Andrew Wilson is a former Member of the Scottish Parliament. He was a founding partner at strategic communications firm Charlotte Street Partners at the time of the interview. He chaired the Sustainable Growth Commission.
This interview was conducted on 1 March 2022.
Q: Could you tell us about your role in growth and regional policy and devolution over the past few decades?
I’m an economist by training. I’ve worked for the Scottish government. I was an MSP, an SNP spokesperson on economy and finance in the first term of the Scottish Parliament, 1999 to 2003, then ended up as deputy chief economist at RBS, and more recently chaired the Sustainable Growth Commission. That was looking at the economics of the transition to independence should another referendum take place. So, it’s in that context that I commentate and have a modest influence in the background.
Q: Could you give us your evaluation of the key successes and key frustrations in policy in this area over the past few decades?
I don’t think regional economic policy appears to have worked sustainably for our corner of the UK or indeed for anywhere else. The UK story is London and the South East do all of the growth, they act as a centripetal pull, a magnetic pull on activity from the rest of the UK. The deal, politically, seems to be that the regions and nations receive extra public spending to compensate them for the symptoms of this lopsided flying-on-one-engine regional performance. The UK is highly centralised, and it even remains so post-devolution in economic terms. The major regional policy that I can think of was in the 1980s in particular, and into the 1990s, of foreign direct investment. To try and soak up the impact of deindustrialisation in the Thatcher shakeout, and there’s not a lot of evidence that that worked. It worked in so much as it constrained unemployment to an extent. But the actual money that was spent on embedding organisations did not work because that capital was flighty.
Substantial cost-per-job subsidies were paid through Regional Selective Assistance. You’d need to look very hard to find companies that have embedded. The reverse flow was a lot of organisations that got set up in the regions, particularly in Scotland, would end up being bought up by other companies, more recently because of a weak sterling post-Brexit. Assets in the UK are very cheap. The regional assets had a block on growth. So we don’t have sub-national champions the way other countries have got. That is an issue where company size appears to be limited, and there appears to be a limit on people. When entrepreneurs get companies going, they then sell out and achieve their capital moment. So that’s an issue. You would have to look very hard more recently to find a coherent regional economic policy at a UK level or indeed an economic policy at a Scottish level. Levelling up appears to be it at the moment, but it’s pretty vacuous. It is pretty shallow but will have plenty of money behind it.
A recent OECD Regions and Cities at a Glance 2022 report talks about this with a lot of evidence that spending money in the regions is the fishing rod versus fish argument. Spending money, i.e fish, is less effective than giving the rod, i.e the ability to properly take policy that you want. If you’re looking at econometric data from the 1970s – given quite a lot of labour resource in Scotland was involved in the North Sea boom – I just wonder the extent to which that constrains the economic performance numbers for Scotland? Because you’ve got labour that’s involved in producing profits that then are reported offshore so they don’t appear in the Scottish numbers. I understand the reason for continental shelf data for the profits, but for GDP, I just wonder whether that’s an anomaly. I can’t recall if anyone’s identified that or talked about it. But that appears to be an issue for me.
Then when we get to devolution itself. There are underlying things. Deindustrialisation is massive, so we never handled the transition of it. Britain hasn’t been great at easing transitions. We know this, we’re still to this day dealing with the social implications and the symptoms of deindustrialisation. Where I grew up in Lanarkshire, in Ayrshire, in Tayside, in Fife, which was industrial Scotland. This is where Scotland’s been stronger, and it may be skills, but we’ve got one or two areas in which we have financial services. We still have a very strong asset management base here and strong investor base. So you’ve got a pocket of reasonably high-paid people of London City standards in a very small regional centre. There are other pockets of excellence.
Take the whisky industry, oft quoted, largely non-Scottish owned. The profits will partly be declared here in GDP, but I don’t think adequately. Nor most of the benefits flowing out, although it’s a big export earner. So you’ve got this structure of an economy where as companies reach a certain stage in their progress, they tend to be acquired by a non-domestic company. Right now, as we’re speaking, another Scottish-listed entity, Menzies Distribution, is being acquired by a non domestic company. So it’s that sort of theme.
