Productivity in Scotland makes some progress in 2022 but recently slowing

Productivity in Scotland makes some progress in 2022 but recently slowing

James Kergon

New data has shown Scotland is making some progress, but still falling short on leading indicators of productivity.

Looking at key productivity indicators including business investment, job vacancies and sick leave, the fourth annual edition of the CBI-KPMG Scottish Productivity Index measures Scotland’s performance against other parts of the UK or international competitors.

With Scotland lagging in 11 of the 13 productivity indicators for which comparable data is available in 2022, the index showed that, overall, productivity growth slowed recently. While labour productivity, in terms of output per hour worked, increased by 1.2% in the UK, Scotland’s productivity remained unchanged in 2021.

However, closer examination of the data shows progress is being made, particularly in the short-term. The Index reveals:

  • Nine of the indicators, for which comparable data is available, show signs of improvement.
  • In particular, four out of the five indicators around business practice has improved including business investment, R&D spend and innovation-active businesses. In skills and training as well as infrastructure and connectivity, all indicators have turned green, which shows promise.
  • A couple of things do stand out – there’s been sharp increase in long-term ill health. And while skills and training look positive, this hasn’t translated into higher productivity.

Looking at the long-term, the outlook is still challenging:

  • Six indicators, in particular, need focus. Long term ill-health increased by 2.3% in under a year and is above the UK average of 25.8%, at a time of record workplace vacancies.
  • While business practices have improved in the short-term, the long-term outlook is not on track for some firms. For example, business investment on the whole lags the UK, which itself is below its long-term trend.
  • Exports, as a share of Scottish GDP, is a mixed picture. This trend is slightly downwards, and trading conditions remain complex. However, if the short-term improvements continue, the indicator is expected to turn positive.

Businesses are looking for the Scottish Government to put in place the right conditions to promote resilience and economic stability.

This includes dealing with labour, skills shortages and unlocking private sector investment that will help overcome the cost-of-living crisis and deliver a fairer, greener and more economically inclusive Scotland.

Scotland currently has high levels of employment, but firms are struggling to hire skilled staff to fill vacancies which is hampering their potential to develop and grow.

An area of focus, therefore, must be helping those who would like to work, back to work, particularly those affected by long-term ill health.

The report shows Scotland is failing to make the most of its wealth of experience and high levels of educational attainment. The Government must capitalise on Scotland’s huge opportunity in the transition to net zero.

To achieve this, Scotland’s highly educated workforce must be equipped with the right skills and training to deliver sustainable green growth in the race to net zero by 2045.

Steps the Scottish Government should take according to the report:

  • Re-focus and match ambition with delivery on the National Strategy for Economic Transformation.
  • Make the most of Scotland’s world leading universities and colleges, by offering flexible and targeted courses to support lifelong learning.
  • Future-proof the workforce to develop Scotland’s successful finance, legal and business services; advanced manufacturing; life sciences and broader technology, including clean tech and deep tech sectors.
  • Ensure every sector and part of Scotland has a role to play and that there’s a clear plan to achieve Net Zero. The Scottish Government must work closely with the UK Government and international partners to develop green growth, whether that’s on retrofitting buildings, EV charging points, or carbon capture, utilisation and storage (CCUS).
  • Collaborate with businesses to make good employee health and wellbeing a precondition for economic growth, giving firms access to a stable and thriving labour market.
Productivity in Scotland makes some progress in 2022 but recently slowing

Tracy Black

Tracy Black, CBI Scotland Director, said: “The new First Minister has an opportunity to re-focus the government’s energies on delivering economic growth, bolstering productivity and building a greener, fairer, more economically inclusive society. Growth matters. It’s the bedrock of what delivers life opportunities for people – and supports the government to deliver on their priorities.

“ScotWind, the new Green Free Ports in Cromarty Firth and the Firth of Forth; the announcement in the UK Budget that Scotland will get at least one investment zone, and the roll-out of superfast broadband to rural communities, all have the potential to be a game changer for improving productivity.

“Whilst this is undoubtedly a challenging time for many, we cannot lose sight of the longer-term wins, and opportunities to be had in Scotland. Businesses have identified areas where they want to invest more, and many have the resources ready and waiting. But firms face uncertainty and that means investment is being delayed, and in some cases that investment is being committed to other markets.

“For too long we have talked about Scotland’s potential; however, without decisive action that potential is being chipped away.”

James Kergon, Scotland senior partner for Scotland at KPMG UK, said: “We all want a more productive Scotland which is consistently improving, giving people and businesses the best chance to succeed.

“Productivity is fundamental to how much we earn, how fast wages grow, the quality of our essential public services, and crucially, the opportunity people have in life.

“Weak productivity growth undermines Scotland’s potential, constrains our competitiveness, stifles innovation, and impacts growth in every sense. We know change doesn’t happen overnight which is why this Index continues to provide evidence tracked over time to ensure policy makers have the information they need to make informed decisions for the long-term.”

Productivity in Scotland makes some progress in 2022 but recently slowing

Mairi Spowage

Mairi Spowage, director at the Fraser of Allander Institute at the University of Strathclyde, which provided insights that informed the report, said: “This year’s productivity index highlights that despite some promising short-term movements in the indicators, many of the longer-term challenges remain in pursuing a more productive economy.

“One of the key pillars of the Scottish Government’s National Strategy for Economic Transformation is focussed on productive businesses and regions. The policies that are being pursued under this pillar include a focus on digital infrastructure, skill levels for senior managers, and a focus on regional development.

“What is clear though through the indicators that we have analysed in this report is the role that health and the wider skills system may have in holding back the productive capacity of the economy. This will be something that the new First Minister will have to tackle head on.”

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