Scottish Economy

Ged Killen Excerpts

Wednesday 27th June 2018 Westminster Hall

[Ged Killen (Rutherglen and Hamilton West) (Lab/Co-op)]

I beg to move,

That this House has considered the future of the Scottish economy.

It is an honour to serve under your chairmanship, Mrs Main, and to bring such an important and timely debate to the House. I am pleased to see so many colleagues here, although I am disappointed that the Under-Secretary of State for Wales is the only Government Minister who could join us. I know the Government take a rather apathetic view of devolution these days—[Interruption.]

[Mrs Anne Main (in the Chair)]

Order. Let the hon. Member continue.

[Ged Killen]

I must point out that this is a debate about the Scottish economy, so I am not sure whether the presence of the Minister, albeit welcome, is an indication of diary conflicts, or that we are all the same in the eyes of the UK Government. It would have been nice to see someone from the Scotland Office or perhaps a Treasury Minister here to answer the debate.

It has been 10 years since the financial crisis, and in an ideal world we would be looking back on the crisis from a renewed position of strength, with the fundamentals of our economy strong, and with optimism for the future. Sadly, that is not where we find ourselves. Following a decade of economic mismanagement of Scotland by the Scottish National party and Conservative Governments, Scotland’s economy has failed to recover to above pre-crisis levels in a number of areas. The fundamentals of the economy are structurally unsound, with built-in constraints on future growth, and we appear to be trapped between two economic futures: one a Tory hard Brexit, the other supercharged austerity under the SNP’s growth commission.

The Scottish people have lost a decade of economic growth. Under the projections of the Scottish Fiscal Commission, that lost decade threatens to turn into a generation. However, I remain optimistic, because there is a third way: a Labour vision for the economy—an economy driven by investment, not cuts, and a vision that has an optimistic outlook for the Scottish economy, rather than one of managed decline. Today, I will set out where the Scottish economy stands; the two visions before us as posed by the UK and Scottish Governments; and the third way offered by the Labour party.

Ten years on from the financial crisis, the Scottish economy is in a difficult position. Economic growth remains heavily stagnant. GDP growth in Scotland has averaged out at less than 1% per year since the financial crisis, while the rest of the UK has done only slightly better. Unfortunately, things are not expected to get much better, because the Scottish Fiscal Commission does not expect growth to rise above 1% until after at least 2023. If that is the case, Scotland’s economy will not just have been at a standstill for a decade, but will have remained in the freezer for a generation.

[Stephen Kerr (Stirling) (Con)]

Does the hon. Gentleman acknowledge that the consequence of this slow growth in our economy is that an estimated £1.7 billion projected to be raised in tax will not be raised at all, and that we will have a deficit in the revenue that is expected to fund the public services we all depend on?

[Ged Killen]

I thank the hon. Gentleman for his point. We have a serious issue with how we expect to finance public spending in Scotland, and I will come on to that later.

Unfortunately, the story is the same when we turn to productivity. While the productivity puzzle on these islands has been a problem for both Scotland and the rest of the UK, the most recent figures show that in Scotland the puzzle is even more complex, and while UK productivity has risen by 0.7%, trend productivity in Scotland is zero. On key indicators for growing our economy and making our workers more productive, the SNP Government have an even poorer track record than the UK Government. That means that the country is not reaching its full potential, and the average person’s wages are being squeezed more and more. In the real world, in terms of how far towards the end of the month people’s pay reaches, when it comes to buying food, paying bills and socialising, the average Scot is worse off now than they were 10 years ago and is doing worse than the UK average.

[John Lamont (Berwickshire, Roxburgh and Selkirk) (Con)]

The hon. Gentleman makes a point about take-home pay and how much workers have in their pay packets, but when the SNP and Scottish Parliament announced their “Nat Tax”, his Labour colleagues in the Scottish Parliament argued that it did not go high enough. They wanted to take greater taxes off the hard-working Scots. How can he complain about how much people are taking home in their pay packets, when he wants to increase tax and take more money out of those pay packets?

[Ged Killen]

I thank the hon. Gentleman for his comments; I know we have very different views on tax and spend, and I do not think we will resolve them here.

