Government and business must work together to accelerate economic recovery amidst fierce battle for investment

Following almost two years of Covid-reduced revenues for many important sectors, staff shortages, cost pressures and disruption to supply chains, business is facing renewed uncertainty over the new Omicron variant of Covid.

With the rest of the world, and not least other parts of the UK, facing a similar set of pressing challenges, Scotland faces a race against time to reassert its competitiveness as a destination for top talent and investment.

Against this difficult economic environment, the Scottish Budget marks a pivotal moment to cement Scotland’s economic recovery and build the greener, fairer economy we aspire to.

Scotland’s best hope for turning ambition into action and pulling ahead of its rivals lies in creating a more attractive business environment, investing in people and connectivity and better capitalising on areas of competitive advantage.

In a letter to Finance Secretary Kate Forbes, CBI Scotland has proposed a series of priority interventions for the Scottish Government to consider ahead of the forthcoming Scottish Budget:

Enhance Scotland’s competitiveness to drive economic recovery

• Business rates relief should continue as the economy rebounds.
• Ensure an early return to a level-playing field on the Higher Property Rate by fulfilling a manifesto commitment to bring this back into line with England.
• Use the non-domestic rates system to support investment in low-carbon infrastructure by de-rating all green improvements.

Upskilling Scotland’s workforce

• Radically scale-up the National Transition Training Fund, with resources targeted towards high growth sectors and those facing most severe labour and skills shortages.
• Significantly expand the Individual Training Account model to incentivise lifelong learning.
• Support the development of short, sharp, industry-led college and university courses that deliver flexibility as we upskill and retrain the workforce.

Enhancing Scotland’s infrastructure

• Scale up the rollout of electric vehicle charging infrastructure and incentives to boost demand for low emissions vehicles as new petrol and diesel cars are phased out.
• Digitise travel across all modes of public transport with ticketless travel, smart payment options and multi-modal fare options.

Unleash investor confidence to seize the moment

• Develop a clear, joined-up ‘invest in Scotland’ pitch that resonates with investors and puts Scotland ahead of international and domestic competitors.
• Support clusters to build on world-beating expertise, e.g. in fossil fuel transition and renewable energy generation.

Further details are provided in the full letter to the Cabinet Secretary for Finance and the Economy, copied below.

Tracy Black, CBI Scotland Director, said:

“The emergence of the new Omicron variant is undoubtedly a cause for concern and has highlighted the importance of protecting public health while we build economic recovery. Firms recognise that this is a difficult balance for government and will continue to do their part by putting the safety staff and customers first as we learn to live with the virus.

“As we look to rebuild Scotland’s economy in the face of complex challenges and heightened global – and domestic – competition, we need to focus on key drivers of growth to ensure Scotland remains a top destination for talent and investment.

“That means creating an environment where business investment is rewarded, vital skills and infrastructure prized, and significant resources committed to areas – like the green economy – that offer the best chance for long-term success.

“Government alone can’t deliver Scotland’s economic recovery. We need private enterprise, whether from home or abroad, to step-up with the ingenuity, innovation and investment needed to get the economy motoring again.

“A Budget that sends a clear message that Scotland is competitive and open for business would be a real step-forward on the journey to a greener, fairer economy that creates opportunities for all. We’ve had plenty of discussion and debate, now is the time for delivery.”

FULL SUBMISSION: CBI Scotland business priorities for the 2022-23 Scottish Budget

Dear Cabinet Secretary

As you prepare your Budget for 2022-2023, I wanted to follow up on our recent meeting with further insights from our members across Scotland on key priorities.

Heading into 2022, many firms find themselves at a critical juncture. Consumer confidence continues to be weak, as businesses up and down Scotland attempt to clawback nearly two years-worth of reduced revenues. Reasserting Scotland’s competitiveness will be critical in the forthcoming Scottish Budget, shaping the business environment for years to come.

As businesses adjust to the ending of furlough, early signs suggest Scotland’s job market has shown resilience – but that resilience hides significant challenges. As you know, many sectors – from hospitality to manufacturing, retail to construction – face an immediate crisis in attracting the right skills and talent to fill vacancies now. Ensuring the Scottish economy has the right balance of skills is essential to drive Scotland’s economy forward in the short, medium and long-term.

Whilst there are immediate challenges, there are also opportunities to be grasped. One of the successes of Glasgow’s role in hosting the COP26 summit was the strength of commitment from the business community to bring fresh impetus, innovation and ingenuity to deliver on net zero targets. Businesses in Scotland stand ready to work with the Scottish Government in seizing the post-COP26 momentum, and build a strong, growing economy that is both greener and fairer.

Unlocking business investment and boosting productivity are crucial to our economic recovery. Success can only be achieved through collaboration, where business works in partnership with the Scottish and UK governments, and both governments work together. Cooperation is vital to ensure Scotland does not miss out on economic opportunities, now and in the future.

Working with our members, CBI Scotland has identified three overarching priorities for the Budget, with actions that can be taken now to help grow the Scottish economy, create long-term sustainable jobs and build back from the pandemic. Firstly, having smart taxation that rewards investment, particularly focusing on creating a whole-system approach that enables tax incentives to support decarbonisation. Secondly, delivering new skills for new markets to ensure Scotland has the necessary workforce to cater to the industries of today and tomorrow, and unleashing investment to enable the development of infrastructure.

Thirdly, the role of government as a market maker, providing investor confidence through policy certainty and direction, building on Scotland’s existing economic clusters, and finessing the pitch for investment into Scotland.

ENHANCE SCOTLAND’S COMPETITIVENESS TO DRIVE ECONOMIC RECOVERY

Ensuring Scotland’s tax base is competitive will be critical to bolster economic recovery. The pandemic has meant businesses have faced almost two years of lower growth, and uncertainty about the future. Whilst government support during this period has been a lifeline for many, firms are now seeking a fair tax base which recognises the many challenges still facing businesses heading into 2022.

