Economy of Scotland
|Economy of Scotland|
|Currency||Pound sterling (GBP)|
|GDP||$240.975 billion (Nominal; 2014 est.)
(including revenues from
North Sea oil and gas)
|1.0% (Q1 2014)
2.6% (Q1 2013 – Q1 2014)
0.9% (Q2 2014)
2.6% (Q2 2013 – Q2 2014)
0.6% (Q3 2014)
3.0% (Q3 2013 – Q3 2014)
0.6% (Q4 2014)
2.8% (Q4 2013 – Q4 2014)
GDP per capita
(including revenues from
North Sea oil and gas)
|Agriculture, Banking & Finance, Computing, Construction, Defence, Electronics, Emergency Services, Fishing, Food & Drink, Forestry, Life Sciences, Oil & Gas, Renewable Energy, Shipbuilding, Textile, Tourism, Transport|
|Aerospace & Naval Systems, Barley, Buses, Business & Financial Services, Chemical Products, Computers, Computer Software, Electricity, Electronics, Fish, Irn–Bru, Oil & Gas, Pharmaceuticals, Potatoes, Renewable Energy, Scotch Whisky, Ships, Shortbread, Textiles, Timber, Water|
Main export partners
All values, unless otherwise stated, are in US dollars.
Scotland was one of the industrial powerhouses of Europe from the time of the Industrial Revolution onwards, being a world leader in manufacturing. This has left a legacy in the diversity of goods and services which the Scottish economy produces today, from textiles, whisky and shortbread to jet engines, buses, computer software, ships, avionics and microelectronics to banking, insurance, investment management and other related financial services.
In common with most other advanced industrialised economies, Scotland has seen a decline in the importance of both manufacturing industries and primary-based extractive industries. This has, however, been combined with a rise in the service sector of the economy, which has seen significant rates of growth over the past decade and is now the largest sector in Scotland.
The British pound sterling is the official currency in Scotland, as it is in the rest of the United Kingdom. The Bank of England retains responsibility for monetary policy and is the central bank of the UK.
- 1 Overview
- 2 Natural resources
- 3 History
- 4 Agriculture and forestry
- 5 Oil and gas
- 6 Manufacturing
- 7 Financial Services
- 8 Technology
- 9 Tourism
- 10 Infrastructure
- 11 The role of the public sector
- 12 Relationship with the United Kingdom
- 13 See also
- 14 References
- 15 External links
After the Industrial Revolution, the Scottish economy concentrated on heavy industry, dominated by the shipbuilding, coal mining and steel industries. Scottish participation in the British Empire also allowed the Scottish economy to export its output throughout the world. However heavy industry declined in the latter part of the 20th century leading to a remarkable shift in the economy of Scotland towards a technology and service sector based economy. The 1980s saw an economic boom in the Silicon Glen corridor between Glasgow and Edinburgh, with many large technology firms relocating to Scotland. Today the industry employs over 41,000 people. Scottish-based companies have strengths in information systems, defence, electronics, instrumentation and semi-conductors. There is also a dynamic and fast growing electronics design and development industry, based around links between the universities and indigenous companies like Wolfson, 4i2i, Linn, Nallatech. and Axeon There is also a significant presence of global players like National Semiconductor and Motorola. Other major industries include banking and financial services, construction, education, entertainment, biotechnology, transport equipment, oil and gas, whisky, and tourism. The Gross Domestic Product (GDP) of Scotland in 2013 was $248.5 billion including revenue generated from North Sea oil and gas.
Edinburgh is the financial services centre of Scotland, with many large financial firms based there. Glasgow is the fourth largest manufacturing centre in the UK, accounting for well over 60% of Scotland's manufactured exports. Shipbuilding, although significantly diminished from its heights in the early 20th century, is still a large part of the Glasgow economy. Aberdeen is the centre of North Sea offshore oil and gas production, with giants such as Shell and BP housing their European exploration and production HQs in the city. Other important industries include textile production, chemicals, distilling, agriculture, brewing and fishing.
