National Strategy for Economic Transformation: second annual progress report

Progress Update by NSET Programme

Progress Update by NSET Programme

This section summarises the progress made in the second year of delivering the economic strategy. Annex A provides an assessment of the delivery status of each action. Also included is the latest data for the measures of success, which represent the key areas where the strategy is seeking to shift the dial. Achieving this will take time and will lag the delivery progress made by the programmes. Therefore, the data can be interpreted as tracking indicators providing the latest picture on Scotland's progress rather than measuring the direct impacts of activity in the second year of our ten-year strategy. Below is an overview of how each programme's delivery links to our ambition and vision for the strategy.

Vision

A Wellbeing Economy: Thriving across economic, social and environmental dimensions.

Ambition

Fairer - Ensuring that work pays for everyone through better wages and fair work, reducing poverty and improving life chances.

Growing - Driving an increase in productivity by building an internationally competitive economy founded on entrepreneurship and innovation.

Greener - Demonstrating global leadership in delivering a just transition to a net zero, nature-positive economy, and rebuilding natural capital.

Programmes of Action

Entrepreneurial

People and Culture

New Market Opportunities

Productive Businesses and Regions

Skilled Workforce

A Fairer and More Equal Society

A Culture of Delivery

Programme 1 Entrepreneurial People and Culture

Our aim

Programme 1 aims to establish Scotland as a world-class entrepreneurial nation founded on a culture that encourages, promotes and celebrates entrepreneurial activity in every sector of our economy.

Our programme of action

Project 1 – Embed First Rate Entrepreneurial Learning Across the Education and Skills Systems.

Project 2 – Create a World Class Entrepreneurial Infrastructure of Institutions and Programmes Providing a High Intensity Pathway for High Growth Companies.

Project 3 – Attract and Retain the Very Best Entrepreneurial Talent from at Home and Abroad.

Project 4 – Build an Entrepreneurial Mindset in Every Sector of our Economy.

Delivery Overview

Over the past year, we have continued to build Scotland as a Start Up Nation and one of the best countries in the world in which to start and grow a business. We expanded our Techscaler network to stimulate the growth of promising new businesses and connect more tech entrepreneurs with the supportive infrastructure needed to create, develop and scale up their ideas. The programme's pilot project in Silicon Valley helps entrepreneurs make connections in the world's leading startup community.

We also took action to widen access to entrepreneurship and opportunities. Following the publication of the Pathways report, we launched the £1.3 million Pathways Pre-Start Fund to support women and other underrepresented groups to become entrepreneurs. Not only will this support greater participation in entrepreneurship, it will ensure Scotland has access to the best and most diverse pool of entrepreneurial talent possible. And we have started work to support the next generation of entrepreneurs. Our Entrepreneurial Campus Blueprint and Innovation Strategy both highlight the value of Scotland's Universities as sources of business ideas and talent.

Delivered to date

• Techscaler is operating throughout Scotland with 11 hubs across seven regions as well as online with over 2750 community members. It provides educational courses including Silicon Valley based Reforge. It has helped over 800 founders create, develop and scaling their businesses. Since becoming members of Techscaler they have raised more than £57m over 48 deals. Techscaler is helping strengthen our ecosystem with 56 network partners now in place.
• SG response to Ana Stewart and Mark Logan's Women in Entrepreneurship report – Pathways: a new approach for women in entrepreneurship was published.
• The £1.3 million Pathways Pre-Start Fund was launched, providing support to women and other under-represented groups to become entrepreneurs.
• Delivered successful third iteration of the cross-border climatetech Global Scale Up Programme at COP28, in partnership with the GovTech Global Alliance. Two Scottish companies joined an international cohort of 18 companies presenting their climatetech solutions to investors and key stakeholders in Dubai.
• Launched Phase II of the Ecosystem Fund, aimed at strengthening Scotland's entrepreneurial environment by empowering organisations to bolster support activities, resources and infrastructure for startups. The fund delivered 42 awards across the ecosystem, enabling recipients to provide 721 sessions. These included conferences, international visits and mentoring programmes spanning 31 locations throughout Scotland. The fund directly benefited over 14,000 individuals, 9,000 of whom were school children, while promoting inclusivity, collaboration, education and a global outlook within the entrepreneurial community.
• Entrepreneurial Campus Blueprint was published during the Former First Minister's first international visit in June 2023.
• A pilot international Techscaler pop-up hub was launched in Silicon Valley, helping Scottish start-ups raise ambition whilst providing support and opportunities to scale their business by building contacts with international investors and customers.

Equality and Human Rights Case Study

When it comes to entrepreneurship, we know that some groups, such as women, those on low incomes and those without qualifications at further or higher education, experience barriers to access and opportunity. The Scottish Government continues to address these barriers through our Techscaler programme, which seeks to improve accessibility to people from all parts of Scotland's society, including the six priority groups at greatest risk of child poverty.

Through collaboration with partners, including AccelerateHER, Radiant & Brighter, DataKirk and Black Professionals Scotland, the Techscaler programme provides high-quality entrepreneurial education programmes, mentoring and community activity to under-represented groups throughout Scotland. In the last year, we have expanded Techscaler to seven regions of Scotland.

Based on applications to date, the programme has already begun boosting the involvement of underrepresented groups in entrepreneurship.

• 36.3% of Techscaler applicants identify as non-White European, compared with 12.9% of the Scottish population who identify as ethnic minority.^[1]
• 36% of Techscaler Founder applicants identify as women, still not high enough, but well above the current rate of female-led incorporations in Scotland (roughly 20%).^[2]
• Over 44% of members live outside of Scotland's Central Belt.

But it is not only through its applicants and members that Techscaler is removing barriers for underrepresented groups. The network also holds meetups at its hubs and supports events, such as the Scottish Black Data Summit, to build a supportive route for underrepresented founders into entrepreneurship. The DataKirk Young Internship Initiative, for instance, sought to dismantle barriers to entry and empower Black youth in Scotland aged 14-22 by equipping participants with the knowledge, skills and confidence to thrive in the professional landscape. Through this and a series of other initiatives and partnerships, Techscaler continues to work towards building an equitable and inclusive tech ecosystem in Scotland.

