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Inequality is the ‘legacy of recession’

DFM to address Brussels policy think-tank on Scotland’s economic plan.

Scotland’s economic strategy has set a dual mandate to deliver economic success alongside a fairer and more inclusive economy; this is what Deputy First Minister John Swinney told Brussels based think-tank, Bruegel, yesterday (September 21).

Mr Swinney told the Bruegel think-tank that inequality reduces growth across the economy and that the economic crisis exacerbated a situation in which not every group in society was able to share in the proceeds of growth.

He highlighted that in the majority of OECD countries, the gap between rich and poor is at its highest level in 30 years, with the ratio between the richest 10% and the poorest 10% in OECD countries now almost 10 to 1 compared to 7 to 1 in the 1980’s.

Mr Swinney illustrated that many aspects of the Scottish Government’s agenda for Scotland match the European Commission’s country-specific recommendations for the UK as a whole, such as:

  • prioritising capital investment
  • boosting housing supply and improving the operation of the planning system
  • improving delivery of apprenticeships
  • reducing the number of young people with low basic skills
  • further improving the availability of affordable, high-quality full-time childcare

Mr Swinney said yesterday:

“Scotland’s economy has now grown for 11 consecutive quarters - its longest period of uninterrupted growth since 2001. Employment rates are higher than those in the UK. We have experienced strong export growth and excellent performance in terms of securing inward investment.

“But despite our performance, we are dealing with the legacy of the recession. Output and employment are back above their pre-recession peak, but challenges remain in our labour market – including underemployment, productivity and stagnant real wages. Consequently, inequality becomes a problem for business.

“The legacies of the recession are visible across Europe, with some economies being characterised by persistent unemployment, and additional pressures arising through the current humanitarian crisis arising from a significant increase in the number of refugees reaching Europe.

“OECD researchers estimated that rising income inequality in the UK reduced economic growth in output per head by 9 percentage points between 1990 and 2010 – that’s approximately £1,600 for every person in the country. Likewise, IMF research – examining 173 countries over 50 years – has shown that more unequal countries tend to have lower and less durable growth.

“We recognise that the two challenges – of competitiveness and equality – aren’t separate issues. They are connected. And this is why tackling inequality and boosting competitiveness are both at the heart of our approach to Scotland’s Economic Strategy – the 4 ‘I’s – investment, innovation, internationalisation and inclusive growth.

“Our fourth ‘I’ – inclusive growth – cuts right across our priority areas. It is embedded within our intentions to invest, to promote internationalisation and innovation so that the benefits of growth can be shared more equally across all sections of our society – from early years, childcare and education, to the provision of affordable housing, improving wages and working conditions and boosting productivity.

“It is an ambitious strategy, the delivery of which is made all the more challenging in the context of continued austerity and budget cuts imposed by the UK Government. In the July budget we saw dramatic cuts to benefits and tax credits for those low pay alongside a freeze on working-age benefits.

“These measures have, in effect, shifted the balance of austerity cuts from public services to the public themselves – reforms to tax credits alone will reduce the incomes of more than 200,000 households in Scotland by an average of approximately £3,000.

“This approach to public finances has only increased the challenges we face around inequality, with some of the harshest impacts being felt by the most vulnerable in society.

“In contrast with the approach of the UK, the Scottish Government has continually argued for more gradual deficit reduction alongside a programme of investment.”

Mr Swinney continued:

“It is a year since we had our referendum on independence in Scotland.

“The engagement and discussion that this process brought about also demonstrated a fundamental belief in enduring values - on both sides of the debate - a belief in enterprise, a faith in the value of education and a commitment to fairness and solidarity.

“And, in a sense, our challenge is to harness this engagement and participation and apply it into the delivery of our economic strategy.

“We are determined to make progress against our economic strategy. We remain committed to creating the conditions for our businesses to thrive, at the same time, we are committed to improving productivity by promoting inclusive and sustainable growth.

“We’re confident that we’re on the right path – we see a lot of overlap in what we are trying do with the recommendations of the likes of the OECD, the IMF and the European Commission. But we also know that this approach requires us to be focused on delivering growth in an inclusive and sustainable way.”

Notes To Editors

Bruegel is a European think tank that specialises in economics. Established in 2005, it is independent and non-doctrinal. Bruegel’s mission is to improve the quality of economic policy with open and fact-based research, analysis and debate. It is committed to impartiality, openness and excellence. Bruegel’s membership includes EU Member State governments, international corporations and institutions.


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