Towards a Robust, Resilient Wellbeing Economy for Scotland: Report of the Advisory Group on Economic Recovery

1. Remit, Membership and Approach

Gaining independent and expert advice when responding to the long-term impacts of coronavirus is essential. That is why the Scottish Government established the Advisory Group on Economic Recovery in April 2020. The Group was asked to focus on Scotland's economic recovery, with the emphasis on the period after the immediate emergency created by coronavirus has been addressed.

This report provides advice to the Scottish Government on actions that will make a difference to businesses across sectors and regions throughout Scotland. Solutions are being brought forward to enable a swift economic recovery and one that also ensures the Scottish economy will emerge stronger and more resilient. This has been done through proactive engagement with those affected by this crisis, and through listening to those who are crucial for the rebuilding of a resilient economy.

This Group is just one of a number of mechanisms initiated by the Scottish Government to identify and inform its approach to shaping Scotland's economic recovery. The Group has considered how to ensure an economic recovery that will increase wellbeing, fairness and inclusivity, and makes the most of opportunities towards a greener, net-zero society.

Specifically this report responds to the remit set by the Cabinet Secretary for Economy, Fair Work and Culture, and "advises on the economic recovery from the coronavirus pandemic, including:

• measures to support different sectoral and regional challenges the economy will face in recovery
• how business practice will change as a result of coronavirus, including opportunities to operate differently and how Government policy can help the transition towards a greener, net-zero and wellbeing economy"

1.1 Membership of the group

The work of the Group was led by Benny Higgins (Special Adviser to the First Minister on the Scottish National Investment Bank and Member of the Infrastructure Commission for Scotland). The members were:

• Dame Sue Bruce (Electoral Commissioner with responsibility for Scotland and a Non-Executive Director with Scottish and Southern Energy)
• Professor Dieter Helm (Professor of Economic Policy at the University of Oxford)
• Professor John Kay (economist whose career has spanned the academic world, business and public affairs)
• Professor Sir Anton Muscatelli (Principal of the University of Glasgow)
• Grahame Smith (General Secretary of the Scottish Trades Union Congress)
• Dame Julia Unwin (senior strategic leader with extensive professional experience in the voluntary and public sectors and in corporate social responsibility)
• Professor Anna Vignoles (Professor of Education at the University of Cambridge)

1.2 Call for views from Scottish society

In recent months, governments around the world have recognised the need to act swiftly to mitigate the short and long-term impacts of the pandemic. Alongside the very human tragedies and loss of life, the pandemic brings a strategic challenge for our future economy and for our future livelihoods. Over recent years it has been increasingly apparent that if we want to build a greener, fairer and more inclusive society in Scotland, we need to reimagine our economy. So the Scottish Government has asked the Group not to signpost a return to the status quo, but to set out possible paths towards a better recovery - towards a more robust, more resilient Scottish economy.

The Group was asked to provide recommendations by the end of June, in time to inform the Scottish Government's strategy for the recovery. The Group has met on a twice-weekly basis to discuss the key issues. A key part of the Group's work has been a process to gather external evidence and advice, at pace, on the insights of a broad cross-section of organisations, businesses, unions and individuals across Scotland.

The areas for consideration were recognised to be broad, and the consultation with key groups, and an open call on the Scottish Government website, was based on a series of questions and issues. The Group commissioned specific expert input, survey and research activity.

In parallel with this exercise, the Group developed a targeted programme of engagement activity, supported by Scottish Enterprise. Lord Smith of Kelvin commissioned specific input from business organisations, and the Group benefited from relevant work across the Scottish Government, its agencies and key sectoral fora.

The immediate crisis has brought forward radical and necessary responses to the health emergency. The consultation encouraged engagement which could be radical about the economic recovery as well. The Group sought brave new ideas, and ideas that have not been seriously considered before. The consultation also confirmed existing proposals whose time has come and need implementation.

The response to our engagement has been of high quality and considerable breadth and depth. In the time available, there will not be scope to provide definitive answers to every question or to set out a comprehensive and detailed blueprint for the period ahead. This report provides a direction for our economic recovery, but requires a very considerable mobilisation of activities across Scotland to enable a response. The dialogue and engagement which have been accelerated by the pandemic and harnessed by the Group need to be built on further, and this is acknowledged in the recommendations.

In terms of the call for views:

• A further report, providing a detailed summary of the responses received, will be published in July;
• All responses will be posted on the Scottish Government's website, unless consultees have specifically asked for their responses to be confidential;
• Responses from partner organisations, who have supported the process, and commissioned advice referred to in the report are published alongside this report; and
• The engagement initiated by the Group will be built on further, including by the Scottish Government and its enterprise and skills agencies, and responses of specific relevance to ongoing policy development, for example on the green recovery, will be passed on to the relevant lead organisation.