Programme 1 Entrepreneurial People & Culture	Latest	Previous data point
Early stage entrepreneurial activity	8.5% (2022)	8.0% (2021)
3-year survival rates of newly born businesses	57.4% (2019)	59% (2018)
Number of high growth registered businesses	1,895 (2023)	1,530 (2022)

Despite a challenging global business environment, the latest data shows an increase in early-stage entrepreneurial activity (defined as the proportion of the working age population that is actively trying to start a business, or that own/manage a business which is less than 3.5 years old) and the number of high growth businesses. The number of high growth registered businesses increased by 365 between 2022 and 2023. The three‑year business survival rate has decreased slightly over the latest two data points. Note that there are lags associated with the turnover data used to measure high growth and therefore the increase in the high growth businesses between 2022 and 2023 is reflecting the bounce back of business turnover between 2020 and 2021. For many businesses, turnover in 2020 would have been much lower than in previous years due to the COVID-19 national lockdowns and restrictions that impacted trading conditions.

Programme 2 New Market Opportunities

Our aim

Programme 2 aims to strengthen Scotland's position in new markets and industries, generating new and well-paid jobs from a just transition to net zero.

Our programme of action

Project 5 – Build on Scotland's strengths to win an ever-greater share of domestic and international market opportunities.

Project 6 – Realise Scotland's potential to be a leading hydrogen nation, delivering Scotwind and wider renewable energy developments, and supporting the development of Scottish green supply chains, laying the foundations of a Net Zero Industrial Strategy.

Project 7- Attract and deploy significant domestic and international private investment in Scotland.

Delivery Overview

There has been considerable progress on Programme 2 over the last year. Scotland has continued to take advantage of international market opportunities by boosting exports and attracting inward investment. Businesses have benefitted from dedicated export support through Scottish Development International; the International Trade Partnerships programme led by the Scottish Chambers of Commerce and specific support through our Sector Export Plans for renewables, technology and life sciences; and by attracting companies like Sumitomo, Piramel Pharma Solutions and Planet DDS. Scotland continues to be the best location for Foreign Direct Investment in the UK outside London and the South East.

At the same time, as demonstrated by Sumitomo's decision to establish a manufacturing facility at Nigg and the joint investment of £100m by SNIB and UKIB at Ardersier port, supported by £300m of private sector funding secured by Haventus we are seizing the emerging opportunities of a net zero future through investment in renewable energy. We have underlined our commitment to maximise the economic benefits of offshore wind – including Scotwind – and attract further investment similar to those mentioned above by committing up to £500m of strategic investment over the next five years to support the infrastructure and manufacturing facilities critical to the growth of our world-leading offshore wind sector. We have also taken forward work to streamline consenting processes. Two Scottish projects (Cromarty and Whitelee) were successful in the first Hydrogen Allocation Round announced in December 2023 and around a dozen more have applied for HAR2 demonstrating increasing maturity of the sector in Scotland.

On investment, the key activity over the year has focussed on the First Minister's Investor Panel. The Panel published its recommendations in November 2023 alongside the Scottish Government's initial response to those recommendations. There has also been progress on attracting private investment in natural capital, notably by developing the pipeline through the 27 projects being taken forward through the Facility for Investment Ready Nature Scotland (FIRNS)

Delivered to date

• Published the 2nd Vision for Trade Annual Report.
• The Inward Investment Catalyst Fund (IICF) was launched by Interface and Scottish Government to support businesses not yet located in Scotland to work with Scottish academic institutions. The IICF provides awards of up to £10,000 for companies to partner with Scottish academia on a specific project such as an R&D project or feasibility study as a first step in potentially locating in Scotland. In 2023/24 10 projects were progressed with support from the IICF.
• Through the Quantum Computing Applications (QCA) fund of £375K the project team of 3 Scottish universities and SDI has delivered a QCA delegation to key markets including USA, France, London and South Korea resulting in 80+ qualified leads interested in Scotland's quantum computing strengths. A further QCA delegation is planned to participate in Quantum.Tech (USA), Quantum Korea 2024 and Q2B Tokyo to build on existing leads and engage with potential inward investors. Quantum Week Scotland 2024 a week-long festival for quantum computing attracting over 500 delegates from 70+ universities and 45+ companies acted as a platform for driving international investment into Scotland.
• Ministers undertook trade and investment focused visits to the USA, France, Germany, Brussels, and the United Arab Emirates to engage with renewable energy sectors, especially around offshore wind and hydrogen opportunities, space and textiles.
• A Scottish Government sponsored delegation of 19 leading net zero companies attended COP 28 to showcase their net zero expertise. With SDI and Scottish Chambers support, these companies reported forecast export sales of £66.74 million over 3 years and 92 jobs created through their participation.
• Through the International Trade Partnerships programme the Scottish Chambers network delivered 12 international trade missions in 2023/24, with over 120 companies participating and estimated export sales in excess of £1.5 million, resulting in more than £37.5 million in export sales achieved over the life time of the programme.
• SDI's export support for companies resulted in forecast export sales of £2bn over the next 3yrs. Its International Growth Support Programme helped over 100 companies to internationalise, supporting forecast export sales of £200m over the next three years.
• Through investment in our export plans for Scotland's Life Sciences, Technology and Renewables sectors, we have supported an additional 40 companies to enter new international markets, such as our Space Trade Mission to Malaysia.
• We concluded an in depth industry consultation on the development of the first Hydrogen Sector Export Plan, engaging over 300 individuals across academia and the private and public sectors.
• Our Making Scotland's Future Programme continues to deliver for the manufacturing sector. It is well recognised by participating partners and a strong example of effective partnership working and delivery of shared priorities. A key milestone was the opening of our flagship facility on June '23: the National Manufacturing Institute Scotland (NMIS). Over the course of 2023, NMIS helped 1,800 companies, including over 350 small businesses, with their innovation and skills needs.
• The Supply Chain Development Programme continues its work to align economy and innovation policy interventions with public sector spend, using both more strategically to improve the capacity and capability of Scottish manufacturing supply chains. Its current priorities are the opportunities in low carbon heating and housing.
• Taking a "commercial-first" approach to the delivery of up to £500m investment over 5 years through the offshore wind investment programme.
• Continued to build the strong pipeline of port infrastructure and supply chain projects to support offshore wind – including Scotwind – and our energy transition.
• Collaborated with the industry-led Strategic Investment Model to identify a project pipeline with a combined total Capital Expenditure of £6.5bn.
• Worked with enterprise agencies, Crown Estate Scotland and the Scottish National Investment Bank to attract inward investment in Scotland's energy transition, including major offshore wind suppliers, for example Sumitomo's £350m high‑voltage direct current cable factory in the Highlands, creating hundreds of good, green jobs in the region, and investment in the port of Ardersier.
• There has been considerable effort and success to streamline the consenting process for offshore windfarms and associated offshore infrastructure through new guidance for applicants, developed through stakeholder consultation; adoption of Standard Operating Procedures to improve standards and processing time; and close working with UK Government on the Energy Act 2023. Our Scottish Marine Energy Research programme (ScotMER) has delivered new research projects to address evidence gaps around how offshore renewable energy developments may potentially affect our natural environment, socioeconomics and other users of the sea. Supported by £3.6m this year, ScotMER brings together a wide range of stakeholders to identify evidence gaps for ornithology, marine mammals, fish & fisheries, diadromous fish, benthic, physical processes and socio-economic topic areas, which are then recorded on evidence maps. These maps were last updated in March 2024.
• Through our Minister-led Hydrogen Industry Forum we are engaging with businesses in the development of hydrogen proposals across Scotland.
• Supported Scottish businesses through the UK Government's Hydrogen Allocation Round 1 process. This was the first of the UKG planned annual electrolytic allocation rounds for the Hydrogen Production Business Models. Successful projects, which will be operational by 2026, are located in 11 sites across the UK including Cromarty and Whitelee in Scotland – and represent 125MW of hydrogen production capacity. We will support businesses through Round 2.
• Co-funded the Facility for Investment Ready Nature Scotland (FIRNS) to develop the pipeline of natural capital restoration projects so that they can attract larger amounts of private investment and improve capacity in the sector. 27 projects involving a range of different public, private and community partners are underway, running from September 2023 to March 2025.
• Published the recommendations of the First Minister's Investor Panel and the Scottish Government's initial response to those recommendations.
• Established a commercially focused stakeholder group on corporate governance of public companies