Then into the devolution era, I’m very pro-devolution, I’m a big advocate for it, I was very active in the 1997 campaign. One of the best policies of Tony Blair and a real success of his Government. However, what happened in 1997 was we codified the existing powers of the Scottish office and the Secretary of State for Scotland, added a parliament over it to examine it, and then a tax power that was designed to be unusable and for a long time went unused. It was tiny, but high profile and expensive to implement. It therefore went unused until further devolution happened, much later on. Even in COVID you can see the downside of this is because you have health policy entirely devolved. So the UK, Wales, Scotland, Northern Ireland, were taking different decisions on COVID. But they can’t follow through because Treasury determines major issues such as funding, even determining whether or not we have free lateral flow tests.
England’s got more powerful devolution, ironically, on COVID than Scotland, even though England doesn’t have any devolution. This is the discontinuity, which could be identified pretty early in devolution. Another big one is university tuition. Labour have had about eight different policies since it came in, and Scotland decided to have free tuition. Labour now agree and yet to fund that you can’t really vary the tax to suit, so you’re having to find it from other priority areas. The fact of this has always been an inconsistency in devolution, and it’s been a struggle to get further financial devolution to match the policy devolution.
The Barnett formula, despite all of the hype around about it, is designed over the long term to produce spending convergence. So it’s designed to produce spend per head convergence, although it’s never quite got there for a variety of different reasons. Whereas of course, devolution is going in the other direction. So this is a tension in the system, I think. Whether that has or has not affected the economic performance in Scotland are much bigger and much more challenging questions to the Scottish government. I think it’s a weakness in devolution. I do think it has to be remedied as per the OECD paper.
But by the same token, economic policy in Scotland needs to be much more ambitious, focused, and the one area you could say that it really has succeeded is in renewable energy. In as much as we’ve managed to very successfully grow our energy production base. But similarly, an area where it’s shown real weakness has been renewable energy because the supply chain is almost all non-domestic and none of the lessons of the 1970s and 1980s in the North Sea have been learned because there are no equity stakes, no commercially ran equity stakes held by the public sector. All big misses, big strategic misses, which, if you look at other countries they are well ahead of us on. Norway with Equinor, but others too.
I think one of the things about regions which big countries don’t have – you could say the UK doesn’t have an economic policy, which it really doesn’t. I mean it has got fiscal rules, it’s got an independent central bank with financial targets. But you can’t really say that it’s got a coherent economic growth agenda, and I’ve always struggled with this, even since Michael Heseltine. I’m sure you’ve seen the Heseltine paper on growth, “No Stone Unturned”, which is well worth a look because it includes an awful lot of the stuff that should have been done. It was much better than the levelling-up paper that came out more recently. The UK has always struggled with this, but then you could also argue that the UK is so big it doesn’t have to worry. Big countries don’t have to make a call. Small countries are doomed to choose, as we say, because you have to make a bet on something. You can’t be everything. You can’t try to be in 50 sectors and succeed in all. To the extent that the government matters over the private sector, from the right you have an argument that the government’s job is to get out the way and let the private sector boom. But where you think public policy has a strategic role, which it certainly does when it comes to tackling inequalities and productivity gaps, then you would have to say that smaller regions or nations need to make choices.
The other theme I would point up is more political than devolution, which is, ironically, the extra magnifying glass of accountability that goes with devolution. There are 129 MSPs, now 56 MPs (for scotland), which means that change and radical reform have proven to be very difficult because the vested interests of how we look after things today are louder than the potential beneficiaries of future change, which don’t exist now across a whole range of different policy areas. It is true of the economy as well. Devolution has actually been quite cautious, even in boom time or in ‘unending growth time’ of when Labour were in control at the UK level.
You can’t think of too many significantly radical policies that have taken place in devolution. There are some. Front running on tuition fees, front running on free personal care for the elderly. Probably the most radical move was a Labour one, which was the proportional representation of local government – whether it produced good or bad outcomes is another matter. But it certainly was a shakedown of local democracy, which Labour led and, effectively gave up their own benefit politically to do which I thought was brave.
Q: How would domestic ownership affect the Scottish economy and ability to provide welfare and improve wellbeing?
