Latest productivity index shows Scotland lagging behind the rest of the UK

The annual CBI-Fraser of Allander Scottish Productivity Index is published today with a call for businesses and the Scottish and UK governments to work together to unlock investment, build sustainable growth, and help Scottish firms achieve success globally.

The index measures Scotland’s key productivity indicators against other parts of the UK, and international competitors, including business investment, exports, skill shortage vacancies and sickness absence and economic inactivity.

The findings show Scotland’s productivity trailed in 10 of the 13 productivity indicators for which comparable data is available with the rest of the UK. Scotland’s percentage of economic inactivity due to long-term sickness also remains the highest of all the four nations at 37.1%.

Cautious optimism

But it suggests cautious optimism for the Scottish economy as it continues to make a steady recovery from supply chain disruption caused by the COVID-19 pandemic and Brexit.

It also shows helping people back into the workplace after long-term ill-health and fixing infrastructure will contribute to a successful green transition and more resilient economy of the future as Scotland seeks to deliver green growth and the pledge of 2045 net zero.

The findings also show business investment as a share of Scottish GDP contracted by 0.3% in 2022 to 9.5%, underperforming the UK which in the same period, had a 0.3% rise to 9.8%.

Recovery signs

While Scotland lags the UK on trade openness, both economies are showing clear signs of recovery since the pandemic slump in 2020. But although Scotland’s share of innovation-active businesses continues to rise, the pace of growth in this area is below the UK average and fell by 5.9 percentage points in the latest research period from 2016-2018 for this particular indicator.

Scotland had the highest percentage of the working-age population with higher education certificates or above at 50%, surpassing the UK average.

Professor Mairi Spowage, Director at the Fraser of Allander Institute at the University of Strathclyde, which provided insights that informed the report, said:

Despite improvements in the openness of the economy over the last two years as it shrugs off the supply chain and trade jolts of COVID-19 and Brexit, the latest index highlights that Scotland’s productivity is still lagging the rest of the UK’s performance. This is due mainly to the strength of London and the Southeast of England.

“There’s still plenty of work needed to improve workforce health with the indicators suggesting a worsening of the situation with regard to sickness absence and inactivity in the last year. This is supported by wider evidence, such as the increases in the numbers of people claiming disability-related benefits. There is an urgent need to get on top of pandemic legacy issues around long COVID and mental health, and to tackle the long waits for NHS treatment.”

Professor Spowage said that a key plank of the National Strategy for Economic Transformation (NSET) is focused on getting people back into the jobs market via investment in employability programmes, but added: “However despite a 10-year strategy, NSET is already being reviewed and refreshed. Some of the investment needed to support people back into work has often been subject to in-year budget cuts in the last two years, which means it has not materialised.”

Improve productivity

Tracy Black, CBI Chief Strategy Officer and Devolved Nations and Regions Ambassador, said: “The CBI-Fraser of Allander Productivity Index shows a decrease in business R&D spending as a percentage of Scottish GDP. Scottish firms must look at how they can embrace productivity through innovation and technology. Our shortage of skills and an ageing population means businesses have to look at other options such as new technology and innovation to make processes more efficient and improve productivity.

“Scotland has a highly educated workforce. We need to make sure they are contributing to sustainable economic growth by cultivating leadership skills, enhancing digital proficiency and integrating new technology.”