Equality and Human Rights Case Study

Engineering is key to achieving our net zero ambitions, but engineering is historically a white, male dominated profession. It is crucial that we challenge and change this norm, not only to maximise Scotland's ability to recruit the diverse and talented future workforce it needs, but also to provide more young women, ethnic minority and disabled people with equal prospects in the well-paid careers that arise from new market and industry opportunities and the transition to net zero.

Working with Education Scotland, we identified a lack of knowledge about the wide range of future engineering career opportunities available to young people, particularly young women, in the Scottish education system. In March 2024, in partnership with Education Scotland and skills and industry partner organisations, we piloted the Making Scotland's Future Engineering as a Career event at the Glasgow Science Centre.

An audience of 190 educators and careers advisers from across Scotland's education system attended the event. There, they learned about current and future engineering roles and the wider support networks available for young people looking to pursue a career in engineering. Forty three exhibitors, including organisations such as Equate Scotland and the Association for Black and Ethnic Minority Engineers, provided a total of 109 specialists from across equalities, skills and various industrial sectors. Together with a panel of dynamic and diverse young engineering apprentices and students, the exhibitors provided educators with the information, resources and knowledge needed to support more under-represented young people to consider the vital engineering careers that will enable Scotland to move towards a more sustainable future. We are currently exploring options to host similar events in multiple locations across Scotland.

Programme 2 New Market Opportunities	Latest	Previous data point
Level of capital investment (GFCF)	£36.6 billion (2023)	£34 billion (2022)
Exports (as a share of GDP)	20.3% (2023)	20.0% (2022)
Number of planned inward investment jobs	8,533 (2022-23)	7,780 (2021-22)

Capital investment within the Scottish economy rose by 7.8% in 2023 despite the increase in the cost of borrowing from higher interest rates and uncertain economic conditions.

The value of annual goods and services exported overseas increased by 6.8% in 2023 compared to the previous year, while overall exports as a share of GDP improved slightly compared to 2022 and remained at around the pre-pandemic level of around 20%. More recently, disruption to commercial shipping in the Red Sea since the final quarter of 2023 is impacting on supply chain costs and delivery times.

Programme 3 Productive Businesses and Regions

Our aim

Programme 3 aims to make Scotland's businesses, industries, regions, communities and public services more productive and innovative.

Our programme of action

Project 8 – Improve connectivity infrastructure and digital adoption across the economy.

Project 9 – Upskill business and public sector leaders, pioneering novel approaches to driving productivity improvements.

Project 10 – Realise the potential of the different economic and community assets and strengths of Scotland's regions.

Delivery Overview

The Productive Businesses and Regions Programme seeks to deliver a step-change in Scotland's productivity performance, addressing regional inequalities in economic activity and boosting traditional and digital infrastructure as we transition to a greener economy that is more efficient and competitive globally.

Over the past year, we have made significant progress delivering the national digital infrastructure that a modern nation requires. Through Reaching 100% and the Scottish 4G Infill programme, we have installed subsea cables and masts to provide greater digital connectivity across parts of rural and island Scotland, contributing to improved broadband, fibre and mobile coverage for people and businesses.

We are also addressing regional inequalities in economic activity and supporting regional regeneration so that every region in Scotland can contribute to, and benefit from, a more productive economy. We have worked with partners to establish high profile initiatives such as Green Freeports and Investment Zones. Regional Economic Partnerships are increasingly influential in identifying economic opportunities whilst the progress of Community Wealth Building further demonstrates our commitment to ensuring that the benefits of economic growth are shared across the country.

Work continues with the UK Government and local authorities to implement the ten Regional Growth Deals in delivery and to develop the remaining two. Good progress is being made on these which will deliver £1.9bn in Scottish Government investment to unlock potential in regional economies over the next 10 years.

