Scotland lags UK average in majority of productivity indicators, study finds

Scotland lags the UK average in the vast majority of indicators tracked by an annual productivity index, highlighting the increasingly pressing challenge of improving the nation’s economic performance.

The Scottish productivity index produced by the CBI, the employers lobby, and advisory services firm KPMG, reported declines in business investment and in the proportion of companies actively innovating, as well as high levels of workplace sickness absence and poor internet speeds.

Scotland was behind the UK average in nine of the 13 productivity indicators for which comparable data was available, it found.

“While the latest index data shows we are making improvements in some areas, the fact we continue to lag behind domestic and international competitors overall shows the need for rapid remedial action,” said Tracy Black, CBI Scotland director.

The Scottish Fiscal Commission, an independent watchdog, warned this month that despite a continuing recovery from the coronavirus slowdown there was evidence Scotland’s economy was lagging the UK overall.

The commission pointed in particular at declining North Sea oil and gas activity and falling labour market participation caused in part by an ageing population.

“We expect slower growth in earnings and employment in Scotland to continue over the next few years,” it said. “This has important implications for tax revenues and the Scottish budget.”

The UK’s exit from the EU is expected to add to Scottish demographic difficulties by making it harder to attract immigrants from continental Europe, adding to the urgency of finding ways to improve productivity.

The Fraser of Allander Institute, an economic think-tank at Strathclyde university that is a research partner for the productivity index, this month separately highlighted concerns that “long Covid” could have an extended impact on the health and productivity of the Scottish workforce.

“Longer-term scars of the pandemic make overcoming challenges like the productivity puzzle all the more difficult,” the institute said.

The CBI/KPMG index, which was started in 2019, tracks Scotland’s productivity performance across 15 indicators in the categories of business practices, skills and training, health and wellbeing and infrastructure and connectivity.

It found business investment as a share of Scottish gross domestic product fell 1.2 percentage points in 2020 to 7.4 per cent, below the long-run average. The percentage of “innovation-active” businesses had declined to 32 per cent in 2016-18 compared with 45 per cent in 2014-16, it said.

Scottish average internet download speeds at 1.1 Mbps were below the UK average, it said.

The Scottish government said its draft budget published this month addressed many of the issues raised by the productivity index report, including increased spending on training and for the new Scottish National Investment Bank to invest in sustainable businesses.

“In addition . . . we will shortly publish a 10-year national strategy for economic transformation,” the government said.

Daniel Johnson, economy spokesperson for the opposition Scottish Labour party, said the report showed the damage inflicted by the Scottish National party government since it took power in 2007.

“Years of economic mismanagement has left us lagging behind, making our recovery from the pandemic even more of an uphill battle,” Johnson said.