"The future is what we make it" - Alex Salmond
An article in the Sunday Times about our economic future and how we're helping you with the credit crunch.
Three months ago, Mervyn King, the governor of the Bank of England, warned us that the “nice” decade was over — by which he meant a sustained period of “non-inflationary consistent expansion”.
Three days ago he was prepared to consider the possibility of a recession. It was clear months before the governor’s speech that we were sailing into choppier financial waters, and a tougher international climate. It does not follow that the future has to be “nasty”.
In the economy, as in life, the future is what we make it. There is a resilience in the Scottish economy to a downturn, and there are indications that Scotland’s economy is performing significantly better than the UK as a whole, albeit this is a relative improvement against an absolute decline.
Figures for Scotland’s labour market are stronger than the averages for the UK, with higher employment and activity rates. Last week, Scottish unemployment was continuing to fall, to 4.2%, while UK unemployment increased to 5.4%.
Growth in Scotland has matched or surpassed that of the UK in each of the past three quarters, and the housing market has been far more resilient, with prices rising since the start of the year, compared to a decline south of the border.
Scottish manufactured exports grew strongly in the first quarter of the year and retail sales are growing at a faster rate in Scotland than in the UK as a whole. But with deflationary forces becoming stronger by the day, none of this means that Scotland has escaped the downturn.
We are resistant rather than immune, and there is no scope for complacency. What it does mean is that if we deliver a coherent economic strategy able to respond to the pressures and keep us ahead of the game, then we can keep our economy moving in the right direction.
The heart of this approach is to encourage key sectors of the economy where we have a comparative advantage, such as energy and the life sciences — the essence of building a “lion economy” in Scotland.
The £10m national life-sciences institute in Dundee, announced by education secretary Fiona Hyslop in May, is a good example. As well as the jobs it will create, this new facility will help drive forward Scotland’s £1 billion life-sciences sector, and strengthen Scotland’s position as an international leader in biotechnology.
Some of the Scottish resistance to recession is structural — our housing market did not enjoy the same boom and therefore there is not as big a bubble to burst.
Oil and gas is a big part of our economy and is strongly counter-cyclical.
Some of the performance can be attributed to policy. Finance minister John Swinney took early and decisive action to deliver targeted boosts to the economy when it was clear that storm clouds were gathering.
The Scottish government has already introduced tax cuts, saving Scottish businesses up to £165m a year through the reduction of business rates for 150,000 small enterprises in Scotland.
The council-tax freeze, phased abolition of prescription charges and abolition of the graduate endowment, all help to put money in people’s pockets.
A further initiative planned last year is now coming to fruition: for the first time, the Scottish public sector will secure power at the best price thanks to an innovative new way of buying and managing demand for electricity.
The Scottish government has launched a tender to supply electricity on a national basis to all public bodies. Councils, health boards, police and fire services, universities, Scottish government agencies and non-departmental public bodies will be able to use the contract from next autumn.
The annual public-sector electricity bill is about £200m. The new strategy will harness the combined purchasing power of the public sector to save taxpayers’ money by streamlining the management of many different contracts and ensure better energy-saving measures.
This will complement measures already being taken by the Scottish government to help homeowners and industry with rising fuel costs.
I will announce further initiatives in my Donald Dewar lecture at the Edinburgh Book Festival on Tuesday. Scotland has control over only 15% of its fiscal policy, and none of its monetary policy.
This means that while we can position Scotland to develop a “lion economy” for the long term, our short-term flexibility is limited. That is why Westminster must also deliver an economic recovery package.
Action must be taken to resurrect consumer confidence and help stabilise asset values. We need an attack on energy costs. The chancellor must use a fiscal stimulus to stave off recession or end up borrowing further billions to finance one.
The Scottish government has provided leadership, direction and decisive action to help the Scottish economy meet economic challenges.
We will provide more. All we have had from the UK government is dithering and false starts.
The time has come for the levers of economic power to be exercised in Scotland so the dynamism of our ideas can be fully reflected in building a dynamic Scottish economy.
