By Jeremy Peat


As we look forward into 2022, the economic crystal ball remains as cloudy as ever. To state the blindingly obvious, we do not know how severe the impact of the latest Covid wave will prove, as either welfare generally or the economy specifically is concerned. We will have to live with Covid and its successors for some time to come, but that is no excuse for delaying long-term strategic thinking.

We can hope that the impact of this latest variant, in terms of hospitalisations and deaths, will be less than during previous waves. If that hope is fulfilled it may mean that lockdown measures can be shorter and less severe than last time around, and hence business and the economy can return sooner rather than later to their key tasks of getting back to past levels of output and profitability – and beyond. This in turn would imply employment holding up and unemployment remaining muted – we can hope.

But we also face real concerns regarding inflation. November saw the CPI up to 5.1 per cent and price inflation for consumer goods up to 6.5% year-on-year, the highest level for more than three decades. In retrospect it was unsurprising that the Bank of England, after an extended period of wibbling and wobbling, chose to make a small increase in interest rates to the still abnormally low level of 0.25%. The CPI looks set to rise further through at least the first part of 2022. Doubtless the BoE will be pressed to make further rate hikes in the months ahead, especially if restrictions are limited, the economic rebound continues and unemployment stays low.

We must all hope that rate rises are gentle, given that pandemic-related risks to the real economy remain so severe. Also the combined effect of Covid, the fiscal policies of the UK Government and rising interest rates is further skewing income distribution. Wages at the lower end of the spectrum are set to rise more slowly than inflation. The tax and national insurance increases in train will hit take-home pay for the lower paid relatively more severely; they will also be disproportionally affected by continuing steep rises in energy prices. Even if unemployment does not increase significantly, times will be increasingly tough for many.

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While we worry about these issues, now is definitely the time to think carefully and rigorously about our longer-term ambitions. I very much share the concern of business leaders and others over the decision by the Scottish Government to delay publication of its National Economic Strategy. The current uncertainties should not be a justification for procrastination on strategy, but rather re-emphasises the need for sound thinking about key priorities and strategies in the years and decades ahead. We must re-start our economy headed in the desired direction.

Economics always starts from the premise that resources are scarce. Decisions on priorities are essential to determine the optimum allocation of these scarce resources. Resources will be especially scarce in 2022 and beyond, and allocation decisions must be made transparently on the basis of carefully specified priorities, accompanied by rigorous analysis of the expected impacts of policies related to tax, expenditure and more.

The Scottish Government has presumably identified three areas of priority, each to some extent interacting with the others but also to some extent competing for resources. These areas, I suggest, are "efficiency", "equity" and "environmental sustainability". I leave the third of these for another day, though that is not an implication of low importance.

Taking efficiency first, Chris Van Der Kuyl in a recent Herald piece rightly emphasised that Scotland must be ambitious and not compete in a "race to the bottom". To even contemplate moves to enhance equity and promote sustainability we must work to achieve a higher skill, higher investment and increasingly innovative economy. The latest Scottish Productivity Index again shows that Scotland is at best stagnant and lagging behind competitors at home and overseas. This long-entrenched position has to change if we are to achieve a buoyant, competitive and resilient economy. Achieving such progress will both in itself encompass moves towards reduced inequalities and also generate the resources which can then be directed to policies aimed specifically at that objective of "levelling up".

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To repeat, sustained growth in productivity requires a major step up in the quality and quantity of investment, increased innovation and – above all – a renewed, enhanced and adjusted emphasis on education and skill creation more widely.

The latest comparative evidence on the Scottish schools system is not encouraging. Times have been tough for teachers and students alike and evidence suggests that the skills attainment gap has widened during the pandemic.

The Finance Minister’s budget announcement of funds for 4,000 more teachers and support staff is most welcome. However, increased funding is a necessary but insufficient condition for improvement. Teachers must be allowed to use their time more creatively, for example by learning from lockdown experience how best to blend face-to-face and online learning and skills development. Something akin to a teaching revolution could ensue, with some established restrictions wiped away.

At the same time the concept of "lifelong learning" needs to be revisited in this new environment. All those – employed and unemployed – with limited skill sets must be given the opportunity and the incentive to redevelop so as to thrive in the new economic world. Finally, for now, it must be time to bring together and incentivise the best of Higher and Further Education, building upon clear areas of excellence and once more looking forward to help generate a more dynamic, innovative and competitive Scotland, with positive expectations for all. We inevitably worry about the here and now; but really must focus on achieving a new dynamic and more equitable post-pandemic Scotland.