INTRODUCTION
Over the last year, we have witnessed the deepest recession in living memory. Output in Scotland has contracted by 6.0% since the second quarter of 2008 - reversing growth in output to levels in Q3 2005. What began as a financial crisis - striking hard in financial institutions across the world - has extended to impact on households across Scotland and throughout Scotland's economy. The challenges of tackling a recession on this scale are considerable - and there are many uncertainties in addressing the impacts of a downturn rooted in a global financial crisis - but we are now seeing tentative signs of growth in some areas of the Scottish economy.
Our skilled workforce and world-class business environment continues to make Scotland an attractive location for new investment. Despite the challenges in the financial sector, we've seen Scotland's competitive standing reflected in Tesco Personal Finance's decision to create 880 jobs in a new Banking Service Centre based in Glasgow, alongside its plans to site its new headquarters in Edinburgh. These are ambitious plans, matched by similar proposals for job creation and new investment in other sectors of the economy, across Scotland.
The pressures of recession continue to demand a flexible and responsive plan to ensure a return to sustainable growth and to provide support for Scotland's most vulnerable individuals and communities. Our efforts to address the economic downturn have evolved as the impacts of recession have unfolded. This is the third iteration of our Economic Recovery Plan. It is rooted firmly within the Government Economic Strategy, 1 which sets out our Purpose of increasing sustainable economic growth. We have aligned all of the Government's efforts to ensure that we continue to deliver Scotland's growth potential, as we look to emerge from recession.
The Economic Recovery Plan has been informed by an ongoing process of direct engagement with Scotland's key groups and communities. This year, the Scottish Cabinet has held meetings throughout the country, providing local groups with an opportunity to discuss economic recovery directly. Business breakfasts continue between Ministers and business leaders across Scotland. The National Conversation - with events throughout Scotland - has provided a forum for the citizens of Scotland to engage directly with Government on how best to generate higher levels of sustainable growth. The Plan therefore represents a broad framework for action across the public sector, drawing together our efforts to re-focus and prioritise our activity to maximise support for Scotland's households, communities and businesses.
Through this Plan, we ensure that every area of Government activity supports our commitments to deliver economic recovery and long-term sustainable growth by:
- supporting jobs and our communities;
- strengthening Scotland's education and skills; and
- investing in innovation and the industries of the future.
Assessing the impacts of recession in Scotland
Recession has made the Government's focus on sustainable economic growth even more critical. A year since the first signs of a major downturn became apparent, we now have a deeper understanding of the impacts of recession in Scotland and the progress we have made through the implementation of our Economic Recovery Plan. A recession of this depth will continue to affect Scotland in fundamental ways - from the tangible and immediate pressures on employment and the drop in demand for Scottish goods and services, to less visible effects in the longer term on the makeup
of our communities and on the health and wellbeing of Scottish people. This update to our Plan presents an early assessment of the changes to Scotland that have been driven by the downturn - and the opportunities for future growth that this creates.
Delivering long-term growth by meeting the employment challenge
As confidence returns to the Scottish economy, there remain challenges. Following a global downturn, demand for Scotland's goods and services will take time to return. Economic commentators have warned of an uneven path to recovery, and growth in the economy may not be matched by corresponding increases in employment. The major challenge therefore lies in tackling unemployment and its damaging effects - focusing on the long-term goal of restoring growth in output and raising Scotland's economic performance through increased levels of productivity and labour market participation. We have learned the lessons of previous recessions, where rising long-term unemployment created lasting damage to Scotland's communities that carried across generations. We are focused on ensuring that the whole of Scotland shares in our growing national wealth as we enter recovery.
Scotland's flexible labour market has already protected us from some of the sharpest increases in levels of unemployment seen in other countries - and we can continue to meet the employment challenge. Employment opportunities are still being created: over the summer, Sainsburys announced the creation of 1,300 jobs in Scotland by 2010, Scottish and Southern Energy have recently announced 250 new high quality jobs (and safeguarded a further 70) at the £20 million Centre of Engineering Excellence in Glasgow and Capita announced it would create nearly 300 high quality contact centre roles in Stirling.
'Participation' - growing the level of labour market participation in Scotland - lies at the core of the Government's strategy to deliver sustainable economic growth. This update to the Economic Recovery Plan highlights the swift action we are taking to tackle pressures on employment. We have taken bold steps to support Scottish output and jobs by bringing forward capital expenditure to directly support employment, and we have repeated our calls for further capital acceleration in the coming year. We are providing support for communities impacted by unemployment and other pressures on employment, through regeneration and through legal and financial advisory services. And we have refocused our support for skills and the labour market to position our workforce to contribute to Scotland's future prosperity.
