Can new Scottish Government reset its relationship with business?

As well as the historic appointment of a First Minister from an ethnic minority background, it is a cabinet of lots of firsts. It is the first time that a Scottish Cabinet has been made up of a majority of women, and five of the nine members of the cabinet are under 40. The Cabinet will be supported by 18 junior ministers, an increase from the era of Nicola Sturgeon.

As a personal aside, it’s also a good week for folk called Mairi, despite the latest statistics showing only eight girls were given that name in 2022. All those times having to spell out our name and teach folks how to say it are paying off!

From an economic point of view, the finance and economy briefs have been split once again. Finance and responsibility for the Scottish Budget have been given to Deputy First Minister Shona Robison, whilst Yousaf’s campaign manager Neil Gray has been made Cabinet Secretary for Wellbeing Economy, Fair Work and Energy.

So, what are these appointments likely to mean for the Scottish Government’s relationship with business?

This was discussed many times during the leadership campaign as an area of weakness for the Scottish Government, with the perception from many businesses and business organisations that the Scottish Government does not “get” business.

The reshuffle also saw the departure of Ivan McKee, Minister for Business, Trade, Tourism and Enterprise. McKee has been clear in his announcement and subsequent interviews that he was frustrated about his ability to make the changes he would have liked to the business environment. A formerly successful businessman himself, he was definitely seen by businesses and business organisations as someone who understood their concerns and priorities.

The new ministerial portfolios have caused some sectors concern. For example, there is no longer an explicit Minister for Tourism.

The description of the Economy brief leading with “Wellbeing Economy” is a signal, perhaps, that the National Strategy for Economic Transformation will survive the change of Government. For the uninitiated, this is a ten-year strategy that was published by the Scottish Government in March 2022 – fronted up by Kate Forbes as Cabinet Secretary for Finance and the Economy.

The key pillars of the strategy are to establish Scotland as a world-class entrepreneurial nation; strengthen Scotland’s position in new markets and industries; make Scotland’s businesses, regions, communities and public services more productive and innovative; ensure people have the skills they need at every stage of life; and finally, to reorientate our economy towards wellbeing and fair work.

These as overall priorities are very hard to argue with – and many are likely to welcome if the Government decide not to add to the landscape of strategy documents with a brand new approach. The question on the NSET is not the ambitions or vision – but rather, as is so often the case with Government strategies – about delivery. How are the actions of the Scottish Government actually contributing to the outcomes that they would like to achieve?

The delivery plans and government actions so far do not necessarily match up to the ambitions in the strategy. For example, one of the areas of focus under reorientation to a wellbeing economy has been around the implementation of No One Left Behind, the employability policy, which seeks to increase participation in the labour market for those who require support to do so. However, it was interesting that it was employability funding that was on the chopping block during the emergency budget review process that the SG went through in 2022.

The policies that are being pursued under the productivity pillar include a focus on digital infrastructure, investment in skill levels for senior managers, and a move to more regional development.

The Scottish Productivity Index, recently published by the CBI and KPMG, highlights some of the issues we have in Scotland in supporting our businesses and communities to become more productive. The index looks at the drivers of productivity to analyse where Scotland does well – and less well – in those areas which we know can help or hinder productivity. The Fraser of Allander Institute has supported the Productivity Index since it was launched in 2018 – we crunch all the numbers which underpin the analysis.

This year’s index highlights that despite some promising short-term movements in the indicators, many of the longer-term challenges remain in pursuing a more productive economy.

For example, business research and development spending continues its upwards trend we have seen for the past decade. However, as this is happening, it is still the case that Scotland significantly lags the UK as a whole, and also that the majority of spending is concentrated in a few areas of the country, particularly Edinburgh and the surrounds.

Scotland has always performed well on the measures of the skills of the population as measured by qualification level: not just across the UK, but internationally. At the same time, we have a clear sense from businesses that the labour force in Scotland does not always have the skills required to fill roles, from digital skills to softer skills around project management and delivery.

Labour market inactivity due to ill health and disability is much higher in Scotland than the UK average, and Scotland has a higher rate than every region of England. The rate of 32% for Scotland compares to around 20% for London and the south-east.

These are the challenges that the new cabinet secretaries and ministers will have to grapple with – many of which are long-term and difficult issues to tackle, including considering the role of the health and skills systems to boost productivity.

What is clear is that to deal with these challenges – and truly transform the economy – the Government will have to work in genuine partnership with businesses in Scotland.

Professor Mairi Spowage is the director of the Fraser of Allander Institute, an economic research institute at the University of Strathclyde