Delivered to date

• Announced at the Autumn Statement 2023, Investment Zones in both the Glasgow City Region and North East have now been extended from 5 to 10 years, and the overall funding envelope (encompassing tax reliefs and capital and revenue spending) will increase from £80m to £160m for each Zone.
• Scotland's two Green Freeports submitted their Outline Business Cases (OBCs) in Autumn 2023. Joint approval from Scottish and UK ministers was secured in March for Inverness and Cromarty Firth Green Freeport's OBC. This was followed by designation of tax sites in April, making available a package of devolved and reserved tax reliefs. Forth Green Freeport's Outline Business Case received joint approval in May. This was followed by tax site designation in June.
• An example of recent Green Freeport activity was the Scottish National Investment Bank investing £50m in a £100m credit facility to enable the redevelopment of Ardersier Port. The investment, alongside £50m from the UK Infrastructure Bank, comes as part of a £300m investment commitment from global energy investor Quantum Energy Partners to establish the port as a major hub for offshore wind. The Scottish National Investment Bank worked with port owner Haventus to develop the deal. The port is central to the ambitions of the Inverness & Cromarty Firth Green Freeport and will support the region in its quest to be a priority location for offshore wind manufacturing, assembly and operations and maintenance, supporting the ScotWind and INTOG projects in Scotland' North Sea.
• Another example of regional investment success was the significant milestone investment of £350 million subsea cable manufacturing plant at Port of Nigg on the Cromarty Firth. Sumitomo's new factory, supported by £24.5m of public sector funding, is their first investment of this kind in Europe and the only such factory in the UK, which will create hundreds of green jobs.
• The Reaching 100% (R100) programme has connected over 49,700 premises to date through the R100 contracts (including over 10,800 premises beyond the reach of the initial contract scope) along with over 3,900 connections through its Scottish Broadband Voucher Scheme, and has successfully laid 16 new subsea fibre cables, delivering mainly gigabit capable connections (more than 30 times faster than the original superfast commitment).
• The Scottish 4G Infill (S4GI) programme (in which the Scottish Government has invested £28.75 million, including £10.7 million from the European Regional Development Fund) has completed delivery of 55 masts, all of which are now activated for 4G providing coverage to previous mobile "notspots" across parts of rural and island Scotland, benefitting individuals and businesses.
• Project Gigabit is a UK Government programme aimed at improving gigabit connectivity nationwide. To support delivery in Scotland, the Scottish Government has agreed to lead on procurements, as Contracting Authority, for local and regional contracts (Type A and Type B), and will work closely the UK Government to manage the UK-wide (Type C) framework in Scotland. The first local (Type A) procurement in Scotland launched on 7 May 2024, encompassing over 11,000 eligible premises in the Scottish Borders and East Lothian areas with a public subsidy of over £26 million available. This is the first local or regional procurement to be launched outside of England. The second procurement in Scotland, a regional (Type B) procurement in the Aberdeenshire, Dundee, Angus and Moray Coast areas, launched on 30 May 2024, encompassing over 68,000 premises with a public subsidy of over £105 million available.
• The Scottish Green Data Support Service has been launched by Scottish Enterprise to help establish Scotland as an attractive location for green datacentres and to accelerate inward investment from the datacentre sector. Updated datacentre site selection reports covering Scotland have been developed and published.
• Published analysis of consultation on Community Wealth Building legislation.
• Continued to support the work of Scotland's Regional Economic Partnerships through progressing the implementation of the two priority recommendations highlighted in the Regional Economic Policy Review. Including taking steps to advance a model of regional funding; and working with Regional Economic Partnerships to explore ways of delivering Regional Intelligence Hubs.

Equality and Human Rights Case Study

Community Wealth Building – a place-based approach to economic development, which redirects wealth back into the local economy and places control and benefits into the hands of local people – is key to tackling poverty and child poverty, but it is important that any legislation in this area take into account the views of those who will be affected by it. That is why, through the 'Get Heard Scotland' programme, we funded The Poverty Alliance to ensure the voices of those with lived experience and local grassroots organisations were heard during the consultation period on Community Wealth Building legislation.

Twelve people with experience of poverty were recruited from across Scotland to take part in four sessions discussing how Community Wealth Building could best address poverty. The first three sessions covered a variety of topics, such as the concept of Community Wealth Building, its impact on ownership in communities and the actions needed to ensure it effectively addresses poverty. The final session was then devoted to understanding the participants' key views and messages for the Scottish Government. In addition to these, The Poverty Alliance held a session with 10 community organisations and representatives from the third sector to further develop the key messages developed during the citizens' panel.

Following these sessions, The Poverty Alliance drafted an independent report summarising their key findings. This was published on their website to coincide with the publication of the consultation analysis report in October 2023. It reported that participants gained a clear understanding that Community Wealth Building was about economic transformation and system change and recognised the potential of this model in tackling poverty and inequality.

While the development of Community Wealth Building legislation is still underway, the Poverty Alliance's work, and the views of the people with experience of poverty and the grassroots organisations who participated in it, have helped to shape how we talk about Community Wealth Building and consider its implementation.

Programme 3 Productive Businesses and Regions	Latest	Previous data point
Productivity (GVA per hour worked)	£39.65 (2022)	£36.74 (2021)
Business R&D spend (£ million)	£2.7 billion (2022)	Not Available
Proportion of businesses innovative active	32.4% (2020-22)	39.0% (2018-20)
Digital skills in businesses (% businesses with fully equipped staff)	21.0% (2021)	26.0% (2017)

Business confidence improved over the second half of 2023 and into 2024, however remains slightly lower compared to the start of 2023 reflecting relatively subdued demand during 2023.

There has been a decrease in the proportion of businesses that were innovation-active in Scotland – 32.4% of businesses were innovation-active over the 2020-22 period – down from 39.0% in 2018-20. Innovation rates also decreased for all regions within the UK – and for the UK as a whole the proportion of businesses that were innovation-active decreased from 44.9% in 2018-20 to 36.3% over 2020-22.

Scotland's Business R&D spend (BERD) was estimated at £2.7 billion in 2022. Currently the BERD spend data for Scotland, on a new methodology, are available only for 2022. Work is underway with the Office for National Statistics towards providing a comparable time series for BERD spend in Scotland. The proportion of businesses reporting staff are fully equipped to meet the business's digital technology needs has fallen between 2017 and 2021. However, over the same period, the proportion reporting staff to be well equipped but with some skills gaps has increased from 48% to 56%, and the proportion reporting considerable skills gaps has fallen from 19% to 15%.