Although we’ve struggled to properly devolve what welfare powers were agreed upon with the Smith Commission, for a whole variety of different reasons, the implementation of them has been in negating the negative effects of policy decisions taken in London. In other words, you take UK government decisions and then either make them slightly better or more derivative than strategically transformative. In terms of living standards more generally, I was trying to make the point around corporate profits. There is one other thing, which is when you have more domestically run companies, discretionary decisions about where people are located, where even your support services and professional services, tend to push against the magnetic pull of London.
One good public example, which is a bad one on the face of it, is the Royal Bank of Scotland, now NatWest Group. Still technically headquartered in Scotland I think, or it was. However, only one executive committee member lives in Scotland or did maybe none now, and it is or was an Australian guy that runs the back office. So the chief exec, CFO, everyone is now based in London. That is a high-profile example of lots of other equivalent examples. Do they use domestic Scottish legal firms? No, they don’t or for local deals only – legal services, a good example of the issue, which is largely consolidated into global players now. So you don’t have strong independent legal players. You have got some, but not too many. I could probably walk you around them in half an hour. So there’s a good, further symbolic example of the case in point. That does matter, because, again, it makes it much more sensible and attractive for individuals to go to London to work, or at best fly or drive. So a lot of activity is lost.
Q: How would you characterise existing powers that are exercisable by the Scottish government in strategic economic policy or industrial policy?
There is a reasonably tightly limited budget, overall. There is the ability to vary tax to change that budget. But with the political call on that budget, in education and health, and in other basic crisis areas, we have been dealing with symptoms and not root causes. Therefore, the money set aside for economic intervention is quite limited. The main economic development agency’s overall budget would be about £350 million. So at UK level that would come out somewhere about £4 billion. So not substantial. The key one for me is borrowing powers. That’s been highlighted in COVID. Many people, former Treasury Permanent Secretary Nick Macpherson and others, have supported the call I’ve made, even Alistair Darling, for the Scottish government to have very substantially enhanced borrowing powers to allow them to then make investment decisions. Not to spend borrowed money on today’s outgoings but to invest it longer term. This uses Labour’s golden rule that you borrow for investment.
Scotland can’t make big seismic calls on things like, ‘We’re going to invest £25 billion in transport infrastructure’, which the central belt of Scotland would really need. We can’t take a judgement call to say we’re going to invest in, effectively, a mini sovereign wealth fund a la Temasek in Singapore – that having been started in the 1970s for economic development and job creation purposes, now produces a quarter of the state revenues of the Finance Ministry in Singapore. These kinds of decisions of significant economic ambition cannot be made, and to an extent are not made, because the horizons are limited.
Devolution, the devolved parliament, is not ambitious enough. The government is not ambitious enough, in my view. So that would be a criticism of the current and all previous governments. This a function of the accountability of devolution, but a lot of economic policy is now an answer to the question – “What are you doing about industry X, region Y, town Z?”. This means that our jam is very thinly spread. Calls are not being courageously made on where to focus. Famously, locally up here, one of the previous economic ministers was given a brief to tidy up the economic development architecture in Scotland because there are lots of people involved who were doing their own thing. There’s a Highlands and Islands enterprise, there’s Scottish Enterprise. He ended up, having done his review and getting burned, creating more bits of it. There is now a South of Scotland enterprise. There’s a strategic board sitting over the top. There’s Skills Development Scotland. There’s Scottish Funding Council for universities and colleges. There’s Transport Scotland. All of these bodies are a function of devolution, nothing to do with the UK. The failure to tidy up and then focus all of these agencies and organisations and government departments that have an impact on the economy behind a coherent, courageous strategy is entirely and explicitly the fault of the Scottish government.
Q: What’s causing that fragmentation?
Top-level political caution because of the independence argument, which means they don’t use their political goodwill. You can see the Blair government’s good will running down over three terms, but at least they were trying. That hasn’t happened – the SNP support has stayed and if anything has gone up the way. Secondly, it’s hard because you’re taking on vested interests in a system that has got a media which is often hostile. Having a parliament which has a PR system which means that you don’t have a majority government able to take decisions – or it’s very rare to have a majority government, we’ve only had one, that’s another reason why risk-taking and pushing through reform is hard. You can either blame individuals, or you can say it’s systemic. Either way, what’s observable is that you do have a risk-averse policy system. The biggest and most powerful force of strategy is what we did yesterday because that tends to be what we do today and oftentimes therefore tomorrow.