1.3 Guiding Principles

In developing the report, the Group has been guided by a set of principles, which have helped provide a frame of reference for the whole report. These Guiding Principles have also acted as a set of criteria on which to judge the recommendations which the Group has chosen to make.

The Scottish Government has recognised the four categories of harms that have resulted from this crisis. The virus causes direct and tragic harm to people's health; it has a wider impact on our health and social care services; the restrictions which Scotland, together with the other UK nations, has necessarily put in place to slow the spread of the virus can in turn cause wider social harms; and the wider negative impacts of the global pandemic and the lockdown have had an enormous impact on our economy.

The unprecedented economic harms of this crisis are already substantial. It has affected long standing businesses, and undermined aspiring growth companies. It has undermined livelihoods and jobs. The productive capacity of the economy has been hit hard, and this will ripple forward during the recovery phase. Yet, there is no question that it was right to prioritise the response to the health emergency to protect lives and the NHS, and it is clear that the economic harm would have been worse unless the health emergency was addressed.

In response to the crisis, significant action is required to mitigate the economic recession. Governments have provided an extraordinary safety net to business and individuals during the crisis.

The economic and social harms, and how we manage them, will become the substantive policy challenge facing Scotland for the foreseeable future. This challenge will be further and substantially increased by the prospect of a changed relationship with the European Union at the end of this year.

Over recent weeks, governments have rightly stepped in to counteract the precipitous drop in economic activity during the crisis, and this will inevitably impact on the fiscal options open to government in future. It is essential that we acknowledge the resulting fiscal constraints, without recourse to a policy preference for austerity and without undermining the capacity of public services to support the country into recovery. As the economy does begin to recover, we must not repeat the mistakes of the past, whether the early years of the 1980s recession or the post 2008 austerity.

Over coming months, as the economy recovers, the level of government support to business and employees will wind down. This transition out of lockdown represents just as big a challenge as going into lockdown, and indeed a greater one. Managing this transition will be crucial in enabling economic recovery and in preventing wider social harm.

The lived experience of the crisis has brought some positives, including the collective willingness to respect the need to save lives and protect the NHS. It has helped us rediscover what we value, and helped us realise the importance of community, of key workers, and of the wider foundations of society, environment and the economy. The opportunity now is to maintain and nurture the true wealth of our nation which has too often been overlooked.

The collective endeavour against the virus can evolve into a common purpose to think differently about our economy, including the respective roles of public and private sector. This will require action by government - Scottish and UK - but also by businesses, households and individuals. There is a historic chance to 'build back better', and fairer, in a way which will leave the Scottish economy more robust and resilient than before.

We must seize the opportunity for a process of national renewal. Business in Scotland should be at the centre of this renewal. And since Scotland cannot thrive if it is not back to work, and nearly 80% of Scots work in the private sector, Scottish businesses must lie at the heart of our recovery plan.

While Scotland's National Performance Framework remains the objective, we now have a new starting point. This report is only a first step in assessing the balance sheet of Scotland as it enters economic recovery. We have adopted a broad and robust framework for looking at the Scottish economy that would capture all of its assets and provide the basis for a holistic view of paths to a more robust and resilient economy in the future.

At the heart of this report is an assessment of Scotland's economic recovery which considers all facets of Scotland's capital assets, rather than prioritising one dimension over another. This assessment is structured broadly under the four capitals, acknowledging that most issues straddle more than one.

The impacts of the crisis, and the necessary restrictions on economic activity to eradicate the virus, have had clear impacts on all four capitals. It is too early, and too big a task, to make precise estimates, but the impacts are mostly negative. The productive capacity of the economy has been put at risk, wage packets have been reduced and investments in learning for the future have been compromised. Yet we should not discount the positives, in social cohesion and in environmental quality.

These impacts have been experienced disproportionately by different groups across society, whether directly in terms of mortality and illness or in consequence through impacts on employment patterns, earnings and the lived experience.

In building forward the best possible economic recovery, the key role of government is to set the direction and to promote the positive freedoms, capabilities and choices in society. We came into this period seeking to lay the foundations of a robust, wellbeing economy. We must come out of it with an additional focus on resilience. A robust and resilient economy is a foundation for human wellbeing, and a worthy objective for the future. Over the recovery phase, and in future, the economic development strategy should give greater strategic attention to the resilience of business and the economy, to address future risks, whether pandemics, changes in international trade and climate change.

The crisis has exposed both the inequalities in our society and vulnerabilities in our economy. It has put at risk the livelihoods of workers, the self-employed, small business owners, entrepreneurs and Scotland's economic potential. It has revealed the vulnerability of businesses and supply chains to deal with shocks. And it has impacted disproportionately on those already experiencing hardship, thereby compounding the inequalities already evident in our society.

