The future of working practices in Scotland Contents

4Productivity and industrial strategy

58.The UK Government is responsible for setting employment law, which governs the rights employees and workers are entitled to, but the availability and quality of employment in Scotland is also dependent on wider policy decisions—by both the UK and Scottish Governments—which affect the Scottish economy. These include decisions about economic and industrial strategies, rates of tax, education and training, and support for businesses.

Productivity and the UK’s industrial strategy

59.The most successful economies are ones which have high levels of productivity, decent wages, and support sustainable employment opportunities. Promoting these conditions are central to economic success, and both the UK and Scottish Governments have set out plans to make progress in these areas.115 Professor Mike Danson, representing the Jimmy Reid Foundation, told us that “Successful, innovative and sustainable economies have greater degrees of equality in work and incomes, higher levels of average wages, and greater skills utilisation and staff development”.116 Professor Danson contrasted these with “societies with high and growing proportions of the workforce dependent on insecure and unstable employment, characterised by informal and agency labour, part-time and short term contracts, with many in self-employment”, which he stated were “lagging in international league tables of sustainable growth and prosperity”. Professor Danson stated that the UK was typical of this latter type of society. There is a clear link between productivity and wages, as Professor Bell told us: “From productivity flows the wage that you will get” and that if the economy is creating jobs which do not add a lot of value then wages will be relatively low.117 We have heard that low productivity is one of the key factors behind the low levels of wage growth in recent years.118

60.Economic and industrial policy are the two main ways in which governments seek to create the conditions in which businesses and workers can thrive, and productivity be increased. We heard from several witnesses that the UK needs an industrial strategy which is directly focused at creating jobs and increasing productivity. The Common Weal’s evidence argued that there was a need to “pursue an industrial policy which seeks to enable, promote and support the types of economic activity which are best at creating the best jobs”, stating that this meant focusing on more productive areas such as production and manufacturing and high-skill specialist services.119 Professor Danson agreed, arguing that the UK needed an industrial and labour market policy which: created and sustained high wage, high quality jobs, produced socially useful goods and services, and created sustainable industry sectors which achieve these two goals.120

61.A key step in the UK Government’s efforts to increase productivity was the publication, on 27 November 2017, of a new industrial strategy.121 This set out four “Grand Challenges” to “put the United Kingdom at the forefront of the industries of the future”, and five “foundations of productivity” which align to the UK Government’s “vision for a transformed economy”. This included commitments to additional funding for research and innovation, funds to increase productivity, and proposals for new sectoral deals which will be partnerships between government and industry aimed at increasing sector productivity. The industrial strategy also stated the Government’s ambition for “good work”, and said that the Business Secretary would “take on the role of promoting the delivery of better quality jobs in the British economy”.

62.The UK Government has stated that the industrial strategy “will drive growth across Scotland, boosting skills and improving productivity and infrastructure”, and the Secretary of State for Scotland has said that the strategy “will mean that Scottish businesses can continue to grow and thrive”.122 The strategy notes that many of the policies that can drive productivity are devolved responsibilities, and states that the strategy respects the devolution settlements of Scotland, Wales and Northern Ireland, and that the strategy brings the UK Government’s work together with that of the devolved administrations so that all parties can work in partnership to get the best possible outcome for every part of the UK.123 Margot James MP, the then Minister for Small Business, Consumers and Corporate Responsibility, told us that the industrial strategy was a strategy for the whole United Kingdom, and Scotland was hugely important to it.124 Matthew Taylor welcomed the commitment in the industrial strategy to good work, and to ministerial accountability for the quality of work.125

63.We note that both the UK and Scottish Governments hold powers which affect the economy and labour market in Scotland, and welcome the priority both governments have placed on improving productivity and wages in Scotland. This includes the UK Government’s new industrial strategy, which covers areas of both reserved and devolved policy. Given the division of responsibilities between the UK and Scottish Governments, we ask the UK Government to—in its response to this Report—set out which areas of the industrial strategy will apply in Scotland. This should include details of what funding organisations in Scotland will be able to apply for directly, and what areas of funding will result in additional resources being transferred to the Scottish Government.