Scotland has a large abundance of natural resources from fertile land, suitable for agriculture, to oil and gas. In terms of mineral resources, Scotland produces coal, zinc, iron and oil shale. The coal seams beneath central Scotland, in particular in Ayrshire and Fife contributed significantly to the industrialisation of Scotland during the 19th century. The mining of coal - once a major employer in Scotland has declined in importance since the later half of the 20th century, due to cheaper foreign coal and the exhaustion of many seams. The last deep-coal mine was at Longannet on the Firth of Forth. It closed in 2002. A modest amount of opencast coal mining continues.
When Scotland ratified the 1707 Act of Union, Scotland had no national debt, taxes were low due to war avoidance and trade thrived from the Baltic to the Caribbean. As a consequence of the Act of Union Scotland's established trade with France and the Low Countries was cut off abruptly. The economic benefits of Union which had been promised by proponents of the Act were slow to materialise, causing widespread discontent amongst the population. Despite their new status as citizens of the United Kingdom, it took many decades for Scottish traders to gain a noticeable foothold in the colonial markets which had long been dominated by English merchants and concerns. The economic effects of the Union on Scotland were negative in the short-term, due to an increase in unpopular forms of taxation (such as the Malt Tax in 1712) and the introduction of duties on imports, which the Scottish exchequer had previously been neglectful in enforcing on most trade goods.
Eventually, the Union gave Scotland access to England's global marketplace, triggering an economic and cultural boom . German Sociologist Max Weber credited the Calvinist "Protestant Ethic," involving hard work and a sense of divine predestination and duty, for the entrepreneurial spirit of the Scots.
Growth was rapid after 1700, as Scottish ports, especially those on the Clyde, began to import tobacco from the American colonies. Scottish industries, especially linen-manufacturing, were developed. Scotland embraced the Industrial Revolution, becoming a small commercial and industrial powerhouse of the British Empire. Many young men built careers as imperial administrators. Many Scots became soldiers, returning home after 20 years with their pension and newfound skills.
From 1790 the chief industry in the west of Scotland became textiles, especially the spinning and weaving of cotton. It flourished until the American Civil War in 1861 cut off the supplies of raw cotton; the industry never recovered. However, by that time Scotland had developed heavy industries based on its coal and iron resources. The invention of the hot blast for smelting iron (1828) had revolutionized the iron industry, and Scotland became a center for engineering, shipbuilding, and locomotive construction. Toward the end of the 19th century steel production largely replaced iron production. Emigrant Andrew Carnegie (1835–1919) built the American steel industry, and spent much of his time and philanthropy in Scotland.
Agriculture gained after the union, and standards remained high. However the adoption of free trade in mid-19th century brought cheap American corn which undersold local farmers. The industrial developments, while they brought work and wealth, were so rapid that housing, town-planning, and provision for public health did not keep pace with them, and for a time living conditions in some of the towns were notoriously bad.
Shipbuilding reached a peak in the early 20th century—especially during the Great War, but quickly went into a long downward slide when the war ended. The disadvantage of concentration on heavy industry became apparent for other countries were themselves being industrialized and were no longer markets for Scottish products. Within Britain itself there was also more centralization, and industry tended to drift to the south, leaving Scotland on a neglected fringe. The entire period between the world wars was one of economic depression, of which the world-wide Great Depression of 1929-1939 was the most acute phase. The economy revived with munitions production during World War II. After 1945, however, the older heavy industries continued to decline and the government has given financial encouragement to many new industries, ranging from atomic power and petrochemical production to light engineering. The economy has thus become more diversified and therefore stabler.
