Scottish Budget 2020-2021: Equality and Fairer Scotland budget statement

Chapter 9 Finance, Economy and Fair Work

Introduction

The Finance, Economy and Fair Work portfolio is central to delivering the Scottish Government's purpose through sustainable and inclusive economic growth.

In addition to having overall responsibility for the Scottish economy, the portfolio oversees management of the public finances, fiscal policy, taxation, public bodies policy and the Scottish Budget. It is responsible for fair work, employability, trade and inward investment, as well as for the Scottish Futures Trust, Scottish Enterprise and the development of the Scottish National Investment Bank.

Key Inequalities of Outcome

The Finance, Economy and Fair Work portfolio co-ordinates delivery of the Scottish Government's purpose, supporting the focus set out in the National Performance Framework on 'creating a more successful country, with opportunities for all of Scotland to flourish, through increased wellbeing, and sustainable and inclusive economic growth.'

Scotland's economic fundamentals remain strong in the face of ongoing challenges associated with EU exit, and a number of important achievements have been made in terms of inclusive growth. For example, Scotland currently has a lower rate of women's unemployment than the UK. The gender pay gap is narrowing – from 15 per cent in 2018 to 14.3 per cent in 2019 (its lowest since records began in 1997). However, there is considerable variation in economic performance across different groups of people and geographical areas. For instance, whilst the gender pay gap for all employees has decreased, it has increased for full-time employees (from 5.6 per cent in 2018 to 7.1 per cent in 2019).^[1]

Disabled people and minority ethnic groups are more likely to be unemployed, and to earn less when in work. The disability employment gap across Scotland was 35.5 percentage points in 2018,^[2] and in 2018, the employment gap for minority ethnic people was 19.7 percentage points. There is a particular disadvantage for women from minority ethnic backgrounds in the labour market. Data from the Annual Population Survey suggests that employment rates for minority ethnic women are 22.3 percentage points lower than employment rates for minority ethnic men. This is around three times higher than the gap of 7.6 percentage points between the employment rates for men and women of white ethnicity.

The number of employees earning less than the living wage has fallen from 19.4 per cent in 2018 to 16.9 per cent in 2019.^[3] However, the employment rate remains lower in areas of deprivation. In 2018, there was an employment rate of 62.5 per cent in the 20 per cent most deprived neighbourhoods in Scotland (as defined by the Scottish Index of Multiple Deprivation), almost 17 percentage points lower than the rate of 79.2 per cent in the 20 per cent least deprived areas.^[4] Furthermore, in 2019 70,000 people in Scotland are on zero-hours contracts which is 2.6 per cent of those in employment. This is a slight increase on 2018 (2.4 per cent).^[5]

The recent Fairer Scotland Duty Assessment of the Scottish National Investment Bank found that entrepreneurs from socio-economically disadvantaged backgrounds experience difficulty in accessing start-up finance, and face challenges in accessing working capital once their businesses are up and running.^[6]

Key Strategic Budget Priorities

The Finance, Economy and Fair Work portfolio is central to delivering the Scottish Government's purpose and therefore all the national outcomes. It has particular relevance to the following outcomes:

• we have a globally competitive, entrepreneurial, inclusive and sustainable economy;
• we have thriving and innovative businesses, with quality jobs and fair work for everyone;
• we are open, connected and make a positive contribution internationally;
• we tackle poverty by sharing opportunities, wealth and power more equally; and
• we are well educated, skilled and able to contribute to society.

To help deliver these outcomes in the face of the ongoing challenges arising from EU exit, the portfolio is aiming to build resilience into the economy and to help businesses and individuals deal with the consequences. In line with the government's purpose, the portfolio is committed to protecting vulnerable communities while delivering these outcomes.

Our priorities continue to be informed by the four themes of the Government's Economic Strategy:

• investing in our infrastructure, our communities and our people;
• supporting and promoting innovation;
• strengthening our international links and promoting Scotland to the global economy; and
• ensuring economic growth is inclusive and that everybody benefits from it.

