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Help secure the sustainability of the Scottish economy

Scotland’s economic growth has lagged behind the rest of the United Kingdom in recent years. The Scottish Government has the tools to drive economic growth in Scotland but we take seriously our duty to secure prosperity for the whole of the United Kingdom. We will, therefore, take concerted action to help secure the long-term sustainability of the Scottish economy.

Our Verdict

According to a 2017 study by the ‘Common Weal’ think tank, spending commitments from the Scottish and UK governments were, at the time, “insufficient in turning around Britain’s chronic investment deficit”.  One factor behind this is the shortfall of UK investment into Scottish infrastructure – which plunged by 35% within two years in 2010 and never fully recovered. In response, the Scottish government has turned to increased borrowing and ‘revenue-based’ financing, which generate more debt. Against this context, the UK government promised to “help secure the long-term sustainability of the Scottish economy”.

The Autumn 2017 budget allocated £14.3 billion to Scotland in 2017-18. Alongside this, the government agreed to publish an annual breakdown of changes in ‘block grant’ funding (which is how Scotland receives funds from the UK), start new City and growth deals, make Scottish Police and Fire Services eligible for VAT refunds, and increase the Scottish budget by £2 billion through to 2020-21.

The 2018 budget allocated £14.7 billion to Scotland in 2018-19 and outlined new measures to strengthen the oil decommissioning sector and the fishing industry. Between November and August 2018, the government started three new ‘city region deals’, in Stirling and Clackmannanshire, Edinburgh and South East Scotland, and Tay, bringing the total investment in the scheme to £1.4 billion.

In July 2019, the government announced the ‘Borderlands growth deal’, which will see the UK and Scottish governments committing up to £350 million to the cities at the Anglo-Scottish border. Moreover, in September 2019 the British government announced over £500m investment in green technologies, part of which will benefit Scotland with funding for clean air and marine resource management projects.

According to the OECD, investment in development and infrastructure plays an essential role in sustainable growth. To this extent, with a range of measures including a set of funds for innovation, as well as the city and borderland deals, we can say that the UK government has directed significant investment into Scotland, which helps to promote economic sustainability.

However… current forecasts highlight concerns over the sustainability of Scottish financial planning. A 2019 briefing by Audit Scotland warns that Scotland’s budget is becoming “increasingly uncertain and volatile”, with capital funds and borrowing “unlikely to be sufficient” for meeting spending plans, alongside a recent £1 billion loss to the budget.

There is also concern over funding for public services, including warnings about the financial sustainability of NHS Scotland. On these issues, Scotland’s Financial Secretary Derek Mackay points to the UK government’s resource budget for Scotland – which, like the capital block grant, has only risen gradually after a significant shortfall and remains lower than it was in 2010.

These pressures have ushered calls for the Scottish government to implement system-wide reforms to NHS Scotland and to cut spending or raise taxes, but also for the UK government to review borrowing limits and back a Scottish National Investment Bank – reflecting a divergence in opinion on which government needs to respond to the challenges, how to assess risks in relying upon higher taxes in Scotland, and whether to adopt a more monetary or fiscal understanding of ‘economic sustainability’.

Overall, this pledge depends on the outcome of the financial measures already taken, the effect of Brexit, and of course the definition assumed for ‘economic sustainability’. Despite these ambiguities, we recognise that the UK government has pursued a rising trend of investment into Scotland since 2017, and consider this to be progress towards fulfilling the pledge. We therefore mark this as ‘in progress’, and will keep monitoring for evidence (or consensus from independent organisations) that the UK government has helped to secure economic sustainability in Scotland. Follow this policy to stay updated.

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