Agriculture and forestry
Only about one quarter of the land is under cultivation - mainly in cereals. Barley, wheat and potatoes are grown in eastern parts of Scotland such as Aberdeenshire, Moray, Highland, Fife and the Scottish Borders. The Tayside and Angus area is a centre of production of soft fruits such as strawberries, raspberries and loganberries, owing to the mild climate. Sheep raising is important in the less arable mountainous regions, such as the northwest of Scotland which are used for rough grazing, due to its geographical isolation, poor climate and acidic soils. Parts of the east of Scotland (areas such as Aberdeenshire, Fife and Angus) are major centres of cereal production and general cropping. In such areas, the land is generally flatter, coastal, and the climate less harsh, and more suited to cultivation. The south-west of Scotland - principally Ayrshire and Dumfries and Galloway - is a centre of dairying. Agriculture, especially cropping in Scotland, is highly mechanised and generally efficient. Farms tend to cover larger areas than their European counterparts. Hill farming is also prominent in the Southern Uplands in the south of Scotland, resulting in the production of wool, Lamb and mutton. Cattle-Rearing particularly in the east and south of Scotland results in the production of large amounts of beef. Farming in Scotland has been particularly hard hit in recent years and is still recovering from the effects of the BSE and the European ban on the importation of British beef from 1996. Dairy and Cattle farmers in south-west Scotland were affected by the 2001 UK Foot and Mouth outbreak, which resulted in the destruction of much of their livestock as part of the biosecurity effort to control the spread of the disease.
Because of the persistence of feudalism and the land enclosures of the 19th century the ownership of most land is concentrated in relatively few hands (some 350 people own about half the land). In 2003, as a result, the Scottish Parliament passed a Land Reform Act that empowered tenant farmers and communities to purchase land even if the landlord did not want to sell.
About 13,340 km² of land in Scotland is forested - this represents around 15% of the total land area of Scotland. The majority of forests are in public ownership, with forestry policy being controlled by the Forestry Commission. The biggest plantations and timber resources are to be found in Dumfries and Galloway, Tayside, Argyll and the Scottish Highlands. The economic activities generated by forestry in Scotland include planting and harvesting as well as sawmilling, the production of pulp and paper and the manufacture of higher value goods. Forests, especially those surrounding populated areas in Central Scotland also provide a recreation resource.
The waters surrounding Scotland are some of the richest in Europe. Fishing is an economic mainstay in parts of the North East of Scotland and along the west coast, with important fish markets in places such as Aberdeen and Mallaig. Fish and shellfish such as herring, crab, lobster, haddock and cod are landed at ports such as Fraserburgh, Stornoway, Lerwick and Oban. There has been a large scale decrease in employment in the fishing industry within Scotland. This is due to the historically low abundances of commercially valuable fish in the North Sea and parts of the North Atlantic. In order to rebuild stocks the EU's Common Fisheries Policy places restrictions on the total tonnage of catch that can be landed, on the days at sea allowed and on fishing gear that can be deployed. These measures have so far been unsuccessful. In tandem with the decline of sea-fishing, commercial fish farms - especially in salmon, have increased in prominence in the rivers and lochs of the north and west of Scotland. Inland waters are rich in fresh water fish such as salmon and trout although here too there has been an inexorable and so far unexplained decline in abundance over the past decades.
Oil and gas
Scottish waters consisting of a large sector of the North Atlantic and the North Sea, containing the largest oil resources in the European Union - Scotland is the EU's largest petroleum producer, with the discovery of North Sea oil transforming the Scottish economy. Oil was discovered in the North Sea in 1966, with the first year of full production taking place in 1976. With the growth of oil exploration during that time, as well as the ancillary industries needed to support it, the city of Aberdeen became centre of the North Sea Oil Industry, which it still is today, with the port and harbour serving many oil fields off shore. Sullom Voe in Shetland is the site of a major oil terminal, where oil is piped in and transferred to tankers. Similarly the Flotta Oil Terminal in Orkney is linked by a 230 km long pipeline to the Piper and Occidental oil fields in the North Sea. Grangemouth is at the centre of Scotland's petrochemicals industry. The oil related industries are a major source of employment and income in these regions. It is estimated that the industry employs around 100,000 workers (or 6% of the working population) of Scotland.
Although North Sea oil production has been declining since 1999, an estimated 920 million tonnes of recoverable crude oil remains. Over two and a half billion tonnes were recovered from UK offshore oil fields between the first North Sea crude coming ashore in 1975 and 2002, with most oil fields being expected to remain economically viable until at least 2020. High oil prices have resulted in a resurgence of oil exploration, specifically in the North East Atlantic basin to the west of Shetland and the Outer Hebrides, in areas that were previously considered marginal and unprofitable.