• Business rates relief should continue as the economy rebounds. Firms across Scotland are readjusting to the post-pandemic realities, and many in the hospitality, retail, tourism and aviation sectors are still operating well below pre-pandemic levels. Extending the non-domestic rates discount and avoiding an immediate return to 100% business rates in April will help keep costs down for firms and enable businesses to plan for future growth.
• Ensure an early return to a level-playing field on the Higher Property Rate. An early delivery of the manifesto commitment to bring the Higher Property Rate back into line with England will ensure firms in Scotland are not at a competitive disadvantage and send a strong signal about Scotland as a place to do business.
• Use the non-domestic rates system to support investment in low-carbon infrastructure. Any green improvements made to properties should be de-rated and not lead to higher rates bills – ensuring the system incentivises rather than penalises investments that will support the journey to a net zero economy.
• Avoid further divergence on income tax rates. With consumer confidence remaining weak and additional national insurance contributions coming into force next year, the Scottish Government should avoid further divergence from the rest of the UK on income tax rates.

ENABLING GROWTH TO DELIVER A FAIRER AND MORE INCLUSIVE SOCIETY

Skills and infrastructure are key enablers of economic growth. The economy is currently facing a high number of vacancies but a low supply of critical skills and labour. Greater flexibility in the skills system and more support for upskilling and retraining are needed to help firms address these challenges. The pandemic has shown the potential for new ways of working – but the success in any future hybrid working model can only come with the right physical and digital infrastructure in place.

1. UPSKILLING SCOTLAND’S WORKFORCE

• Radically scale-up the National Transition Training Fund. In the next 10 years, nearly 400,000 workers will need radical retraining as jobs fundamentally change, while nearly 2.5 million will need some form of upskilling. The Scottish Government should target funding this year at the occupations currently facing the most severe skills and labour shortages as well as high growth sectors.
• Introduce a ‘skills wallet’ for everyone over the age of 25. There are over 750,000 economically inactive people across Scotland, with a significant proportion of those aged between 50 and 64. Significantly expanding the Individual Training Account model would incentivise lifelong learning by supporting people to invest in their own skills at key points throughout their career and help return individuals to the job market.
• Support the development of industry-led courses. Working with universities and colleges to provide targeted funding for flexible, short courses will be key. This should include recognition of the importance of part-time provision to upskill and retrain those already in work. Simplifying the existing skills system for experienced workers would also help attract those who are of working age but may have been outside of formal education or employment for a considerable period.

2. ENHANCING SCOTLAND’S INFRASTRUCTURE

• Scale up the rollout of electric vehicle charging infrastructure. Fast-track funding and planning for a rapid expansion and acceleration of electric vehicle charging infrastructure. Infrastructure investment should sit alongside an increased incentive package to help boost demand for electric vehicles and facilitate the change in behaviour required to meet the target of phasing out new petrol and diesel vehicles by 2030. The Scottish Government should also mandate that new-build homes and offices include EV charging points as early as possible.
• Digitise travel across all modes of public transport. The Scottish Government should also deliver a digital ticketing transformation across public transport, with smart payment structures and multi-modal fare options, that responds to customers’ needs. Integrated travel between rail, bus and tram will help encourage travellers to think about their journey modes and reduce complexity. Ticketless travel across other large multi-modal transport networks in the UK has been in existence for a number of years and travellers in Scotland risk being left behind.

UNLEASH INVESTOR CONFIDENCE TO SEIZE THE MOMENT

Scotland – like the UK as a whole – has suffered from stubbornly low levels of investment before the pandemic, falling below many of our international peers. Business investment as a share of Scottish GDP fell by 1.2 percentage points in 2020, meaning Scotland’s performance is now below the long-term trend. Having a clear pitch on inward investment – and promoting growth areas – is critical in developing new skills and creating jobs. This, in tandem with strong export support and a competitive tax environment, can provide a significant foundation on which to build the economic recovery in Scotland.

• Develop a clear, joined-up ‘invest in Scotland’ pitch. Competition to secure investment is high. Scotland shouldn’t just be looking at competition overseas, but within the UK too. With England’s Metro Mayors now firmly established, many are focusing on clear business pitches to investors. This new wave of competition for Scotland can be an opportunity for the Scottish Government to work with businesses in developing a refreshed pitch to encourage new investment. This should include identifying locations that can draw in fresh funding and building on existing economic strengths.
• Support new clusters to build on world-beating expertise. The continuing success of Aberdeen as an economic cluster is essential – not only for the north east, but the wider Scottish economy. As the region transitions from oil and gas, it is critical that the skills across the supply chain alongside existing investment for ready-made projects, is not lost, and those skills are re-directed within Scotland. To ensure these highly sought skills are not lost, the Scottish Government should work with industry to develop a clear future planning cycle. This would enable future economic growth clusters in energy – such as offshore wind, and tidal power – where Scotland is already leading the way, to build on existing skills and unlock investment.

The above suggestions are just some of the ways in which the Scottish Government can use their levers to build a stronger, more productive economy. In the coming weeks, CBI Scotland, in partnership with KPMG and the Fraser of Allander Institute, will be publishing the 2021 Scottish Productivity Index. The Index tracks Scotland’s productivity performance across 15 indicators, in four categories: business practices, skills and training, health and wellbeing, and infrastructure and connectivity. It also makes recommendations for actions both business and government can take to improve productivity, informed by a Business Advisory Group. I look forward to sharing that with you soon.

As always, I would welcome the opportunity to discuss any of the above in greater detail and look forward to continuing our constructive relationship.

Yours sincerely

Tracy Black

Director, CBI Scotland