Q: You earlier cited the success of the renewables industry, or renewable energy.
On the energy production front, that’s because it did not exist. Therefore, it was easier for, then Salmond, to say as First Minister, ‘I’m going to go for this’. Because it was backed politically, it seemed a good thing to from scratch. You weren’t pissing off anyone else. What he didn’t do was successfully embed the supply chain. We’re even seeing that with a massive Scotland auction round of offshore wind, which is going to have ten times the energy that the interconnector can actually take – but almost all of it, not all of it, but almost all of it, by non-domestic firms. But with a supply chain which is meaning all of the benefits are elsewhere.
Q: Would you be able to expand a little bit more on why you think Scotland is in the position it’s in?
The borrowing powers aren’t there because the Treasury would be paranoid about people running up debt. Plus, the political difference between North and South. So although these are difficulties, I think COVID threw into sharp relief the need for that to be changed. I was gobsmacked that the Scottish government never picked up the idea of going at it. So we’ve got £450 million borrowing capacity in any one year. But it is for cash flow management. It’s not for substantial investment calls. So we couldn’t say we’ve done an analysis of the transport needs to electrify the rail network. Or to make sure that you can get from Glasgow to Edinburgh, which is 50 miles, in 20 minutes. All of the decisions that other countries would be taking, such as housing transformation. The net-zero transformation is going to be another case in point. Everyone’s agreed that it needs to be done. We now have Chris Stark in the committee on climate change identifying how much roughly it’ll cost. What’s not been identified is who’s going to pay it, and that’s a major concern.
I was arguing we would need to invest in recovery post COVID. I can’t believe the economic numbers at the moment. They’re so positive. So there’s a whole bunch of reasons, but devolution, a very substantial budget, the minimalist tax powers, albeit improving, no tax powers over corporation tax, I do want corporation tax, but I wouldn’t be arguing for an Irish-style model. Even employers, national insurance, capital gains, none of the economic levers are there. The budget is quite tightly constrained. So we ought to have very substantial borrowing powers. But don’t. That would be my main point.
Q: Why is that the case?
I think it’s Treasury reluctance. Because you don’t want a situation where your regions are going off and bankrupting themselves, because effectively the Treasury would be seen as a sovereign backstop for any lender. You do have the ability to borrow at a local government level, and we’ve got one example of that happening, which is Aberdeen City Council, I can’t remember the number, let’s say 150 million. That was a highly complicated deal. The standout thing I would change on regional development is borrowing powers for Scotland and , if it worked, UK regions.
Q: There are risks that come with further fiscal decentralisation as well, how would you sketch out the risks on that side as well?
I’m pro-independence. I would be very maximalist. But the risks within the system, the UK system of doing it, are obvious. If you’re borrowing, you bear the risk of the repayment, or you ought to. If you have tax powers, you bear the risk of the revenues not being quite as high as you anticipated. In any system where you don’t have the scale of the UK or the breadth of powers of the UK, that can’t balance out. But the equal and opposite is also true: in a system you don’t have these powers, you can’t maintain spending. They don’t even allow areas of local government to maintain reserves, one year to another, it’s got to be handed back. So it leads to all sorts of unintended consequences.
Q: Could you give us a sense of the spatial economy within Scotland?
We’ve got a big infrastructure around the Highlands and Islands, which is understandable, and similarly now in the South of Scotland, which is tiny in comparison to the overall economy. Then you’ve got national institutions, Transport Scotland, the Scottish Funding Council, Skills Development Scotland. You have a strategic board overseeing all of it. Although we’ve got a transformation strategy out this morning, I’m still to read the final version, which I think will change that a bit. But basically, a huge amount of our eggs are in the basket of the Central Belt. That Central Belt is both very rich in parts and very poor in parts – very close to the very rich parts, like every other small region.