To add to all that, Scotland is more unequal than ever. The wealth disparity means that the average household would need to save every penny of their income for 43 years to enter the top 10% of wealthiest Scots. A failure to increase wages, build more houses or spread wealth means that the most significant factor in determining whether a person will own their own home or secure a top-tier job is not their skills and talents, but who their parents are and where they live. A Scotland where circumstances of birth will take people further than their skills and talents is not the kind of country we should aspire to be, but that is the situation we find ourselves in.

Despite those facts, the vision put forward by our governing parties is not for the radical transformation that is clearly needed. On one side, one of Scotland’s Governments supports a damaging Brexit policy that will cut the ties of Scotland and the rest of the UK to the EU’s internal markets and the customs union. The Fraser of Allander Institute has modelled that with each degree of separation from those two tenets of the EU, Scotland will be more and more damaged. Scotland faces being between 2% and 5% worse off in GDP terms as a result of this Tory Brexit, while in the worst of cases, under a no-deal Brexit, in which we default to World Trade Organisation rules, wage growth will go into reverse, the economy will shrink and, most worryingly, Scotland’s successful food and drinks exporting industry could suffer as much as a 26% reduction in trade.

[Neil Gray (Airdrie and Shotts) (SNP)]

Can the hon. Gentleman explain how the position of his party’s Front Benchers on Brexit is any different from that of the Conservative Government?

[Ged Killen]

I thank the hon. Gentleman for his comments; he is obviously not paying very close attention in the Chamber. The UK Governments have very clear red lines drawn all over the place, and none of them seem to reach any kind of consensus. [Interruption.]

[Mrs Anne Main (in the Chair)]

Order. I know the hon. Gentleman’s remarks are provoking comments, but please can those comments be kept to either interventions or speeches?

[Ged Killen]

Thank you, Mrs Main. The Labour party position is quite clearly putting jobs and the economy first. If the hon. Member for Airdrie and Shotts (Neil Gray) intends to contribute to this debate, perhaps he can explain why it is very important for Scotland’s economy to remain in the European Union but his party wants to take us out of the United Kingdom. That is something I would find difficult to square.

The UK Government, the Scottish Government, the Institute for Fiscal Studies and the Fraser of Allander Institute have all warned of serious damage to Scotland’s economy as the result of a no-deal Brexit. Worryingly, recently it has seemed that some members of the Conservative party believe that that is an acceptable outcome. In no circumstances should any public representative be recommending that that risk be taken in pursuit of gains that, in my view, are vastly outweighed by the negatives.

On the other side of the equation we have the SNP Government, who have produced a growth commission to set out how they want to see Scotland’s economy grow in the future. In 2015 and 2017, the SNP stood on a manifesto that claimed that it was anti-austerity. The publication of the growth commission and the endorsement of its policies by the First Minister should represent the day when the mask slipped and the SNP was shown to be the party of austerity that we know it to be.

In the growth commission, the Scottish Government propose reducing Scotland’s budget deficit through an approach that would see spending on public services and benefits fall by about 4% of GDP over a decade. Compare that with the policies of the Conservative UK Government, as set out by the Office for Budget Responsibility. The UK Government’s projections see spending on public services and benefits over a five-year period, from 2018-19 to 2022-23, falling by 0.9% of GDP. The plans set out by the SNP in the growth commission would mean the Scottish Government cutting public expenditure on public services and benefits close to five times faster than this Conservative UK Government.

In its model for the future of an independent Scottish economy, the SNP has given up on monetary policy as a tool for stimulating the economy. By not proposing a new currency and by setting public spending and borrowing targets that even George Osborne would have considered ambitious, the SNP has baked serious public spending cuts into its preferred future economic model. Relying on fiscal policy alone to reduce Government debt and budget deficits, they will have to introduce spending cuts, raise taxes or do a combination of both. That is the dictionary definition of austerity.

Those are the most optimistic of figures. The IFS says that, with an ageing population adding to the pressures on the health, social care and state pension budgets, keeping to the growth commission’s targets would likely require cuts to many public services, with the commission not taking the time to spell out exactly where the axe would fall and who would lose out as a consequence. Furthermore, the IFS also said what all know to be true:

“It is also inconsistent to claim that these plans do not amount to austerity but the UK government’s current policy does”,

particularly while the growth commission’s plans

“imply slightly slower real growth in spending than the UK Government is currently implementing.”

