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The report is a serious and thoughtful analysis of what is and isn’t working in Scotland’s economic development eco-system.

On Monday I was fortunate enough to attend the launch of the report ‘Regional Economic Development in Scotland’ prepared by Professor Anton Muscatelli for Scottish Labour in advance of next year’s election.

The report is a serious and thoughtful analysis of what is and isn’t working in Scotland’s economic development eco-system. It sets a high standard for the campaign to come and it would be nice to think that manifestos will soon be offering serious policy prescriptions for the challenges it identifies.

Much of the report is uncontroversial. Muscatelli’s largely unfavourable critique of the current design and implementation of Scottish government economic strategy is entirely fair, and, it should be stressed, widely shared. While I would contest the view (expressed at the launch if not in the report) that economic development has never been taken seriously in post-devolution Scotland, it does seem to have received lower priority in recent years; there is little clarity of purpose and nothing approaching a national consensus around aims and objectives.

Muscatelli’s call for ‘greater devolution of powers to Scotland’s city regions’ reflects the emerging consensus that centralisation of devolved political power in Holyrood has had negative consequences for national and regional economic development. He is right to shun knee-jerk replication of the Combined Mayoral Authority model in Scotland, arguing persuasively that “Scotland ought to take a considered approach reflective of its own unique functional economic geography and political structure, and one cognisant of the dominant and different regional economies in the central belt”.

Reasonable people will of course disagree about the precise functional geographies and models of economic governance and it will be fascinating to compare manifesto propositions in this respect.

The report also offers a balanced perspective on Scotland’s – in my view, often unfairly maligned - enterprise agencies, acknowledging both the positive feedback from firms benefiting from agency support and the constraints imposed by a persistent decline in budgets. Recommendations that the agencies must improve at explaining their role and impact and be subject to international benchmarking should help protect against the noise created by often poorly informed critics.

The recommendations around “the development of a strategic economic function within the Scottish Government” are sensible given that the apparent scattering of responsibility in recent years has contributed to the lack of focus and intent.

It would be strange if there were no areas of contention in a report of this nature. The chapter on regulation fails to provide evidence to justify the frustratingly widespread view that “overlapping and often poorly designed regulations (occasionally, some would argue, devised in a vacuum from the business community) have produced a somewhat complex and costly system for Scottish and UK business”. The only evidence cited for this claim is a 2024 Department of Business and Trade white paper which, by its own admission, is finger-in-the-air stuff based on 20-year-old research.

Is ‘red-tape’ really throttling growth in Scotland? In 2023, the OECD assessed the UK product market to be the second least stringently regulated among its membership. The labour market also remains lightly regulated by OECD standards. Even if the Employment Bill is implemented in full, the UK would only move towards European norms. Surely Scotland (and the UK’s) very long-term deficit in business investment is better explained by endemic short-termism and an economic structure dominated by (relatively low investment) services?

Muscatelli also argues that “Scotland’s higher marginal income tax rates could be a major disincentive in attracting high value jobs”. They could be…but, as Muscatelli himself acknowledged in interviews over the weekend, we really don’t know.

We do know that net migration from the rest of the UK into Scotland has grown robustly since the income tax systems started to diverge. We also know that locational decisions are based on a variety of factors. Perhaps quality of life and lower housing costs are trumping higher marginal income tax rates?

Until all the relevant outturn data are available, it would make sense to moderate views on tax divergence. But I would agree that we can’t continue to rely on higher earners to fund higher Scottish government spending. If we want to live in a fairer, kinder Scotland reflected in measures such as the Scottish Child Payment then we will all have to pay for it.

There are two final issues on which Labour and, other parties, should reflect further.

First, in the foreword to the report, Prof Muscatelli states that a ‘central theme of my recommendations is that the Scottish Government must … act as a convenor, bringing together business, civil society and communities to drive shared prosperity for Scotland’ a point reiterated at the launch.

But although the report talks at length about institutions and official processes, it has little to say on how a broader ‘shared national mission’ might be built and sustained. Other European countries have developed deeply embedded processes – formal and informal – for precisely this task. We should learn from them.*

Secondly, as the economic debate intensifies over the election campaign, there has to be a degree of realism about the ability of devolved economic policy to affect the rate of growth (and in turn, ease pressure on the public finances) over the next Parliament.

On this I’m somewhat pessimistic. It is entirely feasible that the next administration could implement every recommendation in this report and see little real benefit in terms of aggregate growth. Geopolitics, secular demographic trends and tightening UK macroeconomic policy could easily swamp all the good work at devolved level.

At the launch, Anas Sarwar was asked about his previous claim that the next Scottish government will be able to grab the ‘low hanging fruit of economic development’ left untouched by the current SNP administration. In response he discussed the potential for new nuclear build in Scotland.

This serves to emphasise that low hanging fruit is actually in short supply. A Labour administration might be able to commit to new nuclear development at no additional cost. But the process which would be expected to result in a new nuclear power station (or stations) would be long, complex and expensive, rendered all the more difficult by the lack of relevant capacity in the Scottish government. The fruit of new nuclear capacity isn’t hanging low, it’s far up in the canopy obscured by multiple obstacles, some known, some not immediately recognisable.

The Muscatelli report raises numerous other issues not covered here, not least industrial strategy and immigration. IPPR Scotland looks forward to contributing on these and other issues over the coming months.

*IPPR Scotland’s ‘More than a Safety Net’ project will have more to say on this issue over coming months.