Council of Economic Advisers: Chair's report 2016-2018

"We recommend that the Scottish Government reaffirm its position on inclusive growth as a commitment to long-term transformational change for Scotland's economy and its people.

This means that the Government should focus on supporting creation of more and better quality jobs, and ensuring that everyone has the opportunity to fulfil their potential and contribute to society".

Across 2016-18, the Scottish Government has regularly reaffirmed the commitment to pursuing inclusive growth for Scotland. This has included through publications, events, and Ministerial speeches. Notable publications include:

• The Fair Work Framework, published March 2016 where inclusive growth is an expected societal outcome from Fair Work practices.
• The Labour Market Strategy, published August 2016, outlined how the approach to the labour market would help drive inclusive growth.
• The Programme for Government 2017-18, confirmed the commitment to support the Scottish economy move towards inclusive growth. This document highlighted how policies, such as reforming the planning system and investing in digital skills, would contribute to inclusive growth.

In addition, Scotland's Inclusive Growth Conference, held in October 2017, brought together national and international policymakers and influencers to affirm a joint position on inclusive growth, and to share best practice to support moving towards inclusive growth.

The Scottish Government has implemented a number of policies to support the creation of more and better quality jobs. This includes the Scottish Growth Scheme, announced in September 2016, to support companies grow, and therefore to build demand for high quality jobs. In addition, major infrastructure investments (including the Queensferry Crossing and the M74/M8 improvement project) have created and facilitated high skilled jobs.

Furthermore, the Scottish Government is taking action to support people entering the labour market, including:

• In April 2017, launching the transitional employment services: Work First Scotland and Work Able Scotland. Almost 3,500 people were supported by these programmes between April and September 2017 alone.
• In April 2018, launching the distinctly Scottish programme of employment support: Fair Start Scotland. This aims to support 38,000 people into employment over three years, including those facing barriers to enter the labour market.

"We would encourage the Scottish Government to continue to take forward the development of its proposals for an inclusive growth diagnostic and to look to reflect the importance of geography and place within it".

The Scottish Government carried out and completed a national level inclusive growth diagnostic in 2016. Key constraints identified included: the take up of digital skills and new business methods, inequality of caring responsibilities, lack of migration, and health and wellbeing outcomes. All of these particularly affects those in deprived communities.

To reflect the importance of geography and place, an inclusive growth diagnostic pilot began in 2016 in North Ayrshire, in partnership with North Ayrshire Council. This undertook analysis using a six stage diagnostic model to understand the constraints and opportunities within that region. This was completed in 2017 and has subsequently been upscaled to look at Ayrshire as a region.

Work around using the diagnostic methodology continues, with a current project looking at inclusive growth from a sector specific angle.

"We would encourage the Scottish Government to continue to engage within Scotland and beyond, including with international organisations".

Following engagement with local partners on the IG diagnostic, the Scottish Government continues to work with local authorities and Regional Economic Partnerships (and their associated City and Growth Deals) to drive local and regional approaches to inclusive growth, including announcing the launch of the Centre for Regional Inclusive Growth. The centre will support the development and dissemination of IG knowledge and tools, working with academic partners and other key stakeholders, and will launch by summer 2018.

In addition, SG officials continue to engage with a wide range of other stakeholders within Scotland, including enterprise agencies and the wider public sector, business representatives, trade unions, and academics. Engagement also has taken place with various UK wide organisations including the Joseph Rowntree Foundation, Oxfam, and the Equality and Human Rights Commission.

Furthermore, international engagement has been on-going for some years, including with the OECD and the World Bank. At Scotland's Inclusive Growth Conference, there was a number of international organisations, and countries, represented; including the World Economic Forum, OECD and Ministers from the Sweden and Slovenian Governments. Following this, officials have continued to engage with counterparts at the OECD and WEF over developing analytical tools for IG including relevant indicators.

In terms of other engagement, the Chief Economist has presented in numerous international and national forums on Scotland's approach to inclusive growth, including most recently in Paris at the OECD headquarters.