The North Sea oil and gas industry contributed £35 billion to the UK Treasury in 2014.
Scotland is endowed with some of the best energy resources in Europe, and is a net exporter of electricity, with a generating capacity of 10.1GW primarily from coal, oil, gas and nuclear generation. The principal companies operating in the sector are Scottish Power, Scottish and Southern Energy and EDF Energy. With prevailing international concern over the use of fossil fuels in power generation, Scotland has been identified as having significant potential for the development of renewable energy sources, with abundant wave, tidal and wind power. The Scottish Government has set ambitious targets that 18% of Scotland's electricity generation be derived from renewable sources by 2010, rising to 40% by 2020. Currently renewable energy sources provide Scotland with 35% of its electricity production, with onshore wind generation making the largest contribution, and supporting several thousand jobs. There are many windfarms along the coast and hills, with plans to create one of the world's largest onshore windfarms at Barvas Moor on the Hebridean island of Lewis.
There have also been major developments in harnessing the wave and tidal potential around the Scottish Coast, with the LIMPET (Land Installed Marine Power Energy Transformer) energy converter being installed off the island of Islay, which produces power for the National Grid. LIMPET, developed in Scotland, is the world's first commercial scale wave-energy device.
Scotland's heavy industry began to develop in the second half of the 18th century. The Carron Company established its ironworks at Falkirk in 1759, initially using imported ore but later using locally sourced Ironstone.The iron industry expanded tenfold between 1830 and 1844. The shipbuilding industry on the River Clyde increased greatly from the 1840s and by 1870 the Clyde was producing more than half of Britain's tonnage of shipping. The heavy industries based around shipbuilding and locomotives went into severe decline after World War II. Manufacturing in Scotland has shifted its focus in recent years with heavy industries such as shipbuilding and iron and steel declining in their importance and contribution to the economy. It is generally argued that this has been in response to increasing globalisation and competition from low cost producers across the world, which has eroded Scotland's comparative advantage in such industries over the later half of the 20th century. However, the decline in heavy industry in Scotland has been supplanted with the rise in the manufacture of lighter, less labour-intensive products such as optoelectronics, software, chemical products and derivatives as well as life sciences. The Engineering and Defence sectors employ around 30,000 people in Scotland. The principal companies operating in the sector include; BAE Systems, Rolls-Royce, Raytheon, Alexander Dennis, Thales, Selex Galileo and Babcock. The decline of heavy industry resulted in a sectoral shift of labour. This has led to smaller firms strengthening links with the academic community and substantial, industry-specific retraining programmes for the workforce.
Whisky is probably the best known of Scotland's manufactured products. Exports have increased by 87% in the past decade and it contributes over £4.25billion to the UK economy, making up a quarter of all its food and drink revenues. It is also one of the UK's overall top five manufacturing export earners and it supports around 35,000 jobs. Principal whisky producing areas include Speyside and the Isle of Islay, where there are eight distilleries providing a major source of employment. In many places, the industry is closely linked to tourism, with many distilleries also functioning as attractions worth £30 million GVA each year.
Historically Scotland's export trade was based around animal hides and wool. This trade was firstly organised around religious centres such as Melrose Abbey. The trade expanded towards long-established maritime bases for Scottish trade at Bruges and then Veere in the Low Countries and at Elbląg and Gdańsk in the Baltic.
During the 18th century, the trade in linen overtook that in wool, peaking at over 12 million yards produced in 1775. Production remained in cottage industry units but the trading conditions were locked into the modern economy and gave rise to institutions such as the British Linen Bank.
The cotton mills began to replace linen in economic importance during the 1770s, with the first mill opening in Penicuik in 1778. The trade brought urbanisation of the population, including large numbers of migrants from the Highlands and from Ireland. The thread manufacturers Coats plc had its origin in that trade.
