For Sceptical Scot John McLaren weighs options, opportunities, obstacles and highlights an oddity in the Muscatelli Report
Anton Muscatelli’s report for the Scottish Labour Party on Regional Economic Development in Scotland is, as you would expect from such an experienced economist, a very thorough analysis of what needs to be done to improve the economic performance across the nation.
In ten chapters across over almost fifty pages it makes dozens of recommendations that would no doubt, if implemented, improve the situation and bolster growth. In particular, it highlights the need for consistency and clarity of purpose and for greater cooperation and coherence across UK, Scottish and local levels of government.
It is worth pointing out that this is not an economic development plan but a regional economic development plan (REDP). The difference is important as, if you think getting growth going in the current environment is difficult enough, try ensuring that such growth is well distributed across rich and poor and across urban and rural areas. Not easy, not easy at all.
The funding crisis minefield
In some ways it reminds me of the UK Government’s Framework for Levelling Up the UK White Paper from 2022. Steered by the politician Michael Gove and the economist Andrew Haldane, this was an extremely ambitious and very well-presented attempt to try and address growing geographic inequality across the UK. Its downfall – and I suspect that the authors knew this but published regardless – was that it was never going to be funded to anything like the degree that was needed to make it work. I foresee the same problem facing this report.
Before discussing some of the challenges in more detail it is worthwhile highlighting the oddity that this work has been carried out on behalf of a party that is very unlikely to be in power after the 2026 election. Unless political opinions amongst the electorate change drastically in the next six months then the SNP will be leading the next Scottish Government. So, in effect, it is as much, if not more, a report aimed at influencing SNP policy and which must take into account their past behaviour in order to judge how successful it might prove to be.
This takes us into the minefield of the funding crisis that faces both the UK and Scottish Governments. As Muscatelli points out, the future Scottish Government is already facing a near £5 billion funding gap by 2029-30. However, the report goes on to propose a number of areas where extra funding is needed in order to make its REDP work, including with regards to the Enterprise Agencies, Higher and Further Education, Planning and much more. Some funding needs might be met through private sector involvement, but much will come from the Scottish Budget.
The report is silent on where this money will be found, either in terms of raised taxes or cuts to other budgets. It may be perceived as beyond his remit but, given the constrained financial circumstances, it is disingenuous to propose such costly interventions without helping identify a funding source.
To highlight the importance of this constraint on the REDP’s viability we can look at the main options available.
No tax, no spend, no reform, no new money
On the revenues side, the report suggests that Scottish income tax rates are already too high vs the UK. Furthermore, Anas Sarwar and John Swinney have both stated their opposition to further widening the differential.
On the spending side, cuts to the health budget seem out of bounds, especially as needs based spending per head in Scotland is already lower than in England. Equally, the Local Government budget needs more money not less. These are the two biggest budgets.
On the thorny issue of free tuition fees, again both Sarwar and Swinney are not even willing to discuss reform. Muscatelli himself proposes the setting up of a commission. That really isn’t good enough, especially as he highlights both the University sector’s importance at the forefront of policies to revive economic growth and the financial threats to it due to inadequate funding.
There is one possible source of funds, the £900 million extra that the Scottish Government is forecast to spend on devolved benefits (e.g. Scottish Child Payment) by 2027-28, compared to the UK. That’s a lot of money and it could fund much of what is proposed but using it would mean reversing these social payments and result in the child poverty rate heading back up. Again, difficult to see either Sarwar or Swinney accepting such a situation.
So that leaves us without any obvious sources to fund the report’s recommendations, even before the next Scottish Government faces up to the £5 billion looming funding gap. As a result, the reader is left to try and piece together what might actually be achievable without much, or any, new money.
Shift the dynamic
This could still be considerable, especially in terms of changing the mindset and working practices of the Government and Parliament. The emphasis on better co-operation across local Scottish and UK governments is well merited, even if making it work in practice will not be easy.