Engagement with the devolved administrations on industrial policy

64.The Government’s consultation document on its new industrial strategy recognised the interaction of the UK Government’s plans with areas of devolved responsibility in Scotland, Wales and Northern Ireland. In light of this interaction, the strategy proposed the establishment of “Ministerial Forums on Industrial Strategy” with each of the devolved administrations, to bring together all relevant UK Government departments and the devolved administrations to consider how the Industrial Strategy can best address key productivity barriers in Scotland, Wales and Northern Ireland.126 The final industrial strategy stated that this joint working “has proven valuable, and as we implement our long-term strategy we will recommit to that partnership, seeking to tackle our shared opportunities”.127 The then Minister for Small Business, Consumers and Corporate Responsibility told us that “there is an overarching commitment within the Industrial Strategy to a forum between my Department and the Scottish Government”,128 but said that how this would work would “evolve”.

65.The importance of meaningful engagement between the UK and Scottish Governments regarding the interaction of devolved and reserved policy areas was highlighted by several of our witnesses, particularly in relation to the new industrial strategy. Ewan Macdonald-Russell, from the Scottish Retail Consortium, told our predecessor Committee that they were keen to see closer co-operation between the UK and Scottish Governments on areas where devolved and reserved policy interacted.129 David Watt from the Institute of Directors welcomed the industrial strategy, telling us that it was “a great innovation and a good idea”, and saying that he hoped that the Scottish Government could tie in with it so that there is a co-ordinated industrial strategy across the UK.130 Alastair Sim, Director of Universities Scotland, told us that the UK and Scottish Governments are “both big economic actors in Scotland” and said he thought the Scottish Government needed to be involved in “setting the rules of the game and taking a view on what is going to produce economic benefit for Scotland from the various things that the industrial strategy could promote.”131 Keith Brown MSP told us that it seemed plain to him that the Scottish Government should be heavily involved in some of the things that the industrial strategy seeks to take forward, and that in order to achieve these in Scotland the UK Government needed to consult the Scottish Government.132

66.The then Minister for Employment told us that there were a series of initiatives shared between the Scottish Government and the UK Government that complement economic growth and job creation, and that it was really important that the two governments work co-operatively together.133 Mr Hinds told us that he celebrated the strength of the relationship he had with counterparts in the Scottish Government and “the opportunity to have ongoing collaborative work”.134 The Scotland Office’s 2015–20 Departmental Plan also highlighted the importance of working with the Scottish Government in relation to the industrial strategy, stating:

To ensure Scotland benefits from improved productivity growth as part of the Industrial Strategy, we have committed to working collaboratively with the Scottish Government to maximise the impact of further support for businesses and communities in Scotland.135

67.Given the shared responsibility the UK and Scottish Governments have with regards to shaping policy which affects Scotland’s economy and labour market, co-operation between the two governments is essential. We welcome the Government’s commitment to establishing Ministerial Forums on Industrial Strategy with each of the devolved administrations, to bring together relevant UK departments and the devolved administrations to consider how the Industrial Strategy can best address key productivity barriers in Scotland. We note the then Minister for Small Business, Consumers and Corporate Responsibility’s statement that how these forums would work would “evolve”, and call on the Government to, in their response to this Report, set out in detail how these will work in practice.

115 Scottish Government, Scotland’s Economic Strategy, March 2015, and HM Treasury, Fixing the foundations: Creating a more prosperous nation, July 2015

116 Jimmy Reid Foundation (SES0008)

117 Q105

118 Q49, Q91, Q160

119 Common Weal (SES0004)

120 Jimmy Reid Foundation (SES0008)

124 Q1004

125 Q936

126 Department for Business, Energy and Industrial Strategy, Building our Industrial Strategy, January 2017

128 Q1005

129 Q323

130 Q482

131 Q1, My Scottish Affairs, Oral evidence on 16 October 2017, HC 368

132 Q898

133 Q995

134 Q995

135 Scotland Office, Single Departmental Plan: 2015–2020, December 2017

2 March 2018