Equality Implications of The Budget

European Structural and Investment Funds

European Structural and Investment Funds provide significant support to people in Scotland by helping them to improve skills, find better jobs, and strengthen economic and social cohesion by correcting imbalances between regions. Working with local authorities and national agencies, the Scottish Government has allocated £568 million of European funding to date in the current programme towards green infrastructure, low-carbon technology, business assistance and innovation, upskilling Scotland's workforce, and tackling poverty and inequality.

Due to the UK's upcoming exit from the EU, the Scottish Government is currently consulting on the replacement for European Structural and Investment Funds. The consultation is seeking views on how best to develop the Government's own thinking on how any replacement funding vehicle can best meet the needs of our citizens, businesses and communities.

Enterprise, Trade and Investment

The Enterprise, Trade and Investment budget funds Scottish Enterprise and other enterprise-related activities. It invests in the development and application of research, innovation and technology and supports entrepreneurial activity. The budget also supports the actions set out in 'A Trading Nation: Our Plan for Scotland's Exports', which aims to build our capacity and presence in trade, international markets, exports and global investment flows.

The Enterprise, Trade and Investment budget supports sustainable and inclusive growth, focusing in particular on growth companies, growth sectors and growth markets. The Enterprise and Skills Strategic Board, which aligns and co-ordinates the activities of Scotland's enterprise and skills agencies, has tasked the agencies with collectively helping Scotland move towards the top quartile of Organisation for Economic Co-operation and Development (OECD) countries for productivity, equality, wellbeing and sustainability. This ambitious challenge includes a policy mission to harness the full potential of progressive and inclusive business models that promote equality, along with action to foster entrepreneurship and ambition across different groups (such as women, young people or minority ethnic communities).

Scottish Enterprise (SE), as outlined in its Strategic Framework, continues to embed equality into its operations, and is committed to promoting the benefits equality can bring to business. SE's Equality Mainstreaming Report outlines the approach taken, which is supported by a range of work. For example, the Workplace Innovation Scheme aims to stimulate demand for the introduction of fair and inclusive work practices. There are also initiatives that aim to meet the needs of under-represented groups, such as 'Principally Women', which supports women into leadership positions, and 'Grey Matters', which assists older people to start their own business.

The budget funds a range of activities that aim to support under-represented groups into business. This includes working with a range of partners to encourage more women-led businesses and to help close the gap between men's and women's entrepreneurship. The Scottish Government is also committed to developing a women's business centre concept to further support this work.

The Scottish Business Pledge is a values-led partnership between government and business that is based on boosting productivity and competitiveness through fairness, equality and sustainable employment. The pledge was reviewed during 2018 and refreshed in October 2019, and will continue to support inclusive growth through the fostering of progressive business practices. It features three core elements: payment of the real living wage; action to address the gender pay gap (proportionate to the size of the company); and tackling the inappropriate use of zero-hours contracts. In addition to these three core elements, there is a menu of five options which businesses are able to commit to, one of which is investing in a skilled and diverse workforce.

Scottish National Investment Bank

A key priority for the Finance Economy and Fair Work portfolio is the establishment of the Scottish National Investment Bank ('the Bank') during 2020, setting up an institution that will invest in businesses and communities across Scotland. The Bank will support Scotland's economy by providing patient capital to finance growth. Although it is difficult to gauge the Bank's full impact on equality at this early stage, it's investment decisions will reflect social and ethical objectives reflected in the National Performance Framework, as well as financial and economic considerations.

The Bank will hold to the principles of equality, transparency, diversity and inclusion. The Equality Impact Assessment of the Scottish National Investment Bank Bill found that the creation of the Bank can be anticipated to have a positive impact on groups with protected characteristics, and in addressing socio-economic inequality. Provisions will be made to make the Scottish National Investment Bank subject to the requirements of the Gender Representation on Public Boards (Scotland) Act 2003, and the Bank will be subject to the Public Sector Equality Duty and Fairer Scotland Duty.