Scotland’s population is heavily concentrated in the Central Belt, and it’s dispersed around rural areas. It’s getting better at a rural level. Obviously, we didn’t talk about digital, but that would be the obvious infrastructure that requires to be invested in. Then you’ve got the North East, which has been huge in the energy sector for the best part of half a century. Obviously a massive challenge just now. So that would be the way I would describe the regions of it. You’ve got post-industrialised, deindustrialisation challenges in the area, which is Glasgow, Lanarkshire, basically everywhere across the Central Belt, and then you get pockets of high performance, chiefly here in Edinburgh and bits of elsewhere.
Q: Do you see the move towards city deals across the UK and within Scotland as substantive or significant?
No would be the short answer. I think the money looks good on the face of it. I can’t see any evidence of it working yet. That’s another example of symbols before substance. You can see why they happened. It was a form of levelling up from George Osborne at the time, but a Treasury preference. Everyone’s going to say yes, that’s great, thanks very much. But the level of thought that went into its expenditure varies enormously. So no, I don’t think so. But I’ve not seen analysis of its impact yet. Maybe it’s too early. It must be too early, but I’m not that impressed by any of it.
Q: What are the prospects for reform within that Central Belt, between Glasgow and Edinburgh metro area?
I’m going to be an enthusiast for reform of local government. We have 32 local authorities, and the system was designed in 1994, pre-devolution. It stands to reason that it ought to have evolved since then. What I’m describing is that financial stricture for the Scottish Parliament is much worse for local government. However, we’re only 5.5 million people, similar size to the Greater Manchester. But there is an opportunity for coordination, which, I suppose, if I was praising the city deals on that, then at least it would force local authorities to come together and reach coherent strategies. The distance between Glasgow and Edinburgh, you can drive it in under an hour, it’s quicker than you can get across London. So we have a very small country on the face of it that ought to coordinate better. So that is an upside opportunity.
Q: What is the role of the Scottish Parliament in the trade-off between the politics and accountability?
Again, I’m a massive devolution enthusiast. However, I would probably observe that previous secretaries of state were able to play the Scottish card in London by saying, “Oh, the place is going to go mad unless you give me A, B and C”. Then because they were of the same party and in the same government, they might have found it easier to get stuff out of London than an SNP government facing off to a Tory one, or even a Labour with Jack McConnell speaking to a Gordon Brown government when they didn’t get on. You’d need to test it and you might find officials, particularly some of the older ones, pre-devolution, who would find the ability to make big strategic calls easier before you had the accountability.
I’m not saying it’s democratically wearable. It’s just an observable fact. It would be very unfashionable to say it publicly. But it does good to ask the question. Does this create accountability, does that constrain risk-bearing and therefore strategic decision making that’s advantageous? Or: is the cold wind, the white heat of transparency, always good? As with all politics, neither is correct, both are too. So I think that’s the tension. I think there’s more to it than meets the eye. I think having a chamber in Birmingham that’s barely engaged or interesting to the public, is that going to be a legitimising force? Whereas devolution, by the time we did it, was the overwhelming view. But that was also driven by negativity. It was because we want something that’s not them. Which is not the Conservatives, basically.
Q: Is Whitehall is this single amorphous thing that interacts with nations and regions?
I have limited direct exposure to this other than via conversations with ministers and others. I think the joint ministerial committees haven’t functioned particularly well. I think there’s been a level of tension between Michael Gove and Mike Russell, for example, over the years. Which has meant that it’s not functioning well. It’s not like everyone is pulling in the same direction. Understanding politics is different. Individual ministers report better than that. For example, maybe in agriculture or in industry and BEIS, individual ministers have from time to time said to me that they actually got some change out of things. DCMS, is also up here, there are good examples of it.
I think it’s probably at its worst at the moment. I think the atmosphere is really nonfunctioning, non-adult at the moment, or at least it has been. I think in COVID it strained. I think there are good examples on the health side, during COVID it was working well, with some horrible politics laced through it at the same time. I think the scientists talk well to each other. Public health officials talk well to each other. There’s cross-fertilization. I think at its best it works well. I think at its worst, it really is dysfunctional. But I think I would go on to say that that’s also true within Scotland, where you would argue that the Scottish government ought to be much more strategic. I think it has been at its best. I think at its worst it’s siloed and it doesn’t function. There’s all sorts of examples of that. I didn’t mention earlier the National Investment Banks, only newly set up. But there are tensions between the National Investment Bank and the Economic Development Agency that have found manifest in quite a few different ways.