"To build on its initial roll-out and early uptake [of the Business Pledge], the Council believes that the Scottish Government should pro-actively engage with a wide range of business stakeholder organisations, particularly Chambers of Commerce, to understand the challenges businesses may face, and encourage business-led approaches for driving increased uptake and behaviour change".

Regular proactive engagement with a range of business organisations has, and continues to, explore the challenges businesses face.

The Scottish Chambers of Commerce and some individual Chambers have made a commitment to the Pledge. So far, business organisations have declined to lead business-led approaches specifically tied to the Pledge for driving increased uptake and behaviour change. This is due to members having a range of positions on the Living Wage, and also reservations about the Pledge being political in nature.

While dialogue with bodies will continue, the Scottish Government is also working with individual Pledge companies to provide more opportunities for companies to come together to learn from each other. Events will continue to be held throughout 2018 on the business benefits of family-friendly workplace policies and gender-balanced boards.

"Building a credible evidence base around the effects of the Business Pledge (or similar initiatives elsewhere) on business performance, staff retention and productivity …"

We recommend that the Scottish Government seek to develop the Scottish evidence base, with a particular focus on case studies of impacts on individual businesses".

A Monitoring and Evaluation Plan is in place to assess the impact of the Business Pledge particularly focussing on how Pledge companies perform over time, how they perceive the impact on their business, and how other businesses that follow pledge-like businesses practices perform.

The three main elements to the plan are:
1. Linking the Pledge members to the Inter-Department Business Register (IDBR) to gather headline statistics.
2. Surveying Pledge Companies. In March 2018, the Scottish Business Pledge Survey 2017 was published. This provides key findings of a short survey of businesses signed up to the Pledge which took place between 21 July and 7 September 2017.
3. Look at performance of businesses fulfilling elements of the pledge but are not necessarily signed up to the pledge: identify these business though the Small Business Survey and follow their performance.

The Scottish Government launched a review of the Scottish Business Pledge on 22 March 2018. This was in response to the Scottish Business Pledge Survey 2017 which highlighted the case for increased awareness of the Pledge and greater support for Pledge businesses working to meet more of the Pledge elements. Work will be undertaken over summer 2018 with the current Business Pledge companies, the main business organisations, our business support partners and the wider business community to explore barriers to making a commitment to the Pledge and ways to make it more attractive to business. The review will focus on boosting its scale and impact.

Nine case studies on Business Pledge Businesses have been carried out and highlight the broad ranging impacts to a business of signing up to the Pledge. There are found online at: https://scottishbusinesspledge.scot/information-centre/case-studies/ .

A regularly updated statistical overview presents the number of businesses signed up to each Pledge element and also presents key characteristics of these businesses. These are found online at: https://scottishbusinesspledge.scot/?s=IDBR

The FITwork project, at the University of Strathclyde, will also be contacting businesses and through this capture qualitative data.

"We therefore support the Scottish Government's intention to simplify the innovation landscape in Scotland and better align the innovation efforts of the partners working within it".

"However, to guide and support this, we would encourage the Scottish Government to develop a clear ambition for innovation in Scotland and to identify a set of missions for innovation in Scotland, based on an assessment of Scotland's assets and areas of expertise".

The E&S Review Phase 1 Report published on 25 October 2016 recommended that the Scottish Government review, streamline, and simplify the innovation support ecosystem, connecting programmes, funding and delivery mechanisms. This project, which commenced in early 2017, seeks to provide a system of enterprise support designed around the user. To deliver this it aims to ensure strong collaboration across all partners.

We are supporting innovation through the four key steps in our Innovation Action Plan, published in January 2017.

"The Council believes that the Scottish Government and its partners should continue to improve the evidence base on Scotland's innovation performance. In particular, we would strongly support undertaking an assessment of the operation of Scotland's innovation system."

A wide range of evidence was gathered and analysed to inform the innovation element of the Enterprise and Skills Review. A summary of the evidence is provided in the Enterprise and Skills Review report on Phase 2: Innovation, published on the 22^nd of June 2017 and available at: /publications/enterprise-skills-review-report-phase-2-innovation/pages/2/

"The Council also supports further development of the data available on innovation for Scotland."

