Scottish Economy

Stephen Kerr Excerpts

Wednesday 27th June 2018 Westminster Hall

[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.

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[Luke Graham]

The hon. Lady repeats the point, and it is as weak as it was the first time.

The Scottish economy is not forecast to grow by more than 1% at any stage over the next five years. As a result, the Scottish economy will be more than £18 billion smaller by 2022. It is not helped one iota by any devolved power, whereas in this place we have been trying to help the Scottish economy.

[Stephen Kerr]

Does my hon. Friend agree with the conclusion of the Economy, Jobs and Fair Work Committee of the Scottish Parliament, which includes, I think, four or five SNP Members? It states:

“If we are to reverse this trend then the Scottish Government must use all of the levers at its disposal to bring a sharper focus on growing the economy, and ensuring that growth is inclusive.”

That is something they are failing to do currently.

[Luke Graham]

I thank my hon. Friend for his intervention; I could not agree more. One point on which I do agree with the hon. Member for Rutherglen and Hamilton West is that Scotland has two levels of government—one in Edinburgh and one in Westminster—and they should work together productively to try to improve Scotland’s economic performance, which lags behind that of the UK. As a Member who has just negotiated a city deal for his region, I can say honestly, hand on heart, that the two levels of government are not working well together. The relationship is dysfunctional; it does not work. Powers are being hoarded in Edinburgh and not given down to the local authorities, as they should be.

Productivity is lower than it was in 2010 and the gap between Scottish and UK productivity is wider than it was in 2009. Scotland has the lowest rate of business growth in the UK and is forced to pay the highest business rates in Europe. In addition, the SNP broke a major manifesto promise and raised tax on more than 1 million Scots earning over £26,000, ensuring that Scotland’s wealth creators have less of their wealth to create more through further investment.

We talk about powers a lot in this place; the issue dominates a lot of our debate, but let us be clear. The only power given back was that to vary income tax by 1p, and it was given back to Westminster by the SNP, having originally been devolved under the Scotland Act 1998. The Conservatives do not give away powers; the SNP does. [Interruption.] Between 2010 and 2016, Scotland’s economic growth rate was 1.7%, compared with—[Interruption.]

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[Stephen Kerr (Stirling) (Con)]

It is a pleasure to serve under your chairmanship, Mrs Main. I congratulate the hon. Member for Rutherglen and Hamilton West (Ged Killen) on securing this important debate on the future of Scotland’s economy.

Scotland’s GDP continues to languish in the doldrums and is not forecast to grow by more than 1% per year until at least 2023. A critical indicator of an economy’s future success is the overall level of investment. In Scotland, although foreign investment is high, overall investment is low. That is not a healthy picture, and it is not a solely Scottish problem, but one that affects the entire UK economy. It is one of the key drivers of low productivity.

According to World Bank figures, investment in the UK from public and private sources sits at 17% of our GDP, which put us 118th in the world. The United States invests 20% of its economy, and Japan invests 24%. The arguments on the need to improve our levels of investment are well rehearsed, but I would like to focus on the need for a fully functioning, effectively organised UK national investment bank to shape the future of Scotland’s economy, and to invest in enterprise—especially, of course, in Scotland. Let me strike a chord of bipartisanship here. I know the Scottish National party has a plan for a Scottish investment bank, and it is a worthy concept, but I want to advance the case for a UK national investment bank.

Jim McColl is one of Scotland’s most successful business people and we should listen to him. He recently commissioned a report from University College London on the case for a UK national investment bank, and I recommend it as a thoroughly sound read. I would be very happy to supply every Member of the House with a digital copy of the report, from which I wish to make three quick points. First,

“By making strategic investments and nurturing new industrial landscapes, a modern industrial strategy focused on solving important societal challenges can help to rebalance the economy and reinvigorate the industrial base.”