Programme 4 Skilled Workforce

Our aim

To ensure that people have the skills they need at every stage of life to have rewarding careers and meet the demands of an ever-changing economy and society and that employers invest in the skilled employees they need to grow their businesses.

Our programme of action

Project 11 – Adapt the education and skills system to make it more agile and responsive to our economic needs and ambitions.

Project 12 – Support and incentivise people, and their employers, to invest in skills and training throughout their working lives.

Project 13 – Expand Scotland's available talent pool, at all skills levels, to give employers the skills pipeline they need to take advantage of opportunities.

Delivery Overview

Our focus remains on delivering the outcomes of a skills system that is more agile and responsive to economic need and ambition; supporting and incentivising people and employers to invest in skills and training throughout their working lives; and expanding Scotland’s available talent pool. The Post-School Education and Skills Reform Programme has been developed in the light of James Withers’ Independent Review of the Skills Delivery Landscape and the Scottish Government’s own report on the Purpose and Principles for Post-School education, research and skills (June 2023). In this context we are focused on:

• Developing a national approach to skills planning and strengthening regional approaches, building on foundational work we have been leading across Government and with agencies.
• Simplification of the post-school funding body landscape.
• Future development of apprenticeships.
• Developing a clearer, coherent offer for learners and building clearer pathways for employers to support and be involved in shaping the support provided.
• Enhancing employer engagement in the skills system.
• Improvements to college regional collaboration.
• The CLD Review which is on track to deliver its report by the end of June 2024.

These reforms and improvements are being taken forward alongside improvements to school-age education including: the establishment of Qualifications Scotland, which will replace the Scottish Qualification Authority (SQA) as Scotland’s national qualifications body; the establishment of His Majesty’s Inspectorate of Education as an independent office-holder; the re-focus of the remainder of Education Scotland, with the curriculum as its priority; and the creation of a Centre for Teaching Excellence.

We will continue to build on the progress made during 2023/24 in these areas.

Delivered to date

• Skills Recognition Scotland, a pilot project designed to help migrants already living in Scotland to secure the right level of employment by profiling their skills gained outwith the UK and increasing links to employers with vacancies, was completed in August 2023. Work continues to develop a sustainable process for the future.
• Employer Skills Survey 2022 and Employer Investment in Skills Supplement have been published – UK level was published in September 2023, Scottish level data was published on 29 November 2023.
• Scotland's Migration Service (previously titled the Talent Attraction and Migration Service, TAMS) has been developed and is now in the Delivery Phase.
• James Withers' Independent Review of the Skills Delivery Landscape was published on 7 June 2023.
• Purpose and Principles for Post-School Education, Research and Skills was published on 28 June 2023 setting out the framework for decision making for post-school education, skills and research to ensure the system is fit for the future, delivering the best outcomes for learners, employers and the public investment we make.
• Work has begun on the development and implementation of the Post-school Education and Skills Reform Programme. The focus of the programme is on improving and reforming the post-school learning and skills system in the light of the Withers' review and Purpose and Principles.
• The Minister for Higher Education and Further Education set out his priorities for post-school education and skills reform in a Parliamentary statement on 5 December 2023. These priorities include Scottish Government leadership of national skills planning and the simplification of the funding landscape, initially through bringing together funding for provision including apprenticeships.
• Governance arrangements for education and skills reform, including post-school education and skills reform, have been established including the first meeting of the Chief Executive Forum (January 2024) and the first meeting of the Ministerial Group (May 2024).
• Lifetime upskilling and retraining offer – Programme of evidence gathering and research is complete. Supporting this, the Poverty Alliance Get Heard Scotland work commissioned in 2023 has been published setting out the findings of group sessions with individuals living in or at risk of poverty and grassroots representatives. Get Heard Scotland: Lifetime Skills and Equalities – The Poverty Alliance. The lifetime skills offer commitment has been aligned to the broader post-school reform programme.
• A first meeting of the Graduate Apprenticeship Enhancement Group has been held (April 2024).
• Tertiary Pathfinders – The Tertiary Pathfinders referenced in the SFC Review (2021), led by the SFC and included within the Shared Outcomes Framework (published March 2022) have been looking at how the skills system in Scotland could be joined up, accelerated, and scaled up on a regional basis across the sector to meet emerging and existing skills needs. A National Systems report, examining coherent planning across the two pilot regions, the North East and South of Scotland, led by the Scottish Funding Council is due to be concluded in June 2024, drawing on the findings from the seven pilot projects. All projects have reported significant benefits and outcomes for learners and other stakeholders from the regional, collaborative approach.
• A recruitment toolkit has been co-developed by Brand Scotland and the Industry Advisory Group (IAG) that can be used by employers to recruit talent. Ongoing work with the IAG Sector Representatives to develop talent attraction and retention programme.

Equality and Human Rights Case Study

A skilled, inclusive and diverse workforce is a key component of a wellbeing economy – the ambition at the heart of NSET. While training our domestic workforce will meet some of the demand of the Scottish labour market, we also need to attract more people from overseas. Employers have told us that the UK immigration system is bureaucratic, complicated and expensive. Many small and medium-sized enterprises struggle to acquire a sponsor's licence and meet the Home Office's compliance regime. These problems have been exacerbated by the ending of free movement. We also know that moving to another country can be challenging. A successful settling in period often means people are more likely to stay longer in Scotland.

To help overcome these challenges and build a more diverse workforce embracing new cultures and people, we launched the first iteration of Scotland's Migration Service in March 2024. This service supports employers and inward investors to navigate the immigration system through the provision of high-quality information and advice. All Scotland-based employers can now access free one-to-one immigration advice from our partner law firm, Seraphus. Supporting employers in this way will enable more people to live and work in Scotland, increasing the diversity and skillset of the Scottish workforce. Likewise, anyone who has arrived in Scotland within the last six months can get reception support from Citizens Advice Scotland. In this first iteration, we have also opened the service to final year international students who want to stay in Scotland after graduation. We will continue to learn from these early users and launch an expanded service in Autumn 2024.