Unless the economy is nurtured into recovery, we could see a compound crisis of joblessness and of loss of learning and of skills. We could see a sharp rise in unemployment and underemployment, with prolonged economic hardship and loss of potential. And as we have experienced so harshly in Scotland after previous recessions, the social harm of economic recessions can have permanent damaging effects on wellbeing and public health.

Going forward, this points to the need to prioritise resilience in our economy rather, than just over-prioritising efficiency and low cost. This resilience will require acknowledging the importance of economic security, whether against risks like a future pandemic, cyber-attacks, trade dislocation or climate change. It will need a greater recognition of the mutual interdependencies in our society, whether the importance of key workers, the reliance on digital technology, and the contribution of our social and care services. And it will recognise our collective need for entertainment, sport and culture - all of which have been so badly missed in recent months.

This report begins to identify those areas of focus for the recovery stage, based on the need to protect businesses, workers and the self-employed, prevent long-term consequences of learning and employment gaps, and promote positive changes for the future.

In the short to medium term, we must protect economic activity. This has taken the form of unprecedented steps to protect the productive capacity of businesses and the incomes of workers. This approach builds on a sound macroeconomic case to seek to mitigate the damage to the economy now to protect against even greater losses later. While Scotland is currently, and permanently, poorer as a result of the pandemic, we are in a better position than we would have been without the extensive measures taken to protect businesses and individuals during the crisis.

In the months ahead, we must seek to prevent sustained, long-term damage to our economy and society. The steps taken to mitigate reduced consumer spending, failure of businesses, bankruptcies and closure have all provided some protection against the immediate economic recession. But they also seek to prevent future harm to the economic and social fabric of the country. The impact on the economy of the permanent closure of otherwise viable companies and the loss of otherwise productive jobs will have future economic consequences.

Moreover, the loss of a period of schooling or compromised education could lead to a so-called 'learning loss' which could have long-term effects. A sustained period of unemployment harms wellbeing and can compromise long term earning potential. Likewise, a compromised transition for our young people moving from education into the labour market runs the risk of permanent economic and social harm.

So the prevention of lasting long-term effects on the prospects of companies and of people's livelihoods in the future must be a key objective for government intervention. It is nearly ten years since the Christie Commission recommended that priority should be given to preventative action. These principles remain relevant, and ensuring prevention of lasting negative consequences of this economic recession, especially for the young, the unemployed and those in precarious employment must be a priority.

And for the future, we must promote the acceleration of positive actions and trends, which can now be embedded and encouraged. The greater utilisation of digital and 'virtual infrastructure' can lock-in beneficial changes. This can enable greater choices for urban transport and deliver better for rural areas.

The drivers of recovery will reflect many of the same issues as before, but will need to be addressed in different ways. There will be a need for a proactive, muscular intervention from all layers of government and from economic and skills agencies, which will need to adapt to the new circumstances. This can build on the improvements already underway, including the development of new organisations like the Scottish National Investment Bank and South of Scotland Enterprise and the pivoting of activities to support recovery.

A number of common themes have emerged through the assessment of the Group and from the consultations with businesses and stakeholders. These point to employment and education being at the heart of our plan for recovery, while accelerating action to tackle inequality.

The ambition to respond proactively and positively to the recovery must acknowledge the fiscal context facing governments. The crisis has led to exceptionally high levels of government and private sector debt, albeit alongside a likely sustained period of low interest rates. So while public spending and borrowing and other government interventions will have a critical part to play in stimulating the recovery, we need to be realistic that financial resources are extremely tight and likely to become tighter. A balance needs to be found between the need for restraint and the opportunity to invest at low cost to promote recovery.

Therefore, this report seeks to make recommendations which will have impact without simply recommending more spending. The Group has sought to make recommendations which are an action list, and not just a shopping list for more government expenditure. A commitment to fiscal sustainability should in turn be a basis for accelerating and adjusting the Fiscal Framework in Scotland to ensure it is fit for a new purpose.

The ten overarching principles guiding the work of the Group are:

Our Guiding Principles

1. The economic harms of this crisis are substantial, and significant action is required to mitigate the economic recession caused by the pandemic

2. In responding to the economic situation, we must not repeat the mistakes of the past (whether the 1980s recession or the post-2008 austerity)

3. We must seize the opportunity for a process of national renewal, with economic recovery underpinned by a new deal with business

4. The crisis has made us rediscover what we value - we must nurture the true wealth of our nation which has too often been overlooked

5. A key role of government is to set the direction for economic recovery and to promote the positive freedoms in society

6. We need a focus on a robust, resilient, wellbeing economy

7. We must accelerate action to promote wellbeing and Fair Work and tackle inequality by mitigating the risks of unemployment, especially among groups hit hard by the crisis

8. We must restore employment, by prioritising a green investment and education-led recovery, with a prominent role for digital technology

9. A renewed sectoral and regional approach can release the innovation and collective spirit required to adapt to the new world

10. Our recommendations are an action list, not a shopping list