Europe 2020: Scottish National Reform Programme 2016

Chapter 1: Economic Framework,Capital Investment and Housing

Scotland's economy has recorded 3 years of continuous output growth with the level of GDP now approximately 3 per cent above its pre-recession peak. In 2015, employment and economic activity in Scotland reached record levels.

The global economic picture was mixed in 2015. Slowing growth in emerging economies as well as low commodity prices has created a challenging external environment for many economies. Growth in the US and the UK remained strong with low inflation - buoyed by low commodity prices - and improving conditions for households supporting growth in consumer spending. However, the appreciation of the dollar and sterling, alongside subdued global demand has created a more challenging export environment.

Overall, the general outlook is for sustained growth in Scotland, with growth forecast to be around 2 per cent this year.

A tri-annual assessment of conditions in the Scottish economy is provided in the Scottish Government's Chief Economist's State of the Economy ^[4] publication.

This chapter sets out the Scottish Government's approach to economic policy, and includes actions being taken to address the Commission's CSRs 1 and 2 to the UK, regarding capital expenditure, housing supply and planning.

Scotland's Economic Strategy

The Purpose of the Scottish Government is to make Scotland a more successful country, with opportunities for all to flourish, through increasing sustainable economic growth. Scotland's Economic Strategy, ^[5] launched in March 2015, sets out an overarching framework for how the Scottish Government will achieve this Purpose, and create a more productive, cohesive and fairer Scotland.

The approach set out in Scotland's Economic Strategy is focused on two interdependent pillars: increasing competitiveness and tackling inequality. Scotland's economic framework is set out in Figure 1.

Figure 1: Scotland's Economic Framework

These goals of tackling inequality and boosting competitiveness are underpinned by four priority areas for sustainable economic growth:

• Investing in our people and our infrastructure in a sustainable way;
• Fostering a culture of innovation and research and development;
• Promoting inclusive growth and creating opportunity through a fair and inclusive jobs market and regional cohesion; and
• Promoting Scotland on the international stage to boost our trade and investment, influence and networks.

The four priority areas, and the policy areas which underpin them, are set out in Figure 2.

The Scottish Government's Council of Economic Advisers ^[6] provides advice to Ministers on how to improve Scotland's competitiveness and reduce inequality within Scotland. The Council's membership draws upon a range of knowledge and expertise and consists of leading figures from the private sector and academia, including two Nobel Laureates.

Scotland's progress against the Europe 2020 targets is captured through Scotland's National Performance Framework ( NPF), which incorporates a range of social, economic and environmental indicators and targets for Scotland. ^[7]

The NPF Purpose Targets and National Indicators are currently being refreshed to ensure that they provide the best measures for a successful Scotland and reflect what matters to the people of Scotland. The refreshed NPF will continue to provide a wide range of indicators to assess progress towards the Purpose. The new strategic approach set out in Scotland's Economic Strategy will be reflected in the updated NPF.

Figure 2: Four Priorities

Increasing Sustainable Economic Growth

Scotland's Economic Strategy provides a framework to support sustainable economic growth in Scotland with opportunities for all to flourish.

This is reflected in the Scottish Government's current programme, ^[8] which focuses on:

• Building a stronger, fairer Scotland
• A Strong, Sustainable Economy
• Protecting and Reforming our Public Services
• Strengthening our Communities

A range of actions are being taken forward against these priorities, many of which are outlined in this report. However, in the remainder of this chapter we focus on actions being pursued in Scotland to support investment-led economic growth and boost the supply of housing, which cover two of the areas highlighted to the UK by the European Commission through its CSRs.

CSR 1: Capital Investment

As part of the CSRs to the UK, the European Commission has placed a focus on prioritising capital expenditure to ensure that any reduction in the UK's deficit does not come at the expense of durable growth. Although the reduction in the deficit is a responsibility reserved to the UK Government, the Scottish Government is taking a number of actions to prioritise capital investment.

Scotland's Economic Strategy identifies investment as a key priority for delivering sustainable economic growth. Investment in infrastructure drives long-term improvements in competitiveness and creates the opportunities for everyone in society to benefit from these improvements.

As set out in the budget plans for 2016-17, the Scottish Government will support infrastructure investment of more than £4 billion in 2016-17 through the traditional capital budget, new borrowing powers, the Non Profit Distributing ( NPD) pipeline, rail investment through Network Rail's Regulatory Asset Base ( RAB), capital receipts and allocating some resource funding to capital assets.

