The Enterprise and Skills Review – achieving its aspirations?

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It is now almost four years since the Enterprise and Skills Review (ESR) was launched in May 2016, by the First Minister. This blog explores progress to date in achieving its aspirations.

From a review to a plan

The Review focused on the roles, responsibilities and relationships of Scotland’s enterprise, development and skills agencies, namely: Highlands and Islands Enterprise (HIE), Scottish Enterprise (SE), the Scottish Funding Council (SFC); and Skills Development Scotland (SDS).

The Review had three main aims:

  • To significantly improve enterprise and skills support, to help Scotland progress towards achieving the Scottish Government’s aim of ranking among the top quartile of the Organisation for Economic Cooperation and Development (OECD) countries in terms of productivity, equality, wellbeing and sustainability.
  • To be driven by evidence, to listen to the views of service users and to put forward proposals that respond to their needs.
  • To ensure a simpler and more coherent enterprise and skills support system.

So, how have these aims progressed since 2016?

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The Review had a Phase 1 and a Phase 2, which led to the establishment of the Strategic Board. This Board, comprised of the chairs of each of the enterprise and skills agencies and non-executive members from academic and private-sector bodies, is leading the implementation of the Phase 2 report. A full Strategic Plan setting out the Board’s priorities, referred to as ‘missions’ was published in October 2018. There are four missions with the objective of maximising the effect of the enterprise and skills system on productivity and inclusive growth, with a focus on ‘hard alignment’ between the agencies. This means increased coordination and collective responsibility amongst the agencies.

How’s the Plan performing?

The Plan has a 20-year time horizon. To monitor progress of the Plan, a Performance Framework was established by the Board. It has six elements:

  • logic models
  • interactive dashboard
  • quarterly updates
  • quarterly deep dives
  • impact evaluation
  • annual analysis report.

The Board’s first Annual Analysis Report was published last week (4 March).

The Report has 28 performance indicators (17 productivity related, 11 for equality, well-being, and sustainability) matched to the National Performance Framework. Overall, the Report presents a mixed picture in terms of progress towards the aims of the Review.

A mixed bag with business indicators performing better than skills indicators

The Annual Analysis report states that Scotland remains in the second quartile (quartiles break up a data set into four parts) of OECD nations for productivity, with a ranking of 16th among the 36 OECD nations. This ranking has seen no change since 2002, apart from two years where Scotland’s ranking rose to 15th (in 2004 and 2006). Scotland’s GDP would need to increase by almost £33 billion to match the productivity of the top quartile as targeted (an increase of 21% in 2017 figures, assuming no increase in labour input). It is justifiable to ask how achievable this type of growth is, especially given the uncertainty around the economy with Brexit and the impact of Coronavirus.

It should be noted that since 2007, Scotland’s productivity has grown at an average annual rate of 1.0% per year, compared to the UK average of 0.3% over that period. Therefore, Scotland’s productivity gap with the UK as a whole has reduced over the past decade from around 10% to around 2%.

Some key trends highlighted around the performance indicators in the Report include:

  • Business creation: the number of businesses per 10,000 adults in Scotland is growing and is at its highest level since the current time series began in 2000.
  • Human capital: Scotland has a well-qualified labour force with high employment. Yet there has been a persistent decline in job-related training over the past 15 years. Adult skill levels are stable over the longer term, but school pupil performance has fallen below the UK and OECD averages.
  • Exports: despite the challenging global trading conditions, Scottish export growth has remained strong over the long term, although it has levelled out in recent years. Scotland still ranks in the fourth quartile of OECD countries for exports as a percentage of GDP (however, this rises to the second quartile if exports to the rest of the UK are included).
  • Innovation: Scotland is in the first quartile of European countries for its share of innovation active companies in 2014-16, with a greater proportion of innovation active companies than in 2012-14. However, the Report highlights that Scotland’s innovation support landscape is crowded with over 90 programmes in operation across Scotland.

Overall, Scotland’s skills indicators are not performing as well as business indicators. Of course, Scotland has a highly qualified labour force with a growing proportion of the labour force having high skills and medium-high skills. However, according to the Board’s Report there has been an increase in skills under-utilisation at the same time as a decrease in work placed learning.

Mission success?

Only one of the four original Plan missions are still considered live by the Board. This is the Business Models and Workplace Innovation mission.

The Report highlights that many of the mission actions are now being taken forward within other policy strategies. For example, the export mission actions are incorporated within A Trading Nation (the Scottish Government’s exports plan) and the future skills mission actions within the Future Skills Action Plan.

The Business Creation and Growth mission is another of the closed missions. This mission includes a new Single Entry Point with the aim of allowing businesses to get help and support quickly and easily through a new website. This website has been live since January 2020 but is still in Beta and requires further ‘onboarding’ of partners. It exists alongside the enterprise agency sites, Business Gateway site, and – to name but a few. Given an aim of the ESR is to ensure a simpler and more coherent enterprise and skills support system, it is difficult to see how the addition of yet another website is evidence of a “decluttering” of the support landscape.

The Annual Analysis Report notes that it is too soon to be able to measure impact from the four missions, many of which are at very early stages of development and delivery. We are told that evaluation plans related to the missions are in development, so it’s difficult to draw any conclusions about the direction of travel at this stage.

Significant evidence gaps – a cause for concern?

The Annual Report notes that “there are significant evidence gaps on the causes of Scotland’s productivity under-performance and on the impact of the agencies’ activities”. In Budget 2020-21, over £2.4 billion was allocated to the agencies within the remit of the Board (SE £212m, HIE £58m, SoSE £28m, SDS £225m, SFC £1,880m). Considering there are significant evidence gaps around the impact of activities delivered by these agencies and the scale of spending on these agencies, it begs the question how evidence-based are policy spending decisions? It also highlights the need to progress to a more outcomes-based form of budget scrutiny, as discussed in the previous SPICe blog ‘Linking budgets to outcomes – the impossible dream?’.

Almost four years since the ESR was launched, the extent to which it is achieving its aspirations is still not clear.  However, given the 20-year time horizon, as ESR activities mature over the coming years it will be the real test of Scotland’s top quartile aspirations. However, the “transformational step-change” in our economy the Scottish Government spoke about four years ago is yet to materialise.

Alison O’Connor, Senior Analyst, Financial Scrutiny Unit

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