Programme 4 Skilled Workforce	Latest	Previous data point
Skill shortage vacancy rate	10% (2022)	3% (2020)
Percentage of young people (16-19) participating in education, training or employment	94.3% (2023)	92.4% (2022)
Percentage of adults (16-64) with low/no qualifications (SCQF Level 4 qualifications or below)	9.3% (2023)	9.9% (2022)
Proportion of establishments reporting at least one employee whose skills are under-utilised	37% (2022)	33% (2020)
Percentage of people in employment aged 16‑64 (excluding full-time students) receiving job related training	26.6% (2023)	25.5% (2022)

In some respects performance of the Scottish labour market remains robust, with a low unemployment rate of 4.4% and 2.45 million payrolled employees remaining close to its record high. Labour market tightness has been softening over the past year with lower vacancy rates and recruitment activity.

There are other positives and the latest figures show that the percentage of young people participating in either education, training or employment has increased to 94.3% in 2023 and the percentage of adults (16-64) with low or no qualifications has fallen over the year to 9.3% in 2023.

Skill shortage vacancies as a proportion of employment has risen to 10% in the latest figures although the low figure of 3% from 2020 likely reflects the effects of COVID-19 on recruitment at that time. A higher proportion of establishments report that at least one of their employees has skills that are under-utilised.

Programme 5 A Fairer and More Equal Society

Our aim

Programme 5 aims to reorient Scotland's economy towards fair work, delivering higher rates of employment and wage growth, significantly reducing structural poverty, and improving health, cultural and social outcomes for disadvantaged communities.

There is a close link between actions set out in Programme 5 and actions to support parents to increase their earned income in Best Start, Bright Futures, and further detail on these shared commitments is set out in the Tackling Child Poverty Delivery Plan Progress Report.

Our programme of action

Project 14 – Tackle poverty through fairer pay and conditions.

Project 15 – Eradicate structural barriers to participating in the labour market.

Delivery Overview

Our actions in Programme 5 are key to achieving our vision of a Wellbeing Economy.

Scotland's labour market has remained resilient to wider economic conditions. Headline measures are positive, with enduring low unemployment and progress on the gender pay gap and disability employment gap. However, the number unable to work remains high as do enduring challenges around low pay and insecure work in particular sectors of the economy. Through our ongoing focus on labour market participation and fair work – particularly supporting people further removed from the labour market to move towards, into and to remain in work – we are using the powers available to provide people of all ages the skills and capabilities they need to access work, and promote workplaces that are fair, inclusive and secure.

Within two years, a number of the original actions set out in the programme and across both projects are complete, with the remainder in progress. This is a result of a Culture of Delivery and Team Scotland approach in action with partners including local government, trade unions, third sector, health, business and others contributing to deliver at pace the transformational change which will improve outcomes for people and communities across Scotland.

Whilst progress is positive and testament to the collective endeavour across the public, private and third sector there remains more to do and challenges ahead. We remain ambitious in terms of scale and impact for Scotland to become a leading Fair Work nation by 2025 and for No One Left Behind to deliver system-wide transformational change in employability and labour market participation.

Delivered to date

• Fair Work conditionality requiring payment of the real Living Wage, and provision of channels for effective workers' voice, applied to grants from 1 July 2023, building on Fair Work First requirements already applied to over £4bn of government funding.
• Sectoral Fair Work Agreements progressing in: Construction; Adult Social Care; Early Learning and Childcare; Tourism and Hospitality; Culture; and Retail.
• Ministerial Fair Work Oversight Group established August 2023.
• Annex B of this NSET annual report provides the first annual report on progress on the Fair Work Action Plan.
• Fair Work Action Plan Evidence Plan was published. Fair Work evaluation to follow in 24/25.
• From April 2024, No One Left Behind became the primary mechanism for delivery of devolved employability support, with Fair Start Scotland contracts coming to an end.
• Fair Start Scotland participants, who joined up to 31 March 2024, remain in the service and will continue to receive the support they need to move into work over the next 12-18 months in accordance with their personal circumstances and if successful in securing a position, will have in work support of up to 12 months.
• No One Left Behind quarters 1, 2 and 3 of 2023/24, 14,013 participants started to receive support, 4,748 of which were parents and 3,421 were disabled. In the most recent quarter (October - December 2023), the proportion of participants accessing No One Left Behind support that reported having a disability was 25%, the largest proportion in a single quarter to date and the proportion of participants from a minority ethnic background accounted for 14%,. Statistics covering up to end March 2024 will be available in July 2024.
• Delivered six National Stakeholder Discussion Events between August and November 2023 to further develop implementation of No One Left Behind providing opportunity to consider progress and share good practice (enabling contribution from approximately 300 public, private, and third sector partners with an interest in employability related matters). A report was published in April 2024 and actions will inform the forthcoming Strategic Plan.
• Secured an exemption, from tax and national insurance considerations, for payments made by local authorities to parents starting work. Guidance was published on 9 February 2024, and changes came into force from 1 April 2024.
• No One Left Behind and the Young Person's Guarantee: implementation evaluation published on 10 August 2023 set out the experiences of service providers and service users and lessons from early delivery.
• Following detailed analysis, advice and recommendations to address the challenges around Economic Inactivity in Scotland, a health and economy workstream was established to take forward the recommendations.
• Employer engagement has taken place, taking on board feedback from the New Deal for Business Group actions, covering Health and work; and Flexible Working with the outputs informing next steps in policy development.
• Following this engagement and a review of health and work support for employers and employees, advice is being prepared for ministers to update them on progress with a number of short term actions and on what additional options can be taken to maximise the effect of existing service provision across employability, health and local service delivery.
• A report presenting feedback from the National Stakeholder events was made available publicly on Employability Scotland website, with supporting communications that these findings have resulted in improvement actions that have been included in the Employability Strategic Plan 2024-27.
• A review of the flexible working policy support offer has taken place with options in development for future delivery.

Equality and Human Rights Case Study

Through our No One Left Behind approach, Scottish Government and Local Government are working together to transform employment support and tackle systemic inequalities in the labour market in order to create better outcomes for people who experience the greatest barriers to good employment. This is a key part of achieving our vision for economic transformation, progressing the Fair Work Action Plan, and tackling child poverty as outlined in Best Start, Bright Futures. The approach simplifies the employability system by streamlining and aligning provision across a complex landscape and addressing duplication by combining funding and transferring investment from national to local governance to enable the delivery of person-centred, place-based integrated support. In doing so, it supports a system that develops diverse and localised approaches that are designed and delivered around – and responsive to – the needs of local people of all ages who face the greatest barriers to progress towards, into and to sustain work.