The Bank will conduct its activities in line with Scottish Government policy on fair work and inclusive growth. The Bank will also be mindful of existing diversity issues within the financing and lending industries, such as under-representation of women in the sector, and gender pay gap issues within the sector. It will consider how it can help address such issues in its own activities, and avoid inadvertently perpetuating them.

The Bank's role as a lender means it can positively impact on people with one or more of the protected characteristics set out in the Equality Act 2010. When dealing with businesses and making investment decisions, the Bank will aim to help address equality issues. For example, women-led businesses have experienced issues in access to finance that the Bank can seek to address.

Tax

Given the limited scope of income tax changes announced in the budget, any impacts are likely to be small across the protected characteristics. The Scottish Government will continue to take a progressive approach to taxation, including to the additional powers over income tax set out in the Scotland Act 2016. This approach aims to protect taxpayers on low incomes. Given that average incomes are lower amongst people with some protected characteristics, this approach has a potential positive impact on equality. For example, disabled people or minority ethnic women tend to earn less than average when in employment. As taxpayers, they are therefore likely to benefit from the progressive approach taken.

Employability and Training

Employability and Training Programme budgets play an essential role in delivering the Scottish Government's aims of tackling poverty; promoting inclusion and social justice; and creating a fair and prosperous Scotland.

Scotland's employment rate remains high compared with historical records and unemployment remains low. However, those facing the greatest barriers to employment will still require more individualised support which is better integrated with other inter-linked support services.

Through the Workplace Equality Fund, this budget will support the Programme for Government's commitment to close the disability employment gap, tackle the gender pay gap and support employers to adopt fair work practices.

An outcome from the recent Review of Employability Services is delivery of the No-One Left Behind (NOLB) Employability Funding Stream which we plan to roll out over the course of the next two years, with the vision of creating inclusive economic growth. Funding will be allocated to the development of NOLB, with the aim of delivering more effective and joined up employability support across Scotland. NOLB will provide flexible, person-centred employability support to those who are furthest from the labour market, helping them to progress through the employability pipeline towards obtaining sustainable work. There will be a focus on supporting all the equality groups, with particular view of increasing minority ethnic and disability employment as well as tackling occupational segregation.

The devolved employability service Fair Start Scotland (FSS) will continue to be delivered and improved as part of this budget. FSS provides individualised support to 38,000 individuals to move towards and into employment, including individuals with disabilities and/or health conditions (under the Equality Act 2010 definition); those with convictions; care leavers; lone parents; refugees; minority ethnic people; people in the 15 per cent most deprived Scottish Index of Multiple Deprivation (SIMD) areas; people with health-related barriers to employment; and those reaching two years of unemployment. The year one evaluation of FSS has shown that some of the hardest-to-reach groups are more likely to sustain employment once they have had support from the service.^[7] This service should also play an important role in closing the Disability Employment Gap. Compared with the unemployed population in Scotland, FSS currently supports a higher proportion of disabled people and a higher proportion of people living in the 15 per cent most deprived areas in Scotland. 7.1 per cent of new starts to FSS in the last year were lone parents, 4.7 per cent care experienced and 13.5 per cent had convictions. However, some people with particular barriers and characteristics are not as well represented as they could be, given the proportions in the wider national unemployed population. There is scope to improve on the proportions of women, young people (aged 16-24), people from diverse communities and rural residents who are engaging with FSS services.