In modern times, Knitwear and tweed are seen as traditional cottage industries but names like Pringle have given Scottish knitwear and apparel a presence on the international market. Despite increasing competition from low-cost textile producers in SE Asia and the Indian subcontinent, textiles in Scotland is still a major employer with a workforce of around 22,000. Furthermore the textiles industry is the 7th largest exporter in Scotland accounting for over 3% of all Scottish manufactured products.
Scotland builds around 24,000 new homes per year, about 0.1% of its existing dwelling stock. The home building industry in Scotland directly and indirectly contributed around £5 billion to the Scottish economy in 2006 - about 2% of GDP - greater than that of higher profile industries such as agriculture, fishing, electronics and tourism. The net value of new building and repairs, maintenance and improvements combined is just under £11.6 billion, which is about 4.5% of Scottish GDP.
The Scottish Government plans to increase the number of new homes built each year to 35,000 by 2015. Communities Scotland, the government agency previously responsible for housing strategy has been replaced, this function now being undertaken by core Government bodies. The 'Right to Buy' has also been ended for new social housing built by councils and housing associations, and a new 'Sustainable Communities Initiative' has been established to encourage local authorities and their partners to plan for and build sustainable new settlements. Eight out of every ten new homes are for private purchase. The industry works in partnership with local authorities and housing associations to provide low cost housing for sale and social housing for rent.
Major trading partners
Excluding intra UK trade, the European Union and the United States constitute the largest markets for Scotland's exports. As part of the United Kingdom and the European Union, Scotland fully participates in the single market and free trade area which exists across all EU member states and regions. Recently, with the high rates of growth in many emerging economies of southeast Asia such as China, Thailand and Singapore, there has been a drive towards marketing Scottish products and manufactured goods in these countries, with Singapore entering the top ten destinations for Scottish exports in 2004.
Note: Revenues from North Sea oil and gas are not included in these figures.
|United States||£3.5 billion|
|Republic of Ireland||£0.8 billion|
|Source: Scotland's Global Connections Survey 2011|
The total value of international exports from Scotland in 2011 (excluding oil and gas) was estimated at £23.9billion, of which £14.7billion was from the manufacturing sector and £7.7billion from the services sector. The top five exporting industries in 2011 were food & beverages (£4.2billion), manufacture of coke, refined petroleum and chemical products (£3.7billion), manufacture of computer, electronic and optical products (£1.4billion), financial and insurance activities (£1.4billion) and manufacture of machinery and equipment NEC (£1.4billion). The total value of exports from Scotland to the rest of UK in 2011 (excluding oil and gas) was estimated at £45.5billion, of which £24.5billion was from the services sector and £11.6billion from the manufacturing sector.
Edinburgh is Europe's 14th largest financial centre, with influential financial players such as The Royal Bank of Scotland, the Bank of Scotland, Scottish Widows and Standard Life all having a presence in the city.
Centred primarily on the cities of Edinburgh and Glasgow, the financial services industry in the Scottish Economy expanded greatly in recent years, with a growth rate of over 35% over the period 2000 to 2005. The financial services sector employs around 95,000 people and generates £7bn or 7% of Scotland's GDP.
Banking in Scotland has a long history, beginning with the creation of the Bank of Scotland, in Edinburgh, in 1695 and expanding greatly to support the trading developments of the 18th and 19th centuries. Retail banking services to ordinary people followed in the 19th century, on the trustee savings bank model pioneered by Rev. Henry Duncan
Today Scotland is home to 4 clearing banks - the Bank of Scotland, The Royal Bank of Scotland, the Clydesdale Bank and TSB Bank. The Royal Bank of Scotland expanded internationally to the second largest bank in Europe, fourth largest in the world by market capitalisation in 2008, but collapsed in the 2008 financial crisis and had to be bailed out by the UK Government at a cost of 76bn pounds; its new global headquarters in Edinburgh augmented the city's position as a major financial centre. Prior to the 2008 financial crisis Scotland ranked second only to London in the European league of headquarters locations of the 30 largest banks in Europe as measured by market value.
