Scotland is making some progress, but still falling short on leading indicators of productivity.
The fourth annual CBI and KPMG Scottish Productivity Index looks at key indicators, including business investment, job vacancies and sick leave, to measure Scotland’s performance against other parts of the UK or international competitors.
In 2022, Scotland lagged in 11 of the 13 productivity indicators for which comparable data is available.
Overall, productivity growth slowed recently. While labour productivity, in terms of output per hour worked, increased by 1.2% in the UK, Scotland’s productivity remained unchanged in 2021.
However, closer examination of the data shows progress is being made, particularly in the short-term. The index revealed that nine of the indicators, for which comparable data is available, showed signs of improvement.
In particular, four out of the five indicators around business practice improved, including business investment, research and development spend and innovation-active businesses. In skills and training as well as infrastructure and connectivity, all indicators have turned green, which shows promise.
There was also a sharp increase in long-term ill health, however, and while skills and training look positive, this hasn’t translated into higher productivity.
Looking at the long-term, the outlook is still challenging, with six indicators in particular requiring focus.
Long term ill-health increased by 2.3% in under a year and is above the UK average of 25.8%, at a time of record workplace vacancies.
While business practices have improved in the short-term, the long-term outlook is not on track for some firms. For example, business investment on the whole lags the UK, which itself is below its long-term trend.
Exports, as a share of Scottish GDP, is a mixed picture.
This trend is slightly downwards, and trading conditions remain complex. However, if the short-term improvements continue, the indicator is expected to turn positive.
The report stated that many businesses are looking for the Scottish Government to show leadership by putting in place the right conditions to promote resilience and economic stability.
This includes dealing with labour, skills shortages and unlocking private sector investment that will help overcome the cost-of-living crisis and deliver a fairer, greener and more economically-inclusive Scotland.
Scotland currently has high levels of employment, but firms are struggling to hire skilled staff to fill vacancies which is hampering their potential to develop and grow.
An area of focus, therefore, must be helping those who would like to work, back to work, particularly those affected by long-term ill health, the report noted.
It also stated that Scotland is failing to make the most of its wealth of experience and high levels of educational attainment.
KPMG and the CBI argued that the Scottish Government should:
- Refocus and match ambition with delivery on the National Strategy for Economic Transformation.
- Make the most of Scotland’s leading universities and colleges, by offering flexible and targeted courses to support lifelong learning.
- Future-proof the workforce to develop Scotland’s successful finance, legal and business services; advanced manufacturing; life sciences and broader technology, including clean tech and deep tech sectors.
- Ensure every sector and part of Scotland has a role to play and that there’s a clear plan to achieve net zero, working with Westminster and international partners to develop green growth, whether that’s on retrofitting buildings, electric vehicle charging points, or carbon capture, utilisation and storage.
- Collaborate with businesses to make good employee health and wellbeing a precondition for economic growth, giving firms access to a stable and thriving labour market.
Tracy Black, director of CBI Scotland, said: “The new First Minister has an opportunity to re-focus the government’s energies on delivering economic growth, bolstering productivity and building a greener, fairer, more economically-inclusive society.
“ScotWind, the new green freeports in Cromarty Firth and the Firth of Forth; the announcement in the UK Budget that Scotland will get at least one investment zone, and the roll-out of superfast broadband to rural communities, all have the potential to be a game changer for improving productivity.
“For too long we have talked about Scotland’s potential; however, without decisive action that potential is being chipped away.”
James Kergon, Scotland senior partner for Scotland at KPMG UK, said: “Weak productivity growth undermines Scotland’s potential, constrains our competitiveness, stifles innovation, and impacts growth in every sense.”
Mairi Spowage, director at the Fraser of Allander Institute, which provided insights that informed the report, added: “What is clear through the indicators that we have analysed in this report is the role that health and the wider skills system may have in holding back the productive capacity of the economy.
“This will be something that the new First Minister will have to tackle head on.”
The index will take a slightly different approach in 2023, with a series of industry-led groups meeting to take a more in-depth look at the key themes to improve Scotland’s productivity.
These are: business practices; skills and training; health and wellbeing and infrastructure and connectivity.
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