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Government Update: Advisory Group on Economic Recovery – Summary and Our View

Posted: 23rd June 2020
OVERVIEW

The Advisory Group on Economic Recovery (AGER), tasked by the Scottish government with developing a post-Covid strategy for economic recovery, yesterday (Monday, 22 June) published its findings, in a report titled Towards a robust, resilient wellbeing economy for Scotland.

The 74-page report, unveiled by the convener of the group, Benny Higgins, alongside first minister Nicola Sturgeon, outlines four pillars that it believes will be crucial for the Scottish government to prioritise as it moves forward. These pillars are:

  • Economic capital – the physical, intellectual and financial assets that drive business
  • Natural capital – our natural assets, both renewable and non-renewable
  • Social capital – the networks, values and understandings that enable us to co-operate effectively
  • Human capital – skills, knowledge, health and wellbeing of people

They form the basis for an approach that the report’s authors believe are essential to avoiding future fragility in the economy, certainly in the way that it has been laid bare by coronavirus.  That is why a key theme of this report is finding ways to combine the previously stated goals of the Scottish government – becoming “a robust, wellbeing economy…with an unequivocal focus on climate change, fair work, diversity and equality” – with the added resilience now needed to withstand future shocks.

This feeds into another theme running throughout, namely the need for a more collaborative approach, as evidenced by both the call for the Scottish government and the private sector to “reset” their engagement and for the government to work with a number of other entities in realising the 25 recommendations that underpin the report. The report calls for a plan to unlock financial borrowing and take advantage of “the exceptionally low prevailing long-term interest rates”.

In an interview with the Financial Times, Higgins used rather stronger language than in the report to urge this reset: “[In] the broader church of private businesses in Scotland, there is a sense that the Scottish government don’t care enough about them,” he said. “My plea will be: let’s acknowledge the issue, let’s recognise that both sides have to adapt…government and private sector have to find a new way to work together.” At the press conference launching the report, the first minister was careful to make sure that she communicated her welcome for this reset. On the podium, an assured Higgins also cited the recent stimulus in Germany which was equivalent to 4% of GDP, and suggested that a similar number, which would total around £6bn, was the minimum needed for Scotland.

You can find all 25 recommendations listed in the appendix here, but some of the most significant relate to: the creation of a business-led jobs guarantee scheme; the potential for the Scottish government to take stakes in some private companies;  the prioritisation of apprenticeships; the mobilisation of investment in digital infrastructure; the prioritisation and delivery of green investments; cooperation with the UK government to secure significant increases in access to capital investment; and the adoption of a four capitals framework to form future economic strategy. AGER has requested that the Scottish government sets out its response to this report by the end of July.

It is also worth noting that over the weekend, Professor Ronald MacDonald from the University of Glasgow published his own prospectus on the socio-economic implications for the UK and Scotland after the pandemic. The measures proposed by MacDonald include some that are similar to the recommendations in AGER – such as a prioritisation on health and wellbeing and growing the economy – but it goes much further in considering potential tax reform, such as contemplating the idea of a wealth tax. You can read more on this report here.

OUR VIEW

We welcome the inclusion of natural and social capital in the report’s four pillars, as it is important to recognise the crucial role those elements will play in the post-pandemic economic recovery. The recommendations on apprenticeships and the jobs guarantee are also significant. They represent an opportunity for employers who have benefited from government support to respond in kind, in a way which benefits the economy, increases social capital, and reduces inequalities.

We note the example given in the report of a V-shaped return – either sharp or shallow. It seems to us more likely that the recovery will be bumpy, jagged and a long-haul. While the report does not explicitly endorse this analysis, planning for more than one or two similar scenarios will be important.

We recognise that the 25 recommendations are intended to acknowledge the full range and scope of the issues which require attention. Prioritisation and focus will be required, to avoid dissipation of scarce resources and limited energy over too wide a front. As Higgins himself noted in the press conference this afternoon, “prioritisation is always important”. Some indication of the relative priorities of the actions proposed in the report will also be helpful going forward.

We suggest that a focus on those issues which the government and employers can control at their own hand will be most likely to deliver an early impact and quick returns. It will be important for the government to make clear where its immediate priorities lie, and how these will be tackled at pace, in genuine and meaningful collaboration with key stakeholders.

We suspect that the timeframe of end July for a government response may not satisfy everyone, and there will be a desire for clarity as soon as possible. The economic impact is already considerable and every day lost exacerbates that, and can never be regained. It is notable that the interview given by Higgins to the FT is far more direct than the report itself. It will be essential that this directness is heard by the Scottish government when it considers its response. As a start, we believe £6bn for a stimulus is a conservative estimate.