These services, which are in place in every local authority area, provide support for people of all ages with a range of intersecting characteristics and circumstances. This includes those who more often experience barriers to the labour market, such as families, women, disabled people, people from racialised minorities, those under 25 and those over 50. In this way, it helps to reduce the gender employment gap, the gender pay gap and the disability employment gap.

The implementation of No One Left Behind was evaluated in 2023, and almost nine in ten service users who participated in the evaluation indicated they were fairly or very satisfied with the support they received. Participants who were interviewed referenced the holistic, tailored, and person-centred nature of support. Per the most recently published data, 54,475 individuals have received support through No One Left Behind since its commencement. Of those, 17,242 (32%) have entered employment and, 7,934 (15%) have entered further education or training. Other outcomes achieved include; gaining qualifications (13%) and work experience, re-engaging with school and volunteering. This work supports Scotland to become a leading Fair Work nation by contributing to reducing the Gender Employment Gap, Gender Pay Gap and Disability Employment Gap. For wider progress around the Fair Work Action Plan, please see Annex B.

The Implementation Evaluation of No One Left Behind and the Young Person's Guarantee is available at: https://www.gov.scot/publications/implementation-evaluation-no-one-left-behind-young-persons-guarantee/documents/

The most recently published data on No One Left Behind is available at: https://www.gov.scot/publications/scotlands-devolved-employment-services-statistical-summary-may-2024/

Programme 5 A Fairer and More Equal Society	Latest	Previous data point
Percentage of employees aged 18 or over earning the real living wage or more	89.9% (2023)	90.6% (2022)
Employment rate (16-64)	73.1% (Jan-Mar 2024)	74.7% (Jan-Mar 2023)
Median gender pay gap for full-time employees	1.7% (2023)	3.0% (2022)
Employee voice (employee reported collective bargaining)	40.7% (2023)	34.7% (2022)
Proportion of employees (16+) in contractually secure employment	94.2% (2023)	94.1% (2022)

While there has been strong nominal wage growth over the year, high inflation has meant real earnings growth has been slow, resulting in household finances continuing to face significant pressures.

The Scottish Government continues to encourage employers to adopt Fair Work practices and pay the Real Living Wage. In 2023, an estimated 89.9 per cent of employees in Scotland aged 18 and over were paid at least the real living wage. In 2023, the median Gender Pay Gap for full time employees decreased to 1.7 per cent, below the UK gap (7.7 per cent).

The employment rate for 16-64 year olds decreased over the year and the young people's (16-24) employment rate was estimated at 55.9 per cent in 2023, decreasing by 2.0 percentage points from the previous year.

The disability employment rate gap has decreased from 37.4 percentage points (pp) in January to December 2016 to 30.2 pp in January to December 2023. The minority ethnic employment rate gap was estimated at 13.8 pp in January to December 2023. The employment rate for the minority ethnic groups has been continually lower than the employment rate for white groups across the series.

The economic inactivity rate for people aged 16 to 64 years in Scotland was 23.4 per cent in January to March 2024. This is 1.4 percentage points up over the quarter and 0.7 percentage points up over the year.

Programme 6 A Culture of Delivery

Our aim

Programme 6 aims both to ensure successful delivery of all other NSET programmes and change the delivery culture to support the economy across the public sector. We will work to create a culture of accountability and delivery, with objectives clearly allocated and accepted across the public, private and third sector.

Our programme of action

Project 16 – Strengthen accountability and transparency.

Project 17 – Transform the way support is delivered to people and businesses across Scotland.

Project 18 – Measure success.

Delivery Overview

Many of the original actions are now complete, reflecting our commitment to embedding a culture of delivery throughout the National Strategy for Economic Transformation. Our governance, measurement framework and project and programme management has strengthened our transparency and accountability. Our Centre for Expertise in Equality and Human Rights continues to support our work towards the goal of a Wellbeing Economy that delivers for all of Scotland's people and places.

An emerging priority for the programme in 2023 was the New Deal for Business which seeks to build upon our culture of delivery by ensuring that all policy development and decisions across government are informed by the business voice. The New Deal reflects that, while business may not always approve of individual decisions which Government takes when balancing competing interests to take the best decisions for Scotland as a whole, the interests of Government and business should be aligned in ensuring that decisions are well informed, unintended consequences are considered and that business has appropriate early opportunity to shape our policy agenda for improved outcomes for all.

We are eight months into an eighteen-month New Deal Implementation Plan and we are making good progress. The reinstated and refocussed Regulatory Review Group is already providing a valuable contribution to policy assessment and supporting improved business understanding, policy capability and culture of engagement across government portfolios. We have been engaging across portfolios to embed the New Deal for Business principles and support new engagement, have delivered a series of internal policy development improvements, for example an updated Business and Regulatory Impact Assessment developed with Business partners to support improved policy development, with impacts of this extensive internal improvement programme beginning to be seen. But we are aware that there remains more to be done, and we remain committed to principles of engagement which underpin the New Deal. We are grateful for the continued support of industry representatives on the New Deal for Business Group, who offer support and influential, constructive challenge on our delivery. The New Deal for Business will remain a core area of focus as we seek to deliver enduring culture change.

