects.

“Investing in policies that tackle some of the immediate wider implications of the crisis would make sense too, whether that be in digital training or support for town and city centres. Supporting the North East cope with the downturn in oil & gas, and transition to a broader centre of energy activity, would make sense too.

“We also need to recognise that many policies don’t just bring benefits, but carry risks too. Extending the furlough scheme makes sense for many employed in sectors still under heavy restrictions. But it may lock-in people in to jobs that are simply not going to exist when restrictions are lifted at any future date (thus limiting their transition into new jobs).”

Fiddling around with minor variations in tax policies and/or spending lines won’t cut it

– FAI

Amid the clamour for more spending, it says: “We also need to have a debate about what we are doing already and what we need to prioritise within existing budgets.

“New ideas also need to be within competence or at least not lead to protracted discussions between governments.

“Yes, there are important debates to be had about the constitution, but in the context of the immediate response to the crisis, these are for another day.

“Now is the time for bold policy ideas, certainly bolder than we have seen in the pre-COVID period. Fiddling around with minor variations in tax policies and/or spending lines won’t cut it.”