Learning from Scotland

Posted on September 18, 2014 · Posted in Business Month

Scotland has significant economic advantages over Northern Ireland. It is not separated from the rest of the UK by the Irish Sea, so its distribution costs are lower than ours.  It does not have a southern neighbour offering a lower tax rate.  It has the significant benefit of its oil, gas and growing renewable energy sectors.  And it does not have the legacy of the Troubles holding it back.  But given that it is much more economically successful than NI, does it have economic policies we should copy?

 

To inform the Scottish Referendum debate, the UK Statistics Authority produced a raft of data that enable the UK’s nations and regions to be compared. Scotland’s Gross Value Added– a fairly simple measure of economic output – is £20,571 per person, which is a bit behind England’s, but substantially better than Northern Ireland’s at £16,531.  Both Scotland and NI benefited from annual growth of 4.1% in the period 1998 to 2011.

 

It is when labour market statistics are compared that Scotland’s advantage over NI is demonstrated most clearly. NI’s employment rate is 66.7%, while that of Scotland is 71.9%.  Gross weekly pay (as at 2012) was £459 in NI, while it was £498 in Scotland.  The pay difference is most marked at the top end – 13% of NI’s households received more than £1,000 income weekly, against 18% in Scotland (and 21% in England).

 

But there are barriers to Northern Ireland learning from Scotland’s experience. No studies appear to have been undertaken comparing the UK’s devolved nations’ economic policies.

 

Professor Neil Gibson of the University of Ulster explains: “As far as I am aware, very little work has been done on this. The only comparisons have been on tax policies.”  He adds: “The Northern Ireland economic policy has been ‘let’s see what the Scots do’.  That’s made it difficult to say what our economic policy is.  It is always difficult describing Northern Ireland’s economic policy – are we right, left, social democrat, or conservative?  What are we?”

 

One partial economic comparison study of UK regions was conducted last year by the former accountancy firm RSM Tenon evaluating foreign direct investmen(FDI) into the UK’s nations and regions. It assessed FDI quality based on average pay, productivity levels, R&D input and export orientation.  This found that Scotland has one of the UK’s largest proportions of high quality FDI – at 85% of total FDI.  On the other hand, Northern Ireland has the UK’s lowest proportion of high quality FDI, at 46%.  That stark difference is related to Scotland having a much larger university sector in the UK per capita compared to NI, which has the smallest university sector in the UK per capita.

 

A report just published by EY confirms Scotland’s strength in attracting FDI. EY found that Scotland is the second best UK region, after London, in attracting FDI, as well as receiving record levels of R&D.   Northern Ireland was sixth best region (out of 12).  Scotland received 10.3% of all UK FDI, while NI obtained 4.5% of the total.

 

The main agency in Scotland promoting economic development is Scottish Enterprise. Its approach is based on the Scottish Government’s Economic Strategy, the core element of which is for Scotland to be international in outlook and to maximise export earnings.  The strategy specifies that the public sector is to be a “partner” with the private sector for mutual benefit, including through universities collaborating with industry in research and development.  Other priorities are skill development from schools, colleges and universities that is geared to the needs of businesses.

 

Scottish Enterprise is focusing support on growth companies, including new start-ups that have strong potential; innovation; internationalisation; low carbon technologies; and renewable energy. Scottish Enterprise assists growth businesses to access capital, including through the Scottish Investment Bank and by making introductions to external equity investors.  Businesses focused on innovation are given support from Scottish universities and relevant public bodies (such as the NHS) via a network of local innovation centres.

 

Companies with an international focus are supported in foreign markets by Scottish Development International (operating in a similar way overseas to Invest NI). SDI also plays a central role (again, as does Invest NI) in attracting FDI.  Scotland’s Renewable Energy Investment Fund can provide financial support to businesses in the renewables sector.

 

Over the next three year period, Scottish Enterprise objectives are to assist 2,000 Scottish companies operating globally; to increase turnover by £1.4bn in targeted companies; support additional revenue generation of up to £200m from innovation activities; secure up to £150m of additional R&D; support 9,000 new jobs through FDI; generate £70m of investment from the Renewable Energy Investment Fund; and achieve £85m of private growth finance via the Scottish Investment Bank.

 

Allowing for different sizes in the populations of Scotland and Northern Ireland, and the fact that they are three year targets, some of these figures are not dramatically different from the targets for Invest NI. For example, the Invest NI annual report for the 2012/13 year (the 2013/14 report was not published at time of going to press) showed more than 2,200 jobs had been created in the one year from FDI projects.  And more than £100m in R&D private sector expenditure was claimed for the year.

 

However, it is difficult to compare the figures of the two agencies for various reasons. Firstly, it is unclear if the criteria are directly comparable.  Secondly, we do not know the extent to which the agencies were influential in attracting additional investment and job creation.  Most important of all, though, the legacy weakness of Northern Ireland means that to catch up on economic output, average wages and employment rate, we need to substantially out-perform other regions in terms of new investment and growth.

 

The broader economic agenda for Northern Ireland is exactly to catch-up. This was made clear in the Independent Review of Economic Policy, commissioned by enterprise minister Arlene Foster and chaired by Richard Barnett, the Vice Chancellor of the University of Ulster.  Its recommendations were designed to “meet the Executive’s goal of halving the private sector productivity gap between Northern Ireland and the UK excluding the Greater South East of England by 2015”.

 

In fact, the latest productivity figures from the Office for National Statistics show little change since that 2009 report was produced. Northern Ireland’s position has barely changed – as at 2012 it remained one of the seven worst performing UK regions in terms of productivity.  By contrast, North Eastern Scotland was, by some way, the fastest improving UK region for productivity.  Within Northern Ireland, Belfast was the best performing sub-region, followed by Greater Belfast and the East of Northern Ireland – though all, bar Belfast, were substantially below the UK average productivity levels.  Even Belfast was 8% below the UK average.

 

Comparisons, then, help to underline just how far NI has to go to achieve reasonable economic outcomes. There are some Scottish policies that might help NI – an expanded university sector; closer relations between the private sector with universities and public bodies; and greater targeted support for renewable energy businesses all seem attractive.  But Scotland does not offer any simple solutions for us to copy.