The ten-year National Strategy for Economic Transformation (NSET) guides economic policy making across the Scottish Government, with the aim of delivering a ‘step change’ in Scotland’s economic performance. As the strategy enters its third year, an annual progress update was published in June 2024. This blog summarises the report and what it tells us about progress towards the Scottish Government’s economic objectives.
Economic context
The progress report begins by outlining the wider economic context, which has undoubtedly been challenging. A period of high inflation and rising interest rates have put pressure on living standards and increased the cost of capital. Economic growth throughout much of Europe was sluggish in 2023, and in Scotland was just 0.1% – essentially stagnant. There are, however, signs of recovery in 2024, as inflation has fallen back down to the Bank of England’s 2% target, and GDP growth, business activity and consumer sentiment have all picked up.
Programmes of action
The overarching vision for NSET is to build a wellbeing economy. The strategy is structured under five programmes of action, all underpinned by a sixth focused on delivery. Each programme contains a list of actions that the Scottish Government has committed to, and a series of metrics that the strategy aims to improve over time. These ‘measures of success’ provide a yardstick against which NSET’s progress can be measured. They have been chosen by the Scottish Government in line with their economic policy objectives and, more broadly, the kind of economy it wants Scotland to have.
The progress report provides an update on actions that the Scottish Government has taken. These generally consist of pockets of funding, business support initiatives, and the publication of reviews or strategies. For example, these actions include the launch of a £1.3 million fund to support women to become entrepreneurs and an industry consultation on the development of a hydrogen sector export plan. Perhaps the most notable action that has been delivered this year is the rollout of Fair Work First, which is conditionality on public sector grants that require contractors to, amongst other things, pay the real Living Wage.
Measures of success
The progress update also reports the latest available data on the ‘measures of success’ under each programme. These are the metrics that the Scottish Government believes need to improve in order to ‘shift the dial’ towards building the kind of economy it wants for Scotland.
There are too many metrics to discuss in this blog, but one area that arguably stands out is skills, where the metrics paint a mixed picture in a devolved policy area. On the one hand the percentage of young people in training or employment is high and has grown, while the proportion of adults with low or no qualifications has reduced. On the other hand, these are not leading to positive outcomes for the whole economy – skills shortages are increasing (particularly in digital skills), and businesses have reported an increase in the number of employees with under-utilised skills. More people are getting qualifications, but the gap between what the labour force has and what businesses need appears to be growing. This highlights the importance of the proposed reform to post school education system which is discussed in another SPICe blog.
More generally, it is notable that many of the previous period’s comparative data has been skewed by the Covid-19 pandemic and the economy’s recovery from it. Greenhouse gas emissions, for example, increased in 2021 primarily because 2020 saw so much economic activity paused during lockdowns. GDP growth was far higher in 2022 as the economy bounced back from the pandemic. This means that some of the comparator figures don’t provide ideal context in which to assess the most up-to-date figures and it can be hard to tell how underlying economic performance is changing.
Also, whilst the measures chosen are all entirely valid, the rationale for choosing some of the metrics is not always clear. Why, for example, is GDP growth a measure of success and not growth in GDP per capita? Why does the measure of the gender pay gap exclude part-time workers, who are more likely to be women? Why is the capital investment figure not given as a percentage of GDP?
Overall, however, these metrics provide a useful framework against which to assess the progress towards achieving NSET’s aims. It will be interesting to see how these metrics evolve over a longer time span (rather than year to year), especially as we move away from the extraordinary events surrounding the Covid-19 pandemic.
Bespoke evaluations
Separate to this report, there have also been some bespoke evaluations of significant Scottish Government economic activity. These evaluations are alluded to in the NSET progress update.
An evaluation of the export support programme found a 140% increase in export sales for businesses that received support from the Scottish Government compared to similar businesses that didn’t. Inward investment support helped create 5,297 jobs over a three year period. Evaluations of employability support programmes found that they improved users’ skills, job search abilities and confidence, and that users rated the services highly.
Scrutiny of NSET can be challenging
Whilst useful, there is a limit to how much this information aids parliamentary scrutiny. It is not surprising, for example, that firms given additional support from government to boost export sales end up increasing their export sales. But that still leaves questions around how Scottish Government export support has performed. Has it met expectations? Was it the best use of public funds or are there better ways to boost export sales? Is it delivered at a scale to ‘shift the dial’ nationally?
This is one example of some of the wider challenges Parliament faces in scrutinising NSET and understanding the rationale behind economic policy decisions of the Scottish Government. NSET’s original publication in 2022 contained 77 actions for the Scottish Government and this progress report contains an update on what activity has taken place since then. But a strategy is not a to do list. The progress update tells us little about how the Scottish Government navigates the trade offs inherent in economic policy making – about what it has chosen to prioritise and not, and why. Of the 26 measures of success above, for example, which are the priorities?
This is, after all, what economics is all about – how to reach optimal outcomes given scarce resources.
That said, a progress report of this nature is difficult to produce, as there is a time lag between government action and impact on the wider economy. Furthermore, it is difficult to draw a straight line between the actions of a government and their impact on economic outcomes.
NSET refresh
A refresh to NSET is anticipated after summer recess and there have been some rhetorical hints at a change of emphasis in Scottish Government economic policy (talk of prioritising economic growth, removing obstacles for businesses, and ‘more action fewer strategies’, for example).
At the Economy and Fair Work Committee’s meeting on 29 May, however, the Cabinet Secretary for Economy and Gaelic indicated that any refresh will be limited in scope.
“To be clear, having an NSET refresh does not mean rewriting it or adding to it… It is a 10-year strategy. However, there is an opportunity to consider what we have delivered already, what else we can still deliver, and what perhaps needs to be further accelerated.
My own objectives for my role mean that I am keen to accelerate work in four areas, all of which are contained within NSET. Those are attracting private investment in the green industries; ensuring that we have the right infrastructure in place—for example, for housing; focusing on employability…; and looking at how we can make business as straightforward as possible.”
Kate Forbes, Deputy First Minister and Cabinet Secretary for Economy and Gaelic
As NSET enters its third year, Parliament will have a keen interest in how it evolves from here.
Rob Watts, Senior Researcher, Financial Scrutiny Unit, SPICe