I am sure that the SNP will not cease to call itself the anti-austerity party, even after the growth commission’s publication. However, the facts speak for themselves. These are empty calls and stolen clothing. The growth commission is most disappointing because of its lack of ambition. The two Governments of Scotland have produced plans for the future of the Scottish economy that leave much to be desired, and it is therefore up to the Labour party to present a true alternative.

The Scottish economy has three core structural problems: stagnant GDP growth, low productivity and demographic challenges caused by a projected significant increase in the over-65 population and a shrinking in the relative size of the economically active population. Labour has a vision to address all three problems. The problems of growth and productivity cannot be separated; they are twin problems. The Scottish labour market is strong—we have a relatively low unemployment rate by European standards, and an exceptionally low youth unemployment rate.

However, while unemployment has decreased over the years, wages have stagnated and economic output has not matched the increase in the labour force that would usually be expected. That is because, while jobs have been created, they are predominantly low-skill, low-wage jobs that have not helped to accelerate growth; nor have they been productive enough to increase wages. By introducing a minimum wage of £10 per hour, we can reverse the trend of low wages and encourage investment to improve labour productivity. If we increase the minimum wage, companies will have to invest in technology and training to improve the output of their workforce to match the demands they are under. No longer will low-wage, gig economy jobs serve to undercut the advantages of investment.

[Neil Gray]

The hon. Gentleman talks about raising the minimum wage, which is a laudable aim for us all to strive for. However, we are talking about Scotland’s economy, and he will of course realise that this area of economic policy is reserved to the UK Government, so this is not in the gift of the Scottish Government to enforce.

[Ged Killen]

The hon. Gentleman will of course realise that we are in the UK Parliament. Scotland has two Governments, and I am talking about Labour’s vision for both. [Interruption.]

[Mrs Anne Main (in the Chair)]

Order. Mr Gray, the hon. Member for Rutherglen and Hamilton West (Ged Killen) has taken your intervention. Please do not carry on your conversation.

[Alison Thewliss (Glasgow Central) (SNP)]

Does the hon. Gentleman support the devolution of employment law?

[Ged Killen]

Perhaps the hon. Lady will tell us in her remarks how her party intends to change employment law, if it is devolved to the Scottish Parliament.

Scotland suffers from under-investment. While the Scottish Government have produced many investment packages, they are often too small, too numerous and too unfocused to deliver the outcomes they are set up to achieve. Those are not my words but the conclusions of recent reports by the Fraser of Allander Institute and the Scottish Parliament’s Economy, Jobs and Fair Work Committee.

Under the current Scottish Government, we have had economic development plans governed by press release. Labour proposes real investment to correct the problems of stagnant labour productivity and GDP growth. We aim to stimulate investment more widely through a national plan that focuses long-term investment on local and national infrastructure, such as information, communication, services and production technologies, as well as in physical infrastructure, such as roads, buildings and town and city centres. That will not only correct the decade of under-investment that led to the productivity problem, but begin the vital future-proofing of the Scottish workforce against the challenges of automation and increasing digitalisation.

Furthermore, we plan to examine the possibility of public sector pension funds using their resources to establish a Scottish public provident fund, which could invest in local production and infrastructure, boost local supply chains and stimulate employment.

We will implement our industrial strategy and invest in Scotland’s economy. We will also encourage and incentivise firms in Scotland to raise the percentage of turnover invested in research and development. Scotland is only ninth in the UK in R&D spend per head, so such measures are sorely needed and will be vital in solving the productivity puzzle. Those kinds of investments will encourage the growth of new industries. An excellent example of that is CST Global in my constituency—a photonics manufacturer that I believe represents the future of jobs in Scotland.

CST Global has shown itself to be a significantly high-growth, high-skill business. It has sustained strong annual growth, with revenues increasing by 88% in a year to £6.7 million in 2017. It is a strong exporter, and the photonics industry is one of the UK’s most productive. On average, each employee in the sector contributes £62,000 to the economy in gross value per year—three times the UK average. These companies also have some of the highest export rates of any industry, exporting an average of 75% of their manufactured output.