Although the Bank of England remains the central bank for the UK Government, three Scottish clearing banks still issue their own banknotes: (the Bank of Scotland, The Royal Bank of Scotland and the Clydesdale Bank). These notes have no status as legal tender; but in practice they are accepted throughout the UK. The full range of Scottish bank notes commonly accepted are £5, £10, £20, £50 and £100. (See British banknotes for further discussion).
Investment, Insurance and Asset Servicing
The first half of the 19th century brought the creation of many life assurance companies in Scotland, predominantly on the mutual model. By the 1980s there were 9 members of the Association of Scottish Life Offices but these have demutualised and most were taken over. Standard Life, based in Edinburgh, demutualised and has remained independent.
Starting in 1873 with Robert Fleming's Scottish American Investment Trust, a relatively broad stratum of Scots invested in international investment trust ventures. Around 80,000 Scots held foreign investment assets in the early 20th century.
Nowadays Scotland is one of the world's biggest fund management centres with over £300bn worth of assets directly serviced or managed in the country. Scottish fund management centres have a major presence in areas such as pensions, property funds, investment trusts as well as in retail and private client markets. Similarly asset servicing on behalf of fund managers has become an increasingly important component of the financial services industry in Scotland with Scottish-based companies providing expertise in securities servicing, investment accounting, performance measurement, trustee and depositary services and treasury services.
Silicon Glen is the phrase that is used to describe the growth and development of Scotland's hi-tech and electronics industries in the Central Belt through the 1980s and 1990s, analogous to the larger concentration of hi-tech industries in Silicon Valley, California. Companies such as IBM and Hewlett-Packard have been in Scotland since the 1950s being joined in the 1980s by others such as Sun Microsystems (now owned by Oracle). 45,000 people are employed by electronics and electronics-related firms, accounting for 12% of manufacturing output. Today, Scotland produces 28% of Europe’s PCs; more than seven per cent of the world’s PCs; and 29% of Europe’s notebooks.
The Software sector is Scotland has developed rapidly and there are now an estimated 40,226 people working in Digital Economy across Edinburgh, Glasgow and Dundee. Scotland’s history in manufacturing excellence is being transferred into the software sector and this is attracting companies from around the world. Several universities are playing an important role by producing world-leading research in Computing Science, including the University of Edinburgh’s School of Informatics. According to the REF 2014 assessment for computer science and informatics the School of Informatics has produced more world-leading and internationally excellent research (4* and 3*) than any other university in the UK.
It is estimated that tourism accounts for 3% of Scotland's economic output. Scotland is a well-developed tourist destination with attractions ranging from unspoilt countryside, mountains and abundant history. Tourism is responsible for sustaining 200,000 jobs mainly in the service sector, with tourist spending averaging at £4bn per year. Domestic tourists (those from the United Kingdom) make up the bulk of visitors to Scotland. In 2002, for example, UK visitors made 18.5 million visits to Scotland, staying 64.5 million nights and spending £3.7 billion. In contrast, overseas residents made 1.58 million visits to Scotland, staying 15 million nights and spending £806 million. In terms of overseas visitors, those from the United States made up 24% of visits to Scotland, with the United States being the largest source of overseas visitors, and Germany (9%), France (8%), Canada (7%) and Australia (6%), following behind.
Infrastructure in Scotland is varied in its provision and its quality. The densest network of roads, railways and motorways is concentrated in the Central Lowlands of the country where around 70% of the population live. The motorway and trunk road network is principally centred on the cities of Edinburgh and Glasgow and connecting them to other major concentrations of population, and is vitally important to the economy of Scotland. Key routes include the M8 motorway, which is one of the busiest and most important major routes in Scotland, with other primary routes such as the A9 connecting the Highlands to the Central Belt, and the A90/M90 connecting Edinburgh and Aberdeen in the east. The M74 and A1, in the west and east of the country, respectively, provide the main road corridors from Scotland to England. The Scottish Executive has stated that it intends to spend £3bn on a capital investment scheme to improve Scotland's road and rail system, over the next decade, with the setting up of a national agency in January 2006 - Transport Scotland to oversee this. Many roads in the Highlands are single track, with passing places.