So too the “the creation of an Economic Growth/Productivity Cabinet Sub-Committee, chaired by the First Minister with participation by the Economy and Finance Cabinet Secretaries to oversee delivery of the economic and industrial strategy.” To my mind this proposal should go further, with the creation of a Treasury type Ministry and Cabinet position with considerable influence and power. Such a move could help shift the dynamic within Holyrood – which, in Anwas Sarwar words, “largely felt like a social policy Parliament rather than an economic policy Parliament” – so that it is at least economic policy mindful and with greater appraisal of social policy spending.
None of this will be straightforward. From his many years on the Scottish Government Council of Economic Advisers and as part of the advisory council in 2022 for the ten-year National Strategy for Economic Transformation, Muscatelli will be well aware of the forces of conservatism bent on undermining any such radical change.
Greater Glasgow could learn from Greater Manchester
One particular aspect of the report I found fascinating is its comparison of Scotland and Greater Glasgow with what is happening in the economies of thriving English areas, like Greater Manchester.
I live about a mile away from the University of Manchester and there is a buzz around the Oxford Road University corridor that is not seen in any Scottish – and few other English – cities. This is in part to do with the original University merging seamlessly with the Business School, then the Metropolitan University and then over to the Norther Campus (UMIST as was), with Salford University not that far away.
Such an environment is rich in possibilities for intellectual cross fertilisation of knowledge and ideas and the international exchange of experiences and cultures. Some of this is managed and some will come from the students themselves. Not easy to replicate but Glasgow does have the original University moving over to the Stow Building, the main Art School and then the Caledonian and Strathclyde universities.
Other factors of interest and which might have been impactful in Manchester’s relative ascendency include:
– A major international big airport, with Liverpool airport acting very much in a subsidiary role, while central Scotland has two competing, lesser, airports.
– A tram system that has been built up to connect the city with surrounding towns like Rochdale and Oldham.
– The regeneration of a wasteland to the east of the city, based around the 2002 Commonwealth Games, now the Etihad complex and incorporating Manchester City’s ground. Contrast this with what happened in Glasgow. While on the other side of town, Media City is revitalising the old docklands area of Salford.
– A city centre that has gone from a ‘no-one lives here’ scenario to a thriving community, largely based on new build, high rise, blocks of flats, with the 76 story Nobu tower being the latest addition.
– A travel time of just over two hours by train to Euston Station. It can take longer to get from one side of Glasgow to the other side of Edinburgh.
Where is the will?
Manchester is Manchester and Scotland is Scotland but there is at least a mindset issue that is relevant here.
When I first came to Manchester in 1979, the area around Oxford Road was beyond bleak and the city as a whole was behind Glasgow in its regeneration until at least the 90s. The turnaround wasn’t quick but even pre-Mayoral days there was a drive to deliver in economic terms. As the Mayor and other players have few powers with regards to the likes of health and education, they steer more towards maximising the economic leverage they can bring to bear on changing the city.
Meanwhile, in Scotland, post devolution, the reverse is true. There is so much scope to impact on public services that what potential exists to impact on bread-and-butter economic issues like jobs, inflation and the standard of living is largely overlooked.
Post publication, what might the legacy of the new report be? I suspect it could be similar to that of the Mirrlees Review of Taxation undertaken for the Institute for Fiscal Studies back in 2011. This was, and still is, an important and far-reaching analysis of the UK tax system and forcefully puts the case for radical tax reform, which would both improve fairness and engender economic growth. Unfortunately, its practical influence has been negligible as it has proved too challenging for politicians to adopt to any great degree.
At present, the Scottish Parliament is even less inclined to seek radical solutions than the UK Government. As long as council tax rates are based on 1991 house valuations then don’t expect much bravery in taking forward far-reaching economic policies, especially if they come at a cost.
Further Reading
Douglas Fraser – Muscatelli Report What will it take to grow Scotland’s Regional Economy
IPPR Scotland – Scotland Economy’s ‘low-hanging fruit’
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