Jeremy Peat: no excuse to dodge long-term economic strategy

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As we look to 2022, the economic crystal ball remains murkier than ever. To state blinding evidence, we don’t know how severe the impact of the latest wave of Covid will turn out to be, in terms of well-being in general or the economy in particular. We’ll have to live with Covid and its successors for some time to come, but that’s no excuse to delay long-term strategic thinking.

We can hope that the impact of this last variant, in terms of hospitalizations and deaths, will be less than in previous waves. If that hope comes true, it may mean that the foreclosure measures may be shorter and less severe than last time around, and therefore businesses and the economy may return sooner rather than later to their key tasks of returning to earlier levels of production and profitability – and beyond. This in turn would imply maintaining employment and still moderate unemployment – hopefully.

But we also face real concerns about inflation. In November, the CPI climbed to 5.1% and consumer goods price inflation 6.5% year-on-year, the highest level in more than three decades. In retrospect, it was not surprising that the Bank of England, after a long period of wobbling and wobbling, chose to raise interest rates slightly to the still abnormally low level of 0.25%. The CPI is expected to continue to rise at least in the first part of 2022. The BoE will undoubtedly be in a hurry to make further rate hikes in the coming months, especially if the restrictions are limited, the economic rebound. continues and unemployment remains low.

We all have to hope that the rate hikes will be gentle, given that the risks of the pandemic to the real economy remain so severe. Additionally, the combined effect of Covid, UK government fiscal policies and rising interest rates further distorts the distribution of income. Wages at the bottom of the ladder are expected to rise more slowly than inflation. The current increases in taxes and national insurance will affect the net wages of the lowest paid relatively more severely; they will also be disproportionately affected by the continued sharp rise in energy prices. Even if unemployment does not increase significantly, times will get tougher and tougher for many.

READ MORE: Jeremy Peat: Big call to rate fixers as variant fuels uncertainty

As we worry about these issues, it is certainly time to think carefully and rigorously about our longer-term ambitions. I fully share the concern of business leaders and others over the Scottish Government’s decision to delay the release of its national economic strategy. The current uncertainties should not be a justification for procrastinating on strategy, but rather reaffirm the need for solid reflection on key priorities and strategies in the years and decades to come. We need to jumpstart our economy in the desired direction.

The economy always assumes that resources are scarce. Priority decisions are critical in determining the optimal allocation of these scarce resources. Resources will be particularly scarce in 2022 and beyond, and allocation decisions must be made transparently on the basis of carefully specified priorities, accompanied by a rigorous analysis of the expected impacts of policies related to taxation, spending , etc.

The Scottish Government has likely identified three priority areas, each interacting to some extent with each other but also to some extent competing for resources. These areas, I suggest, are “efficiency”, “fairness” and “environmental sustainability”. I’m leaving the third of them for another day, although it’s not a trivial implication.

Taking efficiency first, Chris Van Der Kuyl in a recent Herald article rightly pointed out that Scotland must be ambitious and not be part of a “race to the bottom”. To even consider measures to improve equity and promote sustainability, we must work to achieve higher skills, higher investments and an increasingly innovative economy. The latest Scottish Productivity Index shows once again that Scotland is stagnant at best and lagging behind its domestic and overseas competitors. This long-held position must change if we are to achieve a vibrant, competitive and resilient economy. Achieving such progress will imply both a move towards reducing inequalities and also generate resources which can then be channeled into policies aimed specifically at this “leveling” objective.

READ MORE: Jeremy Peat: There’s no doubt the budget is working to reduce inequality in the UK

I repeat, sustained productivity growth requires a major improvement in the quality and quantity of investments, increased innovation and – most importantly – a renewed, strengthened and adjusted focus on education and skills creation more broadly.

The latest comparative data on the Scottish school system are not encouraging. Times have been tough for teachers and students alike, and evidence suggests that the skills acquisition gap has widened during the pandemic.

The finance minister’s budget announcement of funds for 4,000 additional teachers and support staff is welcome. However, increased funding is a necessary but insufficient condition for improvement. Teachers need to be allowed to use their time more creatively, for example by learning from the locking experience how best to combine face-to-face and online learning and skill development. Something akin to an education revolution could ensue, with the removal of some established restrictions.

At the same time, the concept of “lifelong learning” needs to be revisited in this new environment. All those – employed and unemployed – with limited skills must have the opportunity and the incentive to restructure in order to prosper in the new economic world. Finally, for now, it must be time to bring together and nurture the best of higher and further education, building on clear areas of excellence and once again eager to help generate a Scotland more dynamic, innovative and competitive, with positive expectations for all. We inevitably care about the here and now; but really needs to focus on achieving a vibrant and fairer post-pandemic New Scotland.


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