How to turn Scotland into an economic powerhouse – Sir Tom Hunter

Scotland’s economy needs turbo-charging. Between 2012 and 2022, Ireland’s GDP grew 8.9 per cent a year on average, compared to Scotland’s anaemic 0.9 per cent.

Ireland is home to nine out of the top ten pharmaceutical companies in the world and 14 of the top 15 medtech companies. Recently the Irish government forecast a staggering surplus of 65 billion euros (£54bn) over the next three years…

Focus on five areas

So what can Scotland’s government do? Simple: entrepreneurs; tax; housing; education; and efficient government.

Let’s take the latter point first. First, a few examples. Glasgow alone has over 75 different government-funded organisations purportedly supporting entrepreneurs. We have three economic development agencies: Scottish Enterprise, Highlands and Islands Enterprise, and South of Scotland Enterprise. Then, of course, the political hot potato nobody wants to confront or indeed talk about: our 32 local authorities.

Then we have a £586 million bet on the Lochaber smelter, the deposit return scheme, ferries, and sundry other loss-making entities. How many more doctors, nurses and teachers could that have paid for?

Large, well-paid public sector

But wait, there is more. Twenty-two per cent of Scottish workers are paid by the taxpayer; the £25 billion public sector wage bill amounts to more than half of the Scottish Government’s resource spending. By contrast, public sector workers make up 17 per cent of the UK workforce.

Not only do we have more public sector employees in Scotland, they are better paid. The Scottish Fiscal Commission noted last year that “the median pay for a full-time public sector employee in Scotland was £2,400 higher than in the UK”. Five years ago, it was £700. We pay more and get worse results than the rest of the UK. Don’t get me wrong, we should pay our public servants well for effective delivery.

So step one in turbo-charging the economy: government, look within yourselves and drive efficiencies.

Scotland needs more Unicorns

Steps two and three are entrepreneurs and taxation. The only growth we as a nation can ever expect – to generate wealth and, therefore, more taxes – is in business and it’s the small, agile businesses, the scale-ups, that create the most.

We recently launched a recruitment drive for our ScaleUpScotland2.0 programme. That and our other programmes have seen the entrepreneurs who have participated – just slightly over 100 of them – generate additional turnover of more than £1 billion and add 5,000 new jobs to our economy.

We have a huge opportunity in commercialising spinouts from our universities. Per capita, we have the highest number of world-class universities in the world. How many Unicorns – start-up companies worth more than $1 billion – have come from there? Precisely none to my knowledge, yet contrast that to Stockholm University where 12 spinouts have achieved Unicorn status. More scale-ups; more successful spinouts.

Tax take, not tax rate

So to tax. Sure, we can point to a beautiful place to live and work – it’s truly wonderful – and brilliant universities, but also one of the highest tax regimes in Europe. I know from my own experience and that of many other entrepreneurs, we are now paying a location premium to hire anyone into Scotland. People will not leave in droves but nor will they arrive in droves either unless business pays a premium, therefore reducing its competitive advantage.

The answer is not progressive taxation per the Irish experience – it’s a focussed, low (and at one point no) tax system that targets sticky jobs in growth sectors in a highly focussed manner. By sticky I mean high value, permanent jobs that do not – as in Silicon Glen – drop off as lower cost nations compete.

It’s the tax take, not the tax rate, that pays for our public services. So my suggestion to Holyrood and Westminster – make all of Scotland a 15 per cent corporate tax zone for three key global growth sectors: renewables and low-carbon manufacture and services; life sciences and medical technologies; and software, big data and AI.

The Irish experience tells us we will net more tax, more jobs and more value from this highly focussed approach with one agency in charge of its delivery, than we will with our current strategy.

Our governments should concern themselves with tax revenue, not the tax rate. If Labour put taxes up, they will without doubt stifle growth and our SNP government have already been doing that.

The other key component is aligning education to economic development and job skills; in Ireland per 1,000 of population, 39.9 were graduates in STEM subjects (science, technology, engineering, and mathematics), compared to Scotland’s 20.9. The chronic shortage of skilled labour, for example in construction, is debilitating growth and the apprenticeship scheme is unworkable – fix it.

Housing crisis and child poverty

That leads me to housing. We are in a crisis, so two things: enable a fast-track planning system as they do in many US states. Brewdog took two years for a planning application in Edinburgh and one month in the US where they paid extra for an expedited process. Ours is a non-planning process.

Secondly, come up with a sensible scheme that protects those in rental accommodation but does not debilitate investment in new house building – numerous pension funds simply won’t look at investing in Scottish housing until they know there is stability and an investable proposition. Businessman Lord Haughey has many of the housing answers. And, let’s be honest, until we solve the housing crisis, we will never solve childhood poverty, the two are inextricably interlinked.

It’s time for a grown-up debate and action over how we make Scotland an economic powerhouse. We need to stop doing those things that don’t add any value and focus on what delivers. Otherwise, with a ticking demographic time bomb, we will leave an unbelievably appalling legacy for the next generation of Scots to contend with.

Sir Tom Hunter is a philanthropist and serial entrepreneur