Funding from this budget will also build on the work of the Fair Work Convention to promote fair work, through the implementation of actions from the Fair Work Action Plan. A key element of this will be developing and implementing our flagship Fair Work First policy – using the purchasing power across the public sector to attach fair work criteria to grants, other funding streams and contracts as a way to tackle issues impacting on disadvantaged groups in the labour market (for example, those on low pay and insecure contracts, women, disabled people and those from minority ethnic backgrounds). Jointly funded with the Education and Skills portfolio, the Flexible Workforce Development Fund (FWDF) will provide access to funding for Scotland's UK apprenticeship levy-paying employers. Around 9,000 individuals are set to benefit from up skilling and re-training opportunities resulting from the FWDF. Employers will have flexibility to train members of their workforce through college provision to bring greatest benefit to their organisation. Within this, and in line with Scottish Government priorities of reducing the gender pay gap and tackling occupational segregation, halving the disability employment gap, inclusive growth and Fair Work, employers should consider as part of their application how they can support those with one or more of the protected characteristics listed in section 4 of the Equality Act 2010 to gain access to training through the FWDF.

Fairer Scotland Implications of The Budget

Enterprise, Trade and Investment

The Scottish Enterprise strategic framework for 2019-22 sets out plans that aim to support inclusive economic growth. These include helping to create and protect quality jobs that give people security, fulfilment and respect; encouraging fair work practices; and reducing geographical inequalities through stronger partnership working to target investment where it can make a real difference. Fairer Scotland Duty assessments are applied to large Scottish Enterprise projects, ensuring that the needs of socio-economically disadvantaged people are taken into account.

The revised Scottish Business Pledge features mandatory requirements which can have a significant positive impact on socio-economic deprivation. These requirements include payment of the real living wage, avoiding inappropriate use of zero hours contracts and addressing the gender pay gap. Scottish Enterprise will continue to promote the Scottish Business Pledge with its account-managed companies and, along with the other enterprise and skills agencies, will promote Fair Work First through their business support programmes. Scottish Enterprise are also supporting actions surrounding wage levels, zero-hours contracts and the gender pay gap for jobs supported through their large grants such as the Regional Selective Assistance grant.

Trade plays a central role in the creation of wealth in Scotland. 'A Trading Nation – a Plan for Growing Scotland's Exports' aligns with the Scottish Government's priority of fostering inclusive growth, and recognises that exporting can play an important role in creating quality jobs in regions where we have unfulfilled economic growth potential. The Fairer Scotland Duty assessment of the plan notes that the Scottish Government will seek to analyse and measure any impacts on low income groups or areas of deprivation as part of a wider evaluation analysis framework.

Companies which are international and trade internationally tend to have higher productivity, wages and investment in research and development. Supporting Scottish companies to internationalise, as well as attracting foreign companies and capital to be active in Scotland, plays an important role in the overall economy.

A high proportion of jobs attracted through foreign direct investment are at living wage or above; and an increasing number of incoming companies offer good terms. For example, Barclays, a large inward investor to Scotland, have a commitment to hiring a proportion of their staff locally and from deprived areas. This approach will act as a model for how the Scottish Government engages with incoming companies to deliver wider socio-economic benefits from major investments.

Scottish National Investment Bank

By aligning its investment approach with the Scottish Government's Fair Work agenda, the Bank will have a significant positive impact in addressing socio-economic disadvantage. In addition, subordinate legislation will be brought forward to make the Bank subject to the Fairer Scotland Duty under the Equality Act 2010.

To fulfil its obligations regarding equality, the Scottish National Investment Bank will need to actively consider how it can reduce inequalities of outcome arising from socio-economic disadvantage when responding to the missions set for it by ministers. The recent Fairer Scotland Duty Impact Assessment concluded that the Bank can help reduce socio-economic disadvantage by improving access to finance for socio-economically disadvantaged entrepreneurs. The assessment also found that the Bank has the potential to help improve access to finance for firms with characteristics that reduce poverty through the introduction of loan covenants or requiring fair work practices.

Setting up a business can offer a potential route out of poverty. However, socio-economically disadvantaged entrepreneurs face challenges when establishing a business, including accessing finance. There is therefore an opportunity for the Bank to help address barriers in accessing finance. The Fairer Scotland Duty Impact Assessment recommended that the Bank consider developing tailored financial products that can help socio-economically deprived entrepreneurs in accessing finance, and that it work with partners to improve awareness of available financial products.