The Scottish Government has boosted the Scotland sample of the UK Innovation Survey (UKIS) for 2015 and 2017 to allow for a more detailed analysis of the results for Scotland. On the 24^th of October 2016 the Scottish Government published analysis of the UKIS 2015 at: http://www.gov.scot/Topics/Statistics/Browse/Business/Publications/UKIS

This analysis was updated in June 2017 to include the latest European comparisons, also available at: http://www.gov.scot/Topics/Statistics/Browse/Business/Publications/UKIS

The Scotland report on the UKIS 2017 will be published in October 2018.

"We would encourage the Scottish Government to review the initiatives being undertaken in other countries encouraging young people to participate in STEM [Science, Technology, Engineering and Maths] and digital activities and gain knowledge, skills and confidence in their use, to ensure that Scotland's efforts in this area are comparable with the best in the world".

A formal review of initiatives used internationally has not been undertaken. However, a data study accompanied the publication of the STEM Strategy for Education and Training (published in October 2017) to ensure that it met the opportunities across Scotland. The study analysed STEM demand from the labour market in terms of: industries, occupations and supply; and, uptake of STEM learning across schools, college and university provision, and apprenticeships. The full published report also commented on evidence gaps, areas for development, and provided recommendations around KPIs.

The Strategy sets out our ambition that everyone in Scotland is supported to develop their STEM capability and skills throughout their lives. The Strategy has four key aims:

• To build the capacity of the education and training system to deliver excellent STEM learning so that employers have access to the workforce they need.
• To close equity gaps in participation and attainment in STEM so that everyone has the opportunity to fulfil their potential and contribute to Scotland's economic prosperity.
• To inspire children, young people and adults to study STEM.
• To connect the STEM education and training offer to labour market need - both now and in the future.

The Strategy sets out a programme of actions across these four areas, which will be taken forward during its 5 year lifespan (2017-2022). This programme is being overseen by an Implementation Group, chaired by the Minister for Further Education, Higher Education and Science.

Under the Inspiration theme within the Strategy, the Scottish Government have set out a range of initiatives to help encourage young people to engage with STEM, including:

• the development of a Young STEM Leaders programme;
• developing a STEM national engagement campaign; and
• raising awareness of the opportunities for further STEM study and pathways into careers.

We are also improving the support available to schools, through: i) an enhanced continuing professional learning package for teachers and early years practitioners, ii) supporting the establishment of effective school-employer partnerships for STEM, and iii) developing an online directory of STEM inspiration activities which schools can access.

"The Council advises that the Scottish Government uses a 'twin track' approach to measuring Scotland's wellbeing, based around on-going measurement through the National Performance Framework, and an annual assessment of Scotland's position through the OECD Better Life Index indicators."

Wellbeing is considered to be a multi-dimensional concept, considering outcomes in people's lives across a number of domains such as health, the environment, work-life balance and quality of life, for example. Therefore the Scottish Government continue to use a twin track approach to measure wellbeing through:

• Indicators and targets in the National Performance Framework, a review of which took place in late 2016, early 2017;
• The OECD Better Life Index, which reports at a United Kingdom level and includes housing, income, jobs, life satisfaction and education; and,
• The OECD regional wellbeing project which reports on Scotland. Scotland performs well in Life Satisfaction, Community, Civic Engagement, and Environment.

"The Council believes that moving to a broader measurement approach for Sustainability would be of value to Scotland. We would support the establishment of a programme of work to develop appropriate measures of sustainability for Scotland and to undertake international comparisons once appropriate frameworks become available".

The Scottish Government continue to measure sustainability through indicators and targets in the National Performance Framework. As part of the review of the NPF, the following sustainability measures have been suggested, indicating a broader view of sustainability:

• Natural Capital
• Greenhouse gas emissions
• Energy from renewable sources
• Condition of protected nature sites
• Waste generated
• Biodiversity
• Marine environment
• Carbon footprint

In addition, the new national indicator set has been developed to facilitate reporting of Scotland's progress towards the UN Sustainable Development Goals, and draft indicators were assessed to, among other things, ensure that they use definitions consistent with the UN Sustainable Development Goal indicators.