Refocusing public services to maintain our focus on economic growth
As the recovery unfolds, it is becoming clearer how recession is impacting on
demand for public services, now and in the future. Many of the services and policies underpinning the Government's 'Participation', 'Solidarity' and 'Cohesion' targets will come under the greatest demand pressure - made all the more challenging by the tough constraints on public spending that have emerged.
This update to the Economic Recovery Plan highlights how we have begun to refocus our public services to meet future demands as we look to emerge from recession - maintaining our focus on delivering sustainable economic growth. Our task here has ranged from improving our relationship with business - opening up access to public contracts, reducing the business costs of regulation, and making quicker payments to suppliers - to more fundamental changes in our approach to the delivery of key services.
We have focused on ensuring the ongoing employability of those at unemployment risk during recession. We have ensured those moving to new jobs from employment have the necessary skills. And we can directly improve Scotland's productive potential by ensuring Scottish businesses can draw their employees from a skilled and healthy pool of talent. Our investment in the long-term wellbeing of Scotland will ensure we emerge successfully from recession and deliver our objectives to improve our economic performance.
Action across the public and third sectors
Our focus on economic recovery is shared with our partners in local government, public bodies and the Third Sector - ensuring the recession response is adapted to the needs of each community. This update to the Plan highlights some of the activity that is taking place across the Scottish public sector and our social partners.
Scotland's citizens should expect a unified effort from across the entire public sector to support our recovery. The collective focus of national and local government is captured through the Single Outcome Agreements with Scottish Councils and Community Planning Partnerships, who have each prioritised their response to the recession. We have also worked closely with the UK Government to ensure UK-wide initiatives, like the Department for Work and Pensions' Future Jobs Fund, deliver the best possible outcome for Scotland.
Our social partners in the Third Sector are often on the frontline in meeting the needs of those affected by the recession. A range of new funds - worth more than £40 million - have been made available to boost the capacity of the Third Sector and we have implemented the new Third Sector Resilience Fund, which will provide financial assistance to Third Sector organisations who have seen increased demand for their services during recession.
The green opportunities for sustainable economic growth
The Climate Change (Scotland) Act 2009 received Royal Assent in August. It is the most far-reaching piece of environmental legislation considered by the Scottish Parliament during the first ten years of devolution and commits Scotland to ambitious targets for emissions reduction.
The task of reducing greenhouse gas emissions and transitioning to a low carbon economy will build on Scotland's comparative advantages, creating new job opportunities, saving households money and driving business efficiencies.
Earlier this year, the Scottish Government set out a blueprint to create at least 16,000 renewable energy jobs over the next decade and the ambition is even higher. The ten Energy Pledges - ranging across key areas of energy generation and transmission, energy efficiency and transport - are focused on the opportunities of Scotland's natural competitive advantage in renewable energy. As we emerge from recession, economic opportunities will also exist in the export of new environmental technologies and new rural jobs in biomass and renewable heat.
Climate change touches on every aspect of the Government's work and this update of the Economic Recovery Plan sets out how we will capitalise on our dual commitments to address climate change and boost economic recovery.
Aligning the Scottish Government's ambitions with the challenges of the UK's public finances
As Scotland, and the rest of the UK, see the signs of recovery, there is mounting pressure to consider fiscal consolidation to address the deficit in the UK's public finances.
Scotland's ability to manage these pressures is limited by the parameters of the devolution settlement. Sustainable economic growth is the Scottish Government's central ambition, but some of the key fiscal and monetary policy decisions that will affect the pace of Scotland's recovery lie outside our direct control.
It is essential that the UK Government supports the Scottish economic recovery with a further acceleration of capital spending into 2010-11. We have accelerated capital spending within the limits of our current financial settlement, but without further action we face corresponding cuts in capital expenditure while we are in the early stages of economic recovery. The fall in private sector demand has been substantial and the stimulus effect of additional Government spending over the following period holds critical importance - and will continue to do so even after Scotland has technically moved out of recession.
The damaging effect of higher taxes in the early stages of recovery may also impact on Scotland's long-term growth prospects. Now is the time to consider further support for consumers, households and business investment through the tax system, to accompany a substantial increase in public sector investment, with more generous tax allowances for business investment.
The Scottish Government continues to call upon the UK Government to agree further capital acceleration over the next year. We are also pushing for improvements in the tax environment in the forthcoming Pre-Budget Report, to bolster our Recovery Plan and guarantee a successful return to growth in the Scottish economy. Through the National Conversation, we continue to explore the case for Scotland to have increased control over the key monetary and fiscal policy levers to allow Scotland to manage the pressures on the Scottish economy directly.