Q: Are there examples of effective UK-Scottish partnership? Are there any standout cases?
I’m sure there are. That will be one for practitioners that are closest to the coalface of it. I can’t think of anything self evident.
Q: One very common view would be that you can characterise devolution as ‘devolve and forget’ from the UK government perspective. Would you agree with that characterisation?
To an extent. But it becomes worse than forget when it comes to recent times where there’s been an attempt to undermine devolution. A lot of the public debate which is more fiery than substantial can get in the way of serious discussion.
Q: The review of Intergovernmental Relations that was published in January 2023, it was branded as substantive and the most root and branch review since 1997. Do you have much hope for that process?
I think the seriousness of the times means that it may be possible, but a lot of things are held up by the fundamental tension which is that we’ve just had an election in which the population voted for a government with a manifesto commitment to have a referendum. The Westminster government’s not allowing that referendum and may use legal force to prevent it. It is difficult to get by that, top line. Which is the fault of all sides, but creeps into everything as a result. We haven’t talked about Brexit and its implementation, obviously that’s been a calamity in terms of the planning and response to the challenges. So that’s probably the largest elephant in the room.
Q: What do you think are the lessons for the rest of the UK that we can take from either the trajectory Scotland has followed or the lessons from the Scottish-UK government relationship?
I think there are better lessons from outside of the UK, which is that Whitehall and the Treasury need to learn to let go. Let people take risks. Let people make mistakes. As in life, as in business, you need to be able to do all of those things to then succeed. But manage without tension, manage with risk aversion, and nothing is going to change. This all feeds into a top-line UK economic story, which has been one of pretty consistent relative decline for 100 years. This is reflected in the sterling-dollar valuation or in GDP per head. I think last time I looked at the IMF tables we were 22nd, where we were once first. The outcome is not good for anyone. It’s not like it’s in the interests of the South East of England to be doing what it’s doing. It produces all sorts of inequalities. All sorts of inequalities of which this is only one element.
Q: Do you have reflections on what people who are instituting governance reform can learn from the Scottish example?
Well, if Scotland was to float off independent and was less relevant to this question I would be saying to the regions of England: have a strategy first, and then fight about the means to implement it. Don’t confuse activity with success. Don’t confuse democracy with success. Don’t confuse accountability with success. It can do the opposite, it can constrain, it can become risk aversion even though it ought not to in any rational world. But the ability to talk about it is quite different from the ability to deliver it. I think delivery is everything, 90 per cent of policy is implementation. I think that would be, for my mind, really important. Highlight Mark Drakeford’s points, recognise that with power comes risk and responsibility. It might go wrong. The logic of devolution, and indeed of independence, is that when you’ve got power over your own situation you’re more likely to not make mistakes. Or at the very least, if you make mistakes, they’ll be ones that you’ve taken for yourself. Whereas if somebody else is taking decisions for you, then you may or may not be lucky.
Q: What do you think, given your reflections over the past 45 minutes, are the key lessons for us to take away if we look to the future of the growth settlement in the UK?
I think policy power needs to be balanced with financial power. The ability to borrow and make investment calls is really important. I think the role of government is changing everywhere. Europe is having a big debate about the future of the European Union and the role of government within it. Because of the demographic challenges that we’re facing, the ability to raise taxes and pay for ever-increasing challenges in health and pensions is a strain. We’re still getting over the 1970s in Britain. But I think there are enlightened examples of government investing alongside the private sector for commercially run return which can be of the benefit of all parties. They can be a risk. They can take risks the private sector might not. But they can also get the returns.
I would say don’t look back to look forward. By all means learn the lessons of history. We ought to be thinking, ‘What do we need to change now to fit into the challenges that are coming down the line?’ Lots of other countries are. But politics is not conducive to game-changing decision making at the moment, and I think that’s a challenge. I wonder about the role of civic society, away from elected politicians, the extent to which they are locked out now for a variety of reasons, social media. The ferocity of politics makes it difficult for people to engage with now. These are all reasons to try and re-engage and let people get on with stuff. And England’s a big enough country to have different regions trying different things.
ENDS