Chapter 7 Finance, Economy and air Work
The Finance, Economy and Fair Work portfolio plays a critical role in fulfilling the ambitions of Scotland's Economic Strategy and in helping to deliver on Scotland's purpose, as defined in the National Performance Framework:
'To focus on creating a more successful country, with opportunities for all of Scotland to flourish, through increased wellbeing, and sustainable and inclusive economic growth.'
This portfolio covers a range of areas including employability and training, fair work, digital, enterprise and trade and the implementation of the powers over taxation that are provided for in the Scotland Act 2012 and 2016.
This chapter concentrates on the spend element of the portfolio and the principles rather than the details of revenue generation. As discussed earlier in Chapter 2, future years will see changes to the Equality Budget Statement with additional analyses of spend and revenue generation published before summer recess. Distributional analysis of income tax changes will be published alongside the Scottish Budget but further work is needed to consider the longer-term impact of income tax changes and the equality impact of other taxes lying within the Scottish Government competence.
Key Inequalities of Outcome
Scotland has strong economic fundamentals and has made significant achievements in terms of inclusive growth. For example, Scotland currently outperforms the UK on women's employment and has lower women's unemployment rates. However, there is considerable variation in economic performance geographically across Scotland and between different groups. For example, women are still paid less than men and the proportion of employed women aged 18 years and above earning less than the living wage is higher than it is for males. The gender employment gap (which measures the difference between the employment rates for men and women) has decreased from 10.6 percentage points in 2007 to 6.9 percentage points in 2017. The full-time gender pay gap has decreased from 11.9 per cent in 2007 to 5.7 per cent in 2018. The full-time gender pay gap varies across sectors; it is at 17.2 per cent in the private sector versus 5.3 per cent in the public sector. It is 21.1 per cent for managers, directors and senior officials and the pay gap is highest in Financial and Insurance sectors (31.0 per cent) and in Professional Scientific and Technical sectors (30.1 per cent).
Disabled and minority ethnic people are also less likely to be in employment. Those who are in work earn less on average or are more likely to live in low income households than non-disabled people and white people. The disability employment gap in Scotland was 35.8 percentage points in 2017.
In the year ending June 2018, the employment gap for minority ethnic people was 17.5 percentage points. There is a particular disadvantage for women from minority ethnic groups in the labour market. Employment rates for minority ethnic women are typically around 22.7 percentage points lower than employment rates for minority ethnic men. This is over 3 times higher than the gap of around 7 percentage points between the employment rates for men and women of white ethnicity living in Scotland.
Key Strategic Budget Priorities
This portfolio plays a central role in supporting the ambitions set out in Scotland's Economic Strategy - delivering increased competitiveness and tackling inequality. The Scottish Government's Economic Action Plan - published in October 2018 - sets out how the Scottish Government is taking action to support Scotland's Economy Strategy across all portfolios in a way that reflects our unwavering commitment to delivering inclusive growth across all of Scotland.
The strategic priorities for spending in this portfolio include commitments to:
- Maintain a stable and competitive tax regime as part of a supportive business environment;
- Introduce legislation to pave the way for the Scottish National Investment Bank;
- Deliver a new ring-fenced capital £50 million Town Centre Fund for 2019-20 to drive local economic activity and to stimulate and support place-based economic improvements to town centres;
- Support for business research and development by continuing our three year commitment to increase grant support for research and development from £22 million to £37 million per annum;
- Publish a Fair Work Action Plan that will set out the next steps we will take to embed fair work practices in Scottish workplaces by 2025. Further publications include a Gender Pay Gap Action Plan; A Fairer Scotland for Disabled People - Employment Action Plan; and a Review of Employability Services that will shape the future employability system to ensure it delivers for all our people, founded on our core values of fairness, dignity and respect.
Equalities Implications of the Scottish Budget 2019-20
Employability and Training
Employability and Training Programme budgets play an essential role in delivering the Scottish Government's aims of tackling poverty; promoting inclusion and social justice; and creating a fair and prosperous Scotland.
The employment rate in Scotland remains among the highest on record and the unemployment rate is low. In almost all months in the last year, the youth unemployment rate has been lower and employment for women has been higher in Scotland compared with the UK.
