Just Transition Commission: background report

Executive Summary

1. This background report presents publicly available data and information for Scotland on what is known about current and projected:

• Population

• Labour market

• Business and industry
• Household income distribution

• Skills and skills development

• Greenhouse gas emissions

2. Information is presented for the current situation (most recently available) and projections up to 2050. Projections to 2030 are also included where available.

Population

3. The population of Scotland has increased since 2001 and it is now at its highest level at 5.42 million. Over the past decade population has increased by 5% with international migration being the largest contributor to this growth. Future population growth will rely on entirely net inward migration but this is forecast to fall.

4. Scotland's population is ageing. This is not a new phenomenon but it is set to accelerate from 2021 onwards and is happening at a faster rate than in the rest of the UK. The dependency ratio will increase from 0.55 in 2016 to 0.70 in 2041.

5. Migration patterns will impact differentially on cities and other areas, with the central belt and other cities benefitting from net migration while other mostly rural or places with fewer job opportunities suffer population declines.

Labour Market

6. The growth in employment for Scotland by 2028 is projected at around 85,000 jobs compared to 2018. However, as a result of people retiring, or leaving occupations or sectors for other reasons, replacement demand is projected to amount to 900,000 job opportunities over the course of the decade.

7. Comparing 2028 with 2018 in terms of projected employment by sector:

• Significant growth is projected for jobs in private sector services and construction.
• Manufacturing jobs are projected to decline by over 26,000, with 16,000 fewer in public administration and defence. Agriculture and mining are projected to continue their long-term decline in employment terms.

8. The forward look on the labour market is dominated by the potential impacts of digitalisation on the nature of work. This has been happening for some time, but there is no certainty on the time path for the emergence of more far-reaching impacts.

Business and Industry Landscape

9. Scotland's economy, worth £139.3 billion in 2017 when measured by Gross Value Added (GVA), has grown at a slower rate than the UK average over the past 20 years and continues to feel the effects of the economic downturn.

10. Scottish productivity growth has slowed but has far exceeded UK growth over the past decade: between 2007 and 2017 productivity in Scotland has grown at an average annual rate of 0.7% per year, which is higher than the UK average of 0.2% over that period.

11. Scottish Fiscal Commission's (SFC) December 2018 forecast is the most pessimistic, projecting subdued economic growth, averaging at just over 1% pa over the next five years. Other forecasts are more optimistic and indicate that growth will accelerate and peak at 2.1% in 2021 and then fall year-on-year to 1.5% per annum by 2026, while a third predicts a dip in growth in 2019 followed by an average of 1.5% per annum growth to 2023.

12. Productivity growth forecasts are more consistent and broadly flat: the SFC expects GDP per hour to gradually increase over the next five years but remain lower than historic rates. There are no published forecasts for the Scottish economy beyond 2027.

Household Income Distribution

13. The top ten percent of the population in Scotland had 24% more income in 2014-17 than the bottom forty percent combined. Comparing this to previous periods suggests an increasing trend of income inequality over this period.

14. Real wage growth in Scotland is relatively strong over the last decade. Scotland is currently only 1% from its pre-recession peak and is expected to match this in 2020 well before the rest of the UK. However, in-work poverty for working-age adults has increased continuously since 2011-14, and both, before and after housing costs measures were at an all-time high in 2014-17.

15. Forecasts show average earnings growth in Scotland increasing from 2.0% in 2018 to 3.1% in 2023. Real wage growth is forecast to pick up from -0.3% in 2018 to 1.1% in 2023. There are no Scottish forecasts for income inequality but UK projections suggest income inequality in is likely to increase over the five years to 2022, assuming no change in UK government policy.

Skills and Skills Development

16. Around 1 million jobs will require to be filled over the decade 2017-2027 - some due to overall expansion of employment, but the vast majority as a consequence of replacement demand, where employees retire, or leave a sector or occupation for other reasons.

17. There is a projected requirement for over 500,000 recruits with qualifications at HNC level or higher, while the requirement for employees without qualifications is projected at only around 80,000. Nonetheless, projections suggest that in 2028 around 25% of employees will be in jobs requiring lower level skills, little changed from the current position.

18. Increasing digitalisation of the economy, a shrinking and ageing workforce is expected to require skills such as self-management, social intelligence and innovation. Others cite the importance of interpersonal skills, higher-order cognitive skills or system skills such as judgement or decision-making.

Greenhouse Gas Emissions

19. Scotland is performing well on reducing greenhouse gas emissions compared to the rest of the UK, and met its annual legislated target for each of the past three years. Overall, Scottish emissions are now 49% below 1990 levels, and Scotland is on target for 2020. Scottish Parliament is considering a new Bill that will set the most stretching statutory targets of any country in the world

20. Scotland has made strong progress in decarbonising its power sector which contributes the majority of the overall reduction in emissions to date. Other sectors fell slightly (Waste and Industry) or increased (transport). There were few reductions for the energy-end use sectors, even though the building sector is seen as having the greatest potential for reduction

21. Scotland is on track to achieve the current 80% reduction target in 2050. The adoption of a 90% reduction target will require further policy efforts as this target is seen as at the limits of feasibility identified to date.