Many things that were unthinkable six months ago have been achieved since March – the construction of a makeshift hospital in a matter of weeks, for example, and widespread remote working. The time for theory and analysis is past: now is the time for radical planning and fearless action.

We believe that three things are imperative in order to deliver from the starting point offered by this report:

  • A more detailed explanation of potential scenarios
  • Explicit costings for the various proposals being made
  • A credible, specific, prioritised and time bound plan
APPENDIX

Below are the 25 recommendations that the Advisory Group has published.

  1. The UK and Scottish Governments should accelerate the review of the Fiscal Framework.
  2. The UK and Scottish Governments should commit to securing significant increase in access to capital investment to support the recovery.
  3. The economic development landscape in Scotland should pivot to a more regionally focused model in order to address the specific new challenges of economic recovery.
  4. The Scottish Government should build its professional capability to manage ownership stakes in private businesses, which are likely to arise out of the crisis.
  5. Banks should develop new instruments to enable the strategic incubation of otherwise viable and strategically important companies to ensure they are protected during the recovery phase.
  6. The Scottish Government, Scottish Enterprise and Visit Scotland must ensure a strong and bold prospectus on Scotland and on available investment opportunities, recognising the substantial, twin shocks of the pandemic and leaving the European Union.
  7. The Scottish Government and the business community should take urgent action to develop a new collaborative partnership on the strategy for Scotland’s economic recovery.
  8. The Scottish Government, regulatory bodies and local authorities should review their key policy, planning and consenting frameworks, especially for key infrastructure investments such as marine renewables, to accelerate projects.
  9. The Scottish Government should deploy its expanding tax powers and business support interventions to enable economic recovery.
  10. The UK and Scottish Governments should mobilise investment in Scotland’s digital infrastructure, covering broadband and mobile networks, to build resilience and enhance exports.
  11. The Scottish Government needs to establish a priority on delivering transformational change with clear sector plans, where the coincidence of emissions reductions, the development of natural capital and job creation are the strongest.
  12. The financial services sector and the Scottish Government should develop and promote nature-based investments to protect and enhance Scotland’s natural capital.
  13. The tourism and hospitality industries should work in partnership with the Scottish Government to develop a sustainable future strategy; the Scottish Government should consider a targeted reduction in business rates to support the sectors’ recovery; and it should press the UK Government to consider a reduction in VAT.
  14. Given the significant contribution of the arts, culture and creative industries to Scotland’s economy and to our social capital, the Scottish Government should take steps to protect the sector; seek to increase public and private investment; and work to create a National Arts Force.
  15. The Scottish Government should accelerate its work on reforming adult social care; and should urgently review the structure, funding and regulation of the sector to ensure its sustainability and quality going forward.
  16. The Scottish Government should take action to protect the capacity and financial sustainability of the third sector, in recognition of its important role in building and strengthening social capital.
  17. The Scottish Government should support a renewed focus on place-based initiatives, building on lessons learned from initiatives on Community Wealth-Building.
  18. The Scottish Government and local authorities should assess the impact of any learning loss and ensure that pupils are fully supported as schools return, in order to mitigate the risk of reduced educational attainment, particularly among disadvantaged groups.
  19. The business community should work with the Scottish Government and the enterprise bodies to accelerate the embedding of Fair Work principles, in context of changes to the workplace and to working patterns.
  20. The Scottish Government should refocus its skills strategies to address the risks of unemployment, recognising the importance of high participation sectors, and of improving the provision of lifelong learning to enable people to reskill.
  21. The Scottish Funding Council and the Scottish Government should protect universities and colleges from the financial impact of the crisis, so that they can maintain and enhance their role as “anchor institutions” and take decisive steps to align their teaching and learning provision, including postgraduate skills training, to meet business and employer needs; and to focus their support for research investment and growth.
  22. Skills Development Scotland and the Scottish Funding Council should collaborate with colleges, universities and businesses to prioritise apprenticeship training; and should respond to youth unemployment with a flexible learning response.
  23. The business community, with the support of the Scottish Government and in partnership with local authorities, should mobilise urgently to develop a business-led Scottish Jobs Guarantee scheme.
  24. To promote an approach to economic policy that values all of Scotland’s assets, the Scottish Government should consider adopting a Four Capitals framework in forming its future economic strategy, and reporting against it.
  25. To create momentum and build confidence, the Scottish Government should set out its response to the proposals in our report by the end of July, and should publish regular updates on its recovery plan.

Business Comment

Business Comment is the Edinburgh Chamber of Commerce’s bi-monthly magazine. It provides insight on Edinburgh’s vibrant business community, with features on the city’s key sectors, interviews with leading figures and news on new business developments in the capital.
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