Delivered to date

• First NSET Annual Report published.
• Portfolio and Programme Level performance and deliver dashboards developed.
• Logic Models developed for each NSET Programme.
• Risk Management Strategy and Strategic Business Case developed.
• New Deal for Business Group Report and Recommendations published.
• A series of training sessions for economic policy officials on gender and the economy was delivered by the WISE Centre for Economic Justice, covering the following themes: (i) gender dimensions of the economy; (ii) the care economy; (iii) human rights and economic development; (iv) gender and human rights budgeting.
• A thematic session was held, bringing together gender equality stakeholders and policy leads from NSET programmes to consider potential opportunities for further advancing intersectional gender equality through NSET.
• New Deal for Business Implementation Plan published. Good progress is being made on delivery. The Group continues to meet to provide constructive challenge and support delivery assurance as progress is made on delivering actions in the implementation plan.
• New Deal for Business recommendation on rejuvenating the Independent Regulatory Review Group delivered. This work continues and is informing policy development across Ministerial portfolios.
• A full deep dive was undertaken by New Deal for Business Subgroups 1 (Regulation) and Subgroup 2 (Partnership) on the Scottish Government policy development cycle to understand when and how policy officials should engage with business. This has reinforced the need for early engagement with businesses prior to decisions and will build capability to undertake effective engagement – including pre-policy particularly when regulation is a potential outcome. The best practice policy cycle will be part of the suite of tools under development to support policy leads.
• In addition to delivery of individual actions in the implementation plan, wider work is being made on supporting culture change and continuous improvement of engaging business and addressing impacts of policy on business (including small business) across the Scottish Government.
• An internal survey on the suitability of the Business Regulatory Impact Assessment (BRIA) was completed at the end of 2023. Ongoing engagement with internal and external stakeholders has been undertaken and the revised BRIA Template has been published.
• To support management of the cumulative impact of policies on business we undertook a survey of business representative organisations to identify past, devolved regulations which business feel could be improved, removed or replaced, for conclusion by end of April 2024. Regulation Subgroup members produced a shortlist for consideration analysis and presentation to Scottish Ministers.
• A strategic process was confirmed, to allow Ministers and officials be kept informed of all activity across the Government which could have an impact on business so that the cumulative impact of policy on business can be set out for and fully understood by Ministers.
• A key recommendation was around the cumulative impact of policies on business and the business voice being heard in development of any new Programme for Government; we are currently working across government and with Business partners and the New Deal for Business Group to put an improved engagement, assessment and assurance process in place.
• Following the publication of the revised BRIA and development of a Best Practice policy cycle, an updated Staff Toolkit on Business Engagement and BRIA was developed.
• Seminars and outreach and learning products for staff were delivered in partnership with business as part of a training programme to improve business understanding and capability across the organisation.
• Within its first six months, the Regulatory Review Group has scrutinised regulation implementation within high-profile public health, circular economy and climate change, tourism and consumers policy areas. To ensure transparency, all meeting minutes and advice sent to Ministers by the Group are published on the Regulatory Review Group webpage found on the Scottish Government website.

Equality and Human Rights Case Study

The Centre of Expertise in Equality and Human Rights was established in May 2022 to embed equality and human rights in the Scottish Government's economic policy-making and to support NSET's ambition of tackling structural inequalities. The Centre supports cross-government initiatives to advance equality and human rights in the economy portfolio and leads on engagement with strategic partners, such as the National Advisory Council on Women and Girls. It also works with external partners and academic experts to build capability, skills, knowledge and confidence in equality and human rights among economic policy officials.

One way it does this is through its training and capacity building programme. In Autumn 2023, the Centre arranged for the WISE Centre for Economic Justice to deliver a series of training sessions for over 60 people on intersectional gender equality and the economy. Feedback from the sessions indicates they have helped policy officials improve policy development and implementation across NSET's programmes. More recently, the Centre organised an additional session to bring stakeholders together with policy officials to discuss potential opportunities for further advancing intersectional gender equality through NSET. A total of 11 stakeholder organisations attended, including Engender, Close the Gap, the Scottish Women's Budget Group and Women's Enterprise Scotland. The outcomes of the sessions are being used to help inform the ongoing implementation of NSET.

To complement its training programme, the Centre provides a variety of practical supports and advice to economic policy officials. It operates an equality and human rights policy network to enable peer-to-peer learning and the sharing of good practice. Last year, the network hosted presentations from external equality and human rights experts and provided feedback on draft equality impact assessments, Fairer Scotland Duty assessments and child rights and wellbeing impact assessments to support continuous improvement.

Finally, the Centre of Expertise contributes to the wider mainstreaming agenda, and learning from its first two years of operation is informing work to establish centres of expertise in other parts of the Scottish Government.

Programme 6 A Culture of Delivery	Latest	Previous data point
Income inequality (Palma ratio)	34% (2020-23)	18% (2019-22)
Regional inequality (GDP per head)	26% (2021)	26% (2020)
GHG emissions	-49.9% (2021)	-58.7% (2020)
Natural Capital Asset Index	102.7 (2021)	102.7 (2020)
Annual GDP growth in real terms	0.1% (2023)	5.9% (2022)
Income tax receipts	£13.7 billion (2021‑22)	£11.9 billion (2020‑21)

Wealthier

The most recent Scottish Income Tax figures were published in July 2023 and show that the total amount of income tax generated by Scottish taxpayers in the 2021 to 2022 tax year was £13.7 billion – an increase of 14.9% compared to 2020 to 2021. Annual GDP is now estimated to have grown by 0.1% in 2023. This follows growth of 5.9% in 2022 and 9.2% in 2021, after the fall of 12.0% in 2020 during the coronavirus pandemic.

Fairer

Palma ratio figures for 2020-23 show that the top ten percent of the population had 34% more income (before housing costs) than the bottom forty percent combined. Income inequality has been fluctuating since the beginning of this data collection in the mid-nineties and while the Palma measure has increased in the last year it is unclear whether this is the beginning of a new trend, or another fluctuation.

Regional Inequality – measured using GDP per head – has remained the same over the last two data points although the most reliable regional data for Scotland is from 2021.

Greener

The Green House Gas account reduced by 49.9 per cent between the baseline period and 2021. The Climate Change (Emissions Reduction Targets) (Scotland) Act 2019 specifies a target reduction of 51.1 per cent reduction over the same period and therefore the interim target for 2021 has not been met. The Natural Capital Asset Index (NCAI) monitors the quality and quantity of terrestrial habitats in Scotland, according to their potential to deliver ecosystem services now and into the future. It is a composite index, based (i.e. equal to 100) in the year 2000.

When the Natural Capital Asset Index (NCAI) was launched in 2011, Scotland became the first country in the world to publish such a detailed attempt to monitor annual changes in its natural capital. The most recent data (published in 2023) shows that the NCAI was 102.7 in 2021 – unchanged from its 2020 value and 0.2 points higher than its 2018 value. It has remained relatively stable since detailed monitoring began in 2000.