Scottish economy continues to underperform, says cebr

Official data now shows that the Scottish economy is in recession, the cebr has warned.

There are some explanatory factors. First, the consumer boom which has boosted the UK economy has been much weaker in Scotland than the rest of the UK. Second, agriculture has been hit by last years foot and mouth outbreak. Third, the terrorist attacks of September 11 have dissuaded tourists. Fourth, the global technologies slowdown has impacted on &#39Silicon Glen&#39.

Weak economic performance north of the border is not a just a recent phenomenon however. Scottish growth since 1995 has averaged only 1.9 per cent compared with 2.7% for the UK as a whole. Scottish manufactured exports are running at a lower level than 4 years ago while the number of people living in Scotland has been falling since 1995. If present rates of growth are projected ahead, Scotland within 50 years will be a poorer country than Greece or Portugal and not a long way ahead of Poland or Turkey.

Scotland&#39s economic strategy has been based on incentivising inward investment and relying on major domestic sectors such as financial services and the energy industry. Looking forward, international investment will be less easy to attract as companies worldwide cut spending – particularly those who might otherwise have been attracted towards &#39Silicon Glen&#39. Because of this, the cebr says, solving Scotland&#39s economic problems requires a new strategy.

1) Scotland needs to foster a culture of entrepreneurship. Scotland is constrained by a lack ofan entrepreneurship culture. Income from self-employment is 6% of income in Scotland against 8% for theUK as a whole and businesses per head of population north of the border are 17% lower than the UK average. Scottish banks, which are highly regarded in England for their support of small businesses, should work harder to lend to budding Scottish entrepreneurs.

2) A &#39negative tartan tax&#39 to incentivise moving to Scotland should be considered. This could be of the order of three pence in the pound. This would mean reduced public spending, but this may not be a bad thing as much public spending is highly inefficient. It would signal a freeing up of the economy and demonstrate reduced reliance on public spending on the part of Scotland&#39s politicians.

3) Another approach would be deregulation. The cost to an economy from a heavy regulatory burden on business can be huge &#45 not just affecting business costs but also reducing competition, slowing down new business creation and making an economy less flexible.

But the cebr warns that it would be dangerous to have excessive expectations of any of these, and it would be unrealistic to hope to offset the relative decline from the better part of a decade in a few months.