Secondly,

“This requires not just any type of finance but patient, long-term, committed finance. This can take different forms, but in many countries, patient strategic finance is increasingly coming from state investment banks...By developing new financial tools and working closely with public and private stakeholders, state investment banks can—if structured effectively—play a leading role driving growth and innovation.”

Thirdly,

“The European Investment Bank...has long been a key source of finance for infrastructure projects in the UK, financing £7 billion of projects in 2016.”

As we leave the EU, we clearly need to consider options to replace the European Investment Bank.

A national investment bank of the type found in many European countries would ensure the availability of quality patient capital. Entrepreneurs have to have access to patient capital, because they need immediate investment for longer-term returns. If businesses do not have access to that quality of capital in our country, they move to where they can get it. If they do not physically move, the ideas that need to be nurtured by patient capital move, and we see the continuation of the old cycle. Britain, and Scotland in particular, is a magnificent nursery of imagination and creativity. New products and concepts start off on their journey of commercialisation on these shores, but end up being fully deployed and exploited somewhere else. That cycle must be broken for good, and the availability of patient capital is crucial.

[Mr Paul Sweeney (Glasgow North East) (Lab/Co-op)]

The hon. Gentleman mentioned Jim McColl; I met him recently to discuss the future of commercial shipbuilding in Scotland. The example he cites is exactly the point that the hon. Gentleman mentioned. In Germany, they have access to patient finance and can finance the capital cost of a ship—up to £1 billion apiece—whereas in Scotland there is simply no facility for that. Does he not agree that a Scottish investment bank, although a laudable proposal, would not be on anywhere near the scale needed to achieve the massive industrial growth that we need?

[Stephen Kerr]

I absolutely agree with the hon. Gentleman. That is why I am advocating, for the future of Scotland’s economy, a UK investment bank. I have had many dealings with Jim McColl, and I agree with the direction of his argument.

Patient capital instils long-term support, builds confidence in the whole commercialisation process, from ideation to launch, and fosters the entrepreneurial spirit of our brightest and best. The return on patient capital invested is a measure of financial success, but when it comes to measuring social good, those things are exponentially better.

I prepared a much longer speech on this subject. I know the Minister might refer me to the British Business Bank, but to me it is not really operating to its full potential as an actual real bank. The resource available is too low. It is £200 million a year from the taxpayer for the whole UK economy; that will do little to address the investment shortfall in our economy. Essentially the British Business Bank needs to be reformed to become a real bank with the ability to issue bonds and raise funds.

Finally, in the interests of time—I might have already gone over my time limit, for which I apologise, Mrs Main—I want to ask the Minister a couple of simple questions as we consider the future of Scotland’s economy. Do the Government accept that British businesses and entrepreneurs need an additional source of good quality patient capital—capital that is not currently available in any quantity? What is our Government’s considered view on the proposition that the British Business Bank be converted into a fully functioning national investment bank, on the same basis as the national investment banks in other countries? To agree further with the hon. Member for Glasgow North East (Mr Sweeney), Germany is an example: the KfW is worthy of close examination by the Government, especially as we leave the European Union and have to consider how we will support British businesses—and Scottish businesses in particular—to compete on the global scene.

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[Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)]

It is a pleasure to serve under your chairmanship, Mrs Main. I congratulate the hon. Member for Rutherglen and Hamilton West (Ged Killen) on securing the debate, and share his disappointment that neither the Secretary of State for Scotland nor any of his team turned out for the debate.

I should like to give some uncommon—

[Stephen Kerr]

Will the hon. Gentleman give way?

[Drew Hendry]

I was just about to give the hon. Gentleman some praise—but carry on.

[Stephen Kerr]

It is a well-known convention in the House that no Secretary of State or Cabinet Minister responds to debates in Westminster Hall, and the point that the hon. Gentleman made was not entirely fair.

[Drew Hendry]

If the hon. Gentleman had been listening to what I said, he would know I said “or any of his team”. [Interruption.]