Such companies are often city-based, and we would not typically expect them to be found in smaller towns, such as Blantyre in my constituency. However, CST Global has proven that that need not be the case; when conditions are right, those companies can not only do well but thrive in these places. CST Global is very welcome in Blantyre. Supporting such businesses is central to the investment-based economic model. If we want to see the future of the Scottish economy defined by high-skill, high-wage and high-tech jobs, we have to invest.

[Deidre Brock (Edinburgh North and Leith) (SNP)]

If the hon. Gentleman is genuinely interested in growing the Scottish economy, he should support the devolution of powers to set VAT and national insurance rates, and to collect fuel duties, capital gains tax, interest on dividends and export duties, as well as all the other powers that the Scottish Parliament does not possess and is therefore unable to use to grow our economy.

[Ged Killen]

It is nice to see that both the hon. Lady and her favourite pantomime villains have turned up to continue the set-to that we often see in the Chamber. I am here to make a speech on what I believe is right for the Scottish economy. She will clearly disagree on several areas, and she can set those out in her remarks. As always for SNP Members, independence is the answer, no matter the question. I am surprised to hear SNP Members now talk about devolution so much, given that they have always opposed it. [Interruption.]

[Mrs Anne Main (in the Chair)]

Order. This is becoming somewhat intolerable. No respect is being shown to the hon. Gentleman, who is trying to make his speech. This is not a conversation among Members; it is a debate, which will be held in the proper manner. I ask all colleagues to respect the hon. Members making speeches and to keep their remarks to themselves or to voice them in the proper manner—through interventions.

[Ged Killen]

Thank you, Mrs Main. While we invest in a productive workforce, we must also attract talent to fill those spaces. All of Scotland’s population growth from 2016 to 2041 will derive from inward migration, as deaths will outnumber births in each year. Brexit therefore presents a risk, as it could reduce inward migration from the EU. However, even without Brexit, population growth is too slow and lags behind that of other parts of the UK, both in terms of birth and death rates, and through inward migration. We can correct that by supporting a needs-based immigration system. It is simply unhelpful to focus on an abstract number, as the UK Government are doing—or are failing to do.

However, we must also build the communities that attract the best talent. That is why we have called on the Scottish and UK Governments to get on with the completion of the city deals projects. People move to cities and communities. The delivery of more than £1 billion of funding and the devolution of further powers will allow our cities and communities to make themselves attractive to international talent on their own terms, rather than having terms dictated by Holyrood or Westminster.

Overall, 83% of Scotland’s population—4.5 million people—live in areas covered by existing or planned city region deals. That is a huge amount of talent and aspiration to be unlocked, and we simply cannot wait any longer. However, those deals have been bogged down as both the Scottish and UK Governments cannot bring themselves together to settle the matter. We have seen in the wrangling over the devolution settlement that the SNP and Conservative party can lock themselves in disagreement if it is politically opportune to do so; dare I say that we have seen that today? However, the people of Scotland should not be punished because of the narrow interests of the two governing parties.

In conclusion, Scotland has lost a decade of economic progress under its two Governments. If nothing changes, this decade threatens to turn into a generation of stagnation. However, an opportunity exists to turn this around, and the pathway to growth is best fulfilled by an investment-based economic model.

--- Later in debate ---

[Alison Thewliss (Glasgow Central) (SNP)]

I will try, Mrs Main. It is a pleasure to see you in the Chair. I thank the hon. Member for Rutherglen and Hamilton West (Ged Killen) for securing this spirited debate. Hon. Members have lots of ideas about the Scottish economy, which is always something to welcome.

I take issue with the hon. Gentleman’s analysis of a decade of lost opportunity. It is no coincidence that that decade has also seen Tory austerity writ large and a financial crash caused by the previous Westminster Administration. We have had to put up with the consequences and do the best we can with one hand tied behind our back.

[Ged Killen]

Will the hon. Lady give way?

[Alison Thewliss]

My time is constrained, and there are a couple of hon. Members I want to mention, but I will try to take an intervention from the hon. Gentleman if I can.

I would also take issue with anybody who says that the Scottish National party has a lack of ambition; we could not have more ambition for our country than to take control of all the financial levers to improve the conditions for our people. With the powers of independence, that is exactly what we would do.

Scotland’s economy is performing relatively well on many indicators. It is a country with many economic strengths: it is an attractive place to work, live and conduct business.