The rail network is primarily centred on the central belt and is used principally as a means of public transport, with some freight movements - for example from the port facilities at Grangemouth and Hunterston Ore Terminal. After a large rationalisation of routes in the 1960s which was undertaken by the Beeching Axe, which led to station and line closures, the rail network is currently being expanded, to cope with ever increasing levels of passenger demand. The rail-operator Abellio ScotRail operates most routes within Scotland, with long-distance connections to London operated by East Coast or Virgin Trains. Proposals which have been mooted include the electrification of the rail system in order to cut journey times.
In 2004, 22.6 million passengers used Scotland's airports, with there being 514,000 aircraft movements with Scottish airports being amongst the fastest growing in the United Kingdom in terms of passenger numbers. Plans have been published by the major airport operator BAA plc to facilitate the expansion of capacity at the major international airports of Aberdeen, Edinburgh and Glasgow, including new terminals and runways to cope with a large forecast rise in passenger use. Prestwick Airport also has large air freight operations and cargo handling facilities. Scotland is well-served by many airlines and has an expanding international route network, with recent long-haul services to Dubai, New York, Atlanta and Canada.
Major deep-water Port facilities exist at Aberdeen, Grangemouth, Greenock, Peterhead, Scapa Flow and Sullom Voe. Scotland was connected to mainland Europe by a dedicated ferry service between Rosyth (near Edinburgh) and Zeebrugge. In addition to this many remote island communities on Scotland's western seaboard are served by lifeline ferry services operated by the state-owned company Caledonian MacBrayne, which carry tourists as well as freight and are vital to the economies of these islands.
The role of the public sector
The public sector, in Scotland, has a significant impact upon the economy and comprises central government departments, local government, and public corporations. In quarter 3 of 2005, there were 577,300 people employed in the public sector, which accounts for 23.4% of employment in Scotland - this includes all medical professionals employed within the National Health Service in Scotland, those employed in the emergency services and those employed in the state education and higher education sector. This is in addition to employees of the government in the civil service and in local government as well as public bodies and corporations.
There is a clear separation of responsibility of the powers of both the UK government and the devolved Scottish Government in relation to the formulation and execution of national economic policy as it affects Scotland - this is set out under Section 5 of the Scotland Act 1998.
The UK Government along with the Parliament of the United Kingdom retains full control over Scotland's fiscal environment, in relation to taxation (including tax rates and tax collection) and the overall share of central government expenditure apportioned to Scotland, in the form of an annual block grant. It also retains complete responsibility for the operation of the Welfare State, in terms of pensions, unemployment insurance and child benefit - as part of the UK-wide Welfare State exercised by the UK Department for Work and Pensions and HM Treasury.
The Scottish Government has the power to raise or lower the rate of income tax in Scotland by up to 3p in the pound. It is also able to vary business rates and can regulate the application of local taxes such as the council tax levied by local authorities in Scotland. The Scottish Government has full control over how Scotland's annual block grant is divided between government departments, such as healthcare and education and on state-owned enterprises, e.g. Scottish Water and Caledonian MacBrayne. The Scottish Government does however have control over Economic Development policy, and controls, funds and regulates the national Economic development Agency - Scottish Enterprise. In 2008, for example, the budget of the Scottish Government was around £33bn, which the Scottish Government can spend on the areas under its jurisdiction such as education, healthcare, transport, the environment and justice.
The 32 unitary authorities in Scotland have the ability to levy a local tax, called the Council Tax which is used to pay for local services such as refuse collection, street lighting, roads, pavements, public parks and museums. The value of residential property is the base for the tax, with each dwelling allocated to one of eight bands coded by letters A through H (H being the highest) on the basis of its assumed capital value. Each local authority sets a tax rate expressed as the annual levy on a Band D property inhabited by two liable adults. The budget of local authorities is supplemented by direct grants from the Scottish Executive.