In order to continue to prioritise capital investment the Scottish Government is pursuing a range of innovative financing approaches. In 2014, a further £1 billion of support for infrastructure investment was announced by extending the current NPD programme through to 2019-20. This additional investment will build on the success of the current NPD programme, which is valued at £3.5 billion.

Our Infrastructure Investment Plan 2015 ( IIP), ^[9] which builds on the achievements delivered through previous infrastructure plans was published on 16 December 2015. The Plan sets out why we need to invest, how we will invest and what strategic, large scale investments we intend to take forward within each sector over the next 20 years.

A progress report, published in March 2015, ^[10] highlights that significant progress has been made since the publication of the previous Plan in December 2011. For example, during 2014, projects totalling almost £750 million completed construction and are now operational.

In addition, projects totalling £75 million completed construction in 2014 and became operational in early 2015. These are the Ullapool - Stornoway Ferry, Garrowhill Primary School in Glasgow and the Inverness Campus for innovation, research and education.

CSR 2: Investment in Housing

The Commission's CSRs to the UK recommend that further steps are taken to boost the supply in the housing sector, including by implementing the reforms of the UK's national planning policy framework.

This is an area where the Scottish Government and its partners are already taking a range of actions to ensure that all people in Scotland live in high-quality, sustainable homes that they can afford and that meet their needs.

The Scottish Government's housing strategy, Homes Fit for the 21st Century, ^[11] aimed to provide at least 30,000 affordable homes over 2011-16, including 20,000 homes for social rent of which at least 5,000 would be Local Authority homes. This target has now been exceeded, with a total of 30,133 affordable homes delivered by end October 2015. This includes 20,400 homes for social rent and within that, 5,292 Local Authority homes. Scottish Ministers have announced a target for the next 5-year term of the Scottish Parliament to deliver at least 50,000 affordable homes, including 35,000 homes for social rent. This ambitious plan will be backed up with investment of at least £3 billion over the next 5 years.

The Scottish Government announced an increase in housing subsidies by up to £14,000 for social and affordable homes for rent being delivered by councils and Registered Social Landlords, to help towards the target of delivering at least 50,000 affordable homes by the end of the next Parliament.

A range of schemes have been put in place to support private sector activity. This includes the £305 million Help to Buy (Scotland) shared equity scheme, which offered support to homebuyers between 2013-16. In January 2015, the Scottish Government introduced a new £30 million Help to Buy (Scotland) Small Developers fund, which supports buyers who wish to purchase a new build property from smaller developers in Scotland. By early February 2016, over 7,900 homes had been purchased through the Help to Buy (Scotland) and Small Developers schemes.

The Scottish Government announced a 3-year successor programme in January 2016, the Help to Buy (Scotland): Affordable New Build and Small Developers schemes. These will provide a further £195 million of support over the 3 years from 2016-19. This will offer equity support of up to 15 per cent on more affordable new build homes, with progressively reduced threshold prices targeting support to those most needing assistance to buy a home and adapting to improved market lending conditions.

The Scottish Government is making use of innovative funding approaches to deliver additional housing. Through the National Housing Trust initiative ( NHT) and the Local Affordable Housing Trust ( LAR), over 4,000 new affordable homes have been approved for communities across Scotland with hundreds more in the pipeline. The Scottish Government is investing a further £25 million in Charitable Bonds - an ethical investment instrument - in 2015-16 and the total loan investment of £37 million by 2016 will generate charitable donations of up to £10 million, supporting housing associations in providing up to 600 new affordable homes across Scotland.

As part of the Commission's CSR, the Scottish Government has noted the recommendation to implement reforms to the national planning policy framework. The Scottish Government is in the process of conducting a review of Scotland's planning system, as outlined in Box 1.

Box 1: Review of the Scottish Planning System

As well as increasing the supply of sustainable and affordable housing in Scotland, the Scottish Government launched a review of the Scottish planning in September 2015 in order to deliver a quicker, more accessible and efficient planning process. A particular focus of the review is increasing the delivery of high quality housing developments.

The main aims of the review are to:

• Ensure that planning realises its full potential, unlocking land and sites, supporting more quality housing across all tenures and delivering the infrastructure required to support development;
• Streamline, simplify and improve current systems and remove unnecessary blockages in the decision-making process;
• Ensure that communities are more engaged in the process; and
• Continue to meet our statutory and international obligations in protecting and enhancing Scotland's nature and environment.

An independent panel, chaired by Sir Crawford Beveridge, was appointed in September 2015 to undertake the review of the Scottish planning system. The panel is due to publish its report in Spring 2016, which will take into account the responses to a wide-ranging consultation exercise that closed on 1 December 2015.