Tax

The Scottish approach to taxation is founded on the four principles of efficiency, convenience, certainty and proportionality to the ability to pay. These principles have been applied in developing and implementing tax policy. For example, the Scottish Government has taken a progressive approach to the Land and Buildings Transaction Tax (LBTT) protecting those purchasing their first home and supporting people as they progress through the property market.

The Scottish Government will continue to use the additional powers over income tax set out in the Scotland Act 2016 in a progressive manner, aiming to protect taxpayers on low incomes and raise revenue to fund high-quality public services for all. The Scottish Government carried out an analysis^[8] of income tax policy for the 2019-20 draft budget, setting out the impacts on income levels and equality. This analysis found that two million individuals in Scotland did not pay income tax as they earned less than the Personal Allowance. However, even with the further income tax powers, the Scottish Government has limited levers to define the tax base or adjust tax reliefs, and National Insurance remains reserved to the UK Government.

Employability and Training

This budget will continue to support Fair Start Scotland (FSS); Scotland's first fully devolved employment support service. The Scottish Government took on employability powers in 2017 and exercised those powers through the transitional services Work First Scotland and Work Able Scotland. The learning from those services and the overriding principles of dignity and respect were taken forward in FSS. This service targets disadvantaged groups including people in the 15 per cent most deprived SIMD areas. The key focus for the service is to provide tailored and personalised support for all those who participate. The year one evaluation has shown that receiving FSS support has had a positive effect on many participants' motivation to return to work.^[9]

The Parental Employability Support Fund (PESF) will form an important plank in the Scottish Government's approach to tackling child poverty, investing in person-centred help to address parents' barriers to work. Help will also be given to parents in meeting the challenges posed by in-work poverty, assisting working parents to remain in the workplace and progress their careers. Given that the fund will be directed at supporting the priority family groups identified in The Tackling Child Poverty Delivery Plan, who are deemed as being at greater risk of poverty, the PESF investment will also help to reduce the disability employment gap; reduce the minority ethnic employment and pay gaps; reduce occupational segregation which continues to negatively affect women in term of income i.e. the gender pay gap; and promote and embed the principles of fair work.

Conclusion

Spending supported by the Finance, Economy and Fair Work portfolio will continue to align closely with Scotland's Economic Strategy and the National Performance Framework. This spending should impact positively on people with protected characteristics across Scotland, assist in reducing existing inequalities, and help tackle socio-economic deprivation. During 2020-21, there will be significant investment in helping to address inequalities experienced by groups such as disabled people, women and people from minority ethnic backgrounds. Promoting inclusive growth and fair work are key planks of Scottish Government policy, which will be reflected in investment over 2020-21.

Footnotes

1. Scottish Government (2019) Analysis of Annual Survey of Hours and Earnings (ASHE), ONS

2. Scottish Government (2019) Regional Employment Patterns in Scotland: Statistics from the Annual Population Survey

3. Scottish Government (2019) Analysis of Annual Survey of Hours and Earnings (ASHE), ONS

4. Scottish Government (2019) Regional Employment Patterns in Scotland: Statistics from the Annual Population Survey

5. Office for National Statistics (2019) Level and rate of people aged 16 and over on zero-hours contracts, by region: https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/datasets/emp17peopleinemploymentonzerohourscontracts

6. Scottish Government (2019) Scottish National Investment Bank Fairer Scotland Duty Assessment

7. Scottish Government 2019 Fair Start Scotland evaluation report 2: overview of year one.https://www.gov.scot/publications/fair-start-scotland-evaluation-report-2-overview-year-1-november-2019/

8. Scottish Government (2019) The Scottish Government's Draft Budget 2019-20 Income Tax Policy: Analytical Note on Impacts on Income Levels and Equality

9. Scottish Government 2019 Fair Start Scotland evaluation report 2: overview of year one. https://www.gov.scot/publications/fair-start-scotland-evaluation-report-2-overview-year-1-november-2019/