Historians agree that widespread high quality education was one key to Scotland's economic success, providing human capital that helped make up for the deficit in natural resources. The history of education in Scotland in its modern sense of organised and institutional learning, began in the Middle Ages, with the education of boys based around Church choir schools and grammar schools. By the end of the 15th century schools were also being organised for girls and universities were founded at St Andrews, Glasgow and Aberdeen. Their academic reputation was higher than Oxford or Cambridge. Education was encouraged by the Education Act 1496, which made it compulsory for the sons of barons and freeholders of substance to attend the grammar schools, which in turn helped increase literacy among the upper classes.
The Scottish Reformation resulted in major changes to the organisation and nature of education, with the loss of choir schools and the expansion of parish schools, along with the reform and expansion of the Universities. In the seventeenth century, legislation enforced the creation and funding of schools in every parish, often overseen by presbyteries of the local kirk. The existence of this network of schools later led to the growth of the "democratic myth" that poor boys had been able to use this system of education to rise to the top of Scottish society. However, Scotland's University system did help to make it one of the major contributors to the Enlightenment in the 18th century, producing major figures such as David Hume and Adam Smith. Education in Scotland is well-funded with very high levels of participation in all sectors of education. Participation in further and higher education is especially high, with Scottish universities generally being recognised as amongst the best in the teaching of medicine, law, engineering, science and technology. Increasingly Scotland is being seen as an exporter of education, with the number of overseas students applying to studying at universities throughout Scotland, rising substantially in recent years. Most universities are linked with a flourishing research and development sector; the University of Dundee is at the heart of a biotechnology and medical research cluster; the University of Edinburgh is a centre of excellence in the field of Artificial Intelligence and the University of Aberdeen is a world-leader in the study of offshore technology in the oil and gas industry. Scotland generally has a well-educated population - adult Literacy rates are at over 99%.
Another major component of central government expenditure in Scotland is on healthcare and healthcare related services. The National Health Service (NHS) is the publicly controlled provider of the majority of healthcare in Scotland, with the NHS being a major employer not only in terms of doctors nurses and other key healthcare workers, but also in terms of administration. The service is administered differently from the rest of the United Kingdom and is largely free at the point of use to residents in Scotland, except for dental and optical services where those over 18 must pay. In the short term spending on healthcare in Scotland remains high in response to the population's poor diet and high instance of heart disease. In the medium to long term, the challenges of an ageing population are likely to increase demand for health services and put increasing pressure on the health service in Scotland.
Relationship with the United Kingdom
In the run up to the referendum on Scottish independence opinions on the likely state of a post-UK Scottish economy are varied. Some commentators believe that a current account surplus would accrue to Scotland (including oil and gas revenues). In response, a spokesman for finance secretary John Swinney referred to “the UK’s deteriorating growth outlook" and noted that Scotland was the only area of the UK outside London to record output growth between 2007 and 2010 and that "among the 12 nations and regions of the UK, Scotland is the third most prosperous in terms of output per head – behind only London and the South East of England.” Contrasting research has indicated that the GDP figures for an independent Scotland have been overestimated. Scotland has 8.4% of the UK population, 32% of the land mass and in 2012-2013 generated 9.1% (£53.1bn) of UK tax revenues, and received 9.3% (£65.2bn) of UK spending back from Westminster. In 2012-2013, this amounted to a budget deficit of 8.3% of GDP, higher than the UK's overall budget deficit for the same period of 7.3% of GDP. including a geographic share of North Sea oil.
As of February 2015, Scotland outperforms the UK as a whole in all three labour market indicators. The Scottish unemployment rate of 5.4% is below the UK rate of 5.7%, the Scottish employment rate of 74.4% is higher than the UK figure of 73.2% and the rate of economic inactivity is 21.3% in Scotland but 22.3% in the UK.
- Barnett formula
- Council of Economic Advisers (Scotland)
- Economy of the United Kingdom
- Economy of the European Union
- Full fiscal autonomy for Scotland
- Geography of Scotland
- Politics of Scotland
- Scottish Council for Development and Industry
- Scottish Enterprise
- Scottish independence referendum, 2014
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