SCOTLAND will take longer to recover from the last recession than the UK did to come back from the Great Depression in the 1930s, one of the country's most respected economic forecasters has warned.
The influential analyst also made a case for the Coalition Government to consider a “Plan B”, involving a cut in taxes such as VAT and a capital spending programme, as it declared Scotland’s economic recovery was “exceptionally weak” and “very vulnerable”.
Scottish Finance Secretary John Swinney backed the calls by Strathclyde University’s Fraser of Allander Institute for a Plan B, favouring capital spending. However, Danny Alexander, Chief Secretary to the Treasury, insisted during a visit to Scotland that the Coalition would be sticking with its austerity programme.
Fraser of Allander calculated that, nearly three years after the start of the recession, Scotland had recouped only about one-quarter of the output it had lost.
It cut its forecast of Scottish growth this year from 1% to just 0.8%, warning that, even after the job creation it forecasts in the next two-and-a-half years, there are still likely to be 60,000 fewer jobs in Scotland at the end of 2013 than in 2007.
Professor Brian Ashcroft, professor of eco-nomics at Strathclyde University and editor of the Fraser of Allander commentary, cautioned that even this might overstate the strength of the labour market because many of the jobs being created were part-time. He also calculated that the Scottish economy would have to grow by 4% over the next 12 months for it to recover its pre-recession output in the same, near-50-month period that the UK took to regain its pre-Great Depression activity level back in the 1930s.
Mr Ashcroft said: “We are talking exceptionally weak recovery here. Some back-of-the-envelope calculations suggest we could have a weaker recovery here from this recession than the UK had from the Great Depression and from the 1980s recession, when that took (about) 50 months to get back from the original peak. For us to do that, we would need to grow by 4% over the next year.”
Fraser of Allander yesterday slashed its forecast of the net increase in jobs in Scotland next year from the 31,741 it projected in March to 18,548.
Mr Ashcroft also highlighted the fact that jobs being created in Scotland were, more than elsewhere in the UK, part-time posts which did not make up for those jobs lost during the deep recession.
He said: “There is quite considerable cause for concern. One shouldn’t be too swayed by data suggesting that jobs are being created, which they are, but … the jobs that appear to be being created are more part-time than full-time and more so than in the rest of the UK.”
Mr Ashcroft added: “The problem for Scotland is they are not the same jobs (as those lost). They are part-time jobs. They are not in the same areas.”
Fraser of Allander also declared it was not clear the UK banking sector was “fit for purpose”, in terms of lending.
Mr Alexander insisted the Government would be sticking with its fiscal plans, in spite of the case for a Plan B made in Fraser of Allander’s report. He told The Herald: “I haven’t seen the report, but clearly Scotland and the UK are coming out of the deepest recession in many decades. That recovery will be a choppy one. We are not going to change direction.”
Asked about Fraser of Allander’s comments concerning the potential need for a fiscal stimulus, possibly including a reduction in the VAT rate, Mr Alexander was adamant this would not be happening.
He said: “We have got to stick to our fiscal plan, and we have to think about the consequences of not following the plan.”
However, Mr Ashcroft said: “There is some substance in the argument that the Government needs to look at some alternatives. I think the Government needs to think seriously about relaxing some of its tax increases, like the VAT increases.”
He added that, with low interest rates, now was the time to be investing in infrastructure.
Mr Swinney said of the Fraser of Allander commentary: “This report provides further evidence of the urgent need for a Plan B or flexibility from the UK Government in order to strengthen recovery and employment. It identifies a number of risks facing the recovery as a result of the UK Government cuts that are too deep, too fast.”
Mr Ashcroft warned that Scotland’s recovery was “very vulnerable” given public spending cuts and tax increases, and weak consumer spending in the UK.
He also highlighted potential dangers from the eurozone debt crisis, the possibility of a slowdown in growth in China, and weakness in the US economy.
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