However, those facing the greatest barriers to employment will still require more individualised support which is better integrated with other services. There is a slight reduction in the programme budget for employability and training, as our Integration and Innovation pilots have come to an end. The learning from these pilots will be factored into the development of a new approach to funding employability services. It also reflects a reduction in the developmental costs associated with Fair Start Scotland. Our commitments to front-line delivery through Fair Start Scotland and other services will continue in 2019-20 as we develop our joint partnership with local authorities and other partners. This will better align funding and deliver stronger outcomes for people seeking work.
Key contributions made by this portfolio to improving equality outcomes include:
- Supporting parents to address barriers to work, providing in-work support to help low income parents remain in the workplace and gain progression while helping meet our child poverty target.
- Publishing action plans on reducing the disability employment gap by at least half and closing the gender pay gap.
- Successfully delivering our new devolved employment support service - Fair Start Scotland - which is designed to give individualised support to 38,000 individuals who are furthest from the labour market.
- Providing £1 million per year to support up to 150 people on very low, or no income to retrain and gain employment in the digital economy.
Employability plays an essential role in delivering the Scottish Government's aims of tackling poverty; promoting inclusion and social justice; and creating a fair and prosperous Scotland.
Fair Start Scotland is an employability support service that provides support to disabled people and those at risk of becoming long-term unemployed to find and retain work. It commenced on 3 April 2018. This service provides support for individuals with disabilities and/or health conditions (under the Equality Act 2014 definition); those with convictions; care leavers; lone parents; refugees; minority ethnic people; people in the 15 per cent most deprived Scottish Index of Multiple Deprivation (SIMD) areas; people with health-related barriers to employment; and those reaching two years of unemployment.
As the service was designed from the start with active consideration of protected groups, it should have a significant impact on tackling inequalities in Scotland. For instance, the service plays an important role in the Scottish Government's ambition of halving the disability employment gap.
Funding for Fair Work and Workforce Development will build on the work of the Fair Work Convention and other related activity to promote fair work, including the implementation of actions from the Fair Work Action Plan. This focuses on promoting Fair Work for example, the Scottish Government will adopt a new default position - termed 'Fair Work First' - that will see criteria, including the living wage, extended to more contracts and government support grant.
The Gender Pay Gap Action Plan and A Fairer Scotland for Disabled People: Employment Action Plan are other priorities of this portfolio. Both will be published in the next few months and will set out recommended future actions. We will invest £5 million over the next three years to support around 2,000 women to return to work following a career break, particularly in sectors where there continues to be a gender pay gap. We will also support employers to deliver innovative solutions to workforce inequalities faced by older people, women, minority ethnic and disabled people, including helping them to identify and close their pay gaps.
Enterprise and Trade
The Enterprise and Trade budget funds Scottish Enterprise and other enterprise-related activities; invests in the development and application of research, innovation and technology; supports entrepreneurial activity and a range of detailed actions in 'A Trading Nation: Our Plan for Growing Scotland's Exports'. This is supported by funding of £20 million over three years, which aims to build our capacity and presence on trade, international markets, exports and global investment flows, all in line with the Programme for Government.
The Enterprise budget supports sustainable and inclusive growth. This is focused in particular on growth companies, growth sectors and growth markets.
The priorities of the enterprise agencies for 2019-20 are to enable sustainable and inclusive economic growth in line with Scotland's National Performance Framework. An example of this is their commitment to consider all aspects of the Scottish Business Pledge in assessing applications for business support.
A key priority in this area is legislation to pave the way for the Scottish National Investment Bank (SNIB). Furthermore, in advance of the Scottish National Investment Bank's establishment, the Building Scotland Fund will provide debt and equity support to non-public sector organisations such as businesses, housing associations and universities. This will support the development of housing across all tenures; develop modern industrial and commercial space; and support business-led research and development. This will see the largest increase in funding within the Enterprise and Trade area, with £130 million of funding in 2019-20. An Equality Impact Assessment is being developed alongside the development of SNIB to ensure that the different requirements of equality groups are taken into consideration.
We will introduce legislation early in 2019 to support the establishment and capitalisation of the SNIB such that from 2020 the SNIB will be investing in our businesses and communities.
The SNIB will be