JEREMY PEAT

Those elections and referenda have been coming in a continuous stream in recent years. Next up is the referendum on UK membership of the EU. Once that is over, and subject to common sense prevailing and the UK electorate voting to stay in the EU, it is crucial that here in Scotland we commence a period of rational and objective analysis of prospective economic policies, in the light of changing economic and governance circumstances.

The good news is that we have a brand spanking new Cabinet Secretary for the Economy – the decision to split the economic and financial portfolios is to be applauded. The key and over-arching question for Keith Brown should be: ‘how can we best take advantage of the newly devolved powers, alongside those we have had for many moons, in order to work towards enhanced economic welfare for all?’

Solid and thoughtful analysis is essential – policy development needs to be transparent and soundly based. But at the same time there is a need for real urgency. You should not need reminding that the Scottish economy is in a parlous state. Over the final three quarters of 2015 the official data show Scottish GDP stagnant, close to a standstill. Manufacturing is in decline and construction weak as major projects come to completion. But this is based upon only the onshore economy. Work by John McLaren suggests that including offshore activity the modicum of growth in the final quarter of last year is transformed to a distinct decline.

Output growth is not the sole or indeed primary economic objective of our re-elected Government. The emphasis is as much or more on re-distribution and enhanced equity within our economy. However, that should never be taken to mean that growth does not matter. We need strong growth within an efficient and competitive economy if those equity objectives are to be achieved.

This all implies seeking out policies which will encourage investment and innovation, alongside both developing and making best use of key skills and ambitious management. There must be a will to succeed in domestic and overseas markets and to do so by moving up the value chain, with an emphasis on efficiency and quality.

The hard-nosed analysis that is essential should come from at least three places. First it should be within Government. A Treasury-type function is required which works at arms-length from departments and vets policies in terms of their likely impact on both efficiency and equity within the economy, rather than how well they might play in public opinion or electoral terms. Then there is a role for Parliament, including critically the committees, and those elsewhere in the public sector (including Audit Scotland) working to inform and support Parliament’s decision-making.

There is also a key role for external bodies. It is really good news that the Fraser of Allander Institute is being reinforced. The move of Graeme Roy from Government guru to FAI Director should be seen as value added for all. As Graeme gets his feet under the table, explores and develops modelling capability and and recruits further expertise, so the FAI should be able to play a major role in the desired policy analysis.

It would be even better news if others joined in the stimulation of an informed debate. That would include open-minded think tanks, but also our national employers’ organisations, STUC, SCDI and the like. Some of these bodies have a real need to sharpen up their analytical capabilities in the wider interest as well as that of their members.

There is one other major concern. The implementation of further fiscal devolution is set to result in massive complications as to how the fiscal settlement and the state of Scotland’s public finances is calculated and re-calculated through the years. The risk is that this activity – moving beyond the relatively straightforward Barnett formula - will absorb a mass of skilled resource from within Government, the Fiscal Commission, Audit Scotland, SPICE and external bodies such as FAI. Rather than microscopic examination of the public finances, these resources would be far more profitably – in terms of impact on economic welfare – deployed in working through existing and prospective policies to better inform Keith Brown. Examining how best we can use new powers to the benefit of all should be more important than calculating to the last decimal point the appropriate block grant adjustment!

Let me close with a couple of examples of what is sought. Take income tax for example. The emphasis should not be solely on what impact a differing rate of income tax in Scotland would have on the public finances, but more importantly on how this will impact upon the broader economy in the medium-term. Will a higher tax rate north of the border act as a disincentive to location of higher skilled (and hence paid) jobs here?

If we lower the rate of Airport Passenger Duty (or abolish the tax) will the benefits, in terms of increased passengers and any dynamic benefits, justify both the resulting increase in carbon emissions and the loss in Government revenue?

Then we need more thoughtful economic modelling. What will our economy look like if the oil price stays at $40 per barrel for a decade? What do we do to offset the spreading negative effects? How do we explain the downturn in productivity and what policies might genuinely stimulate innovation and entrepreneurialism? So many questions and so few good answers; it is time to don analytical hats.

Jeremy Peat is visiting professor at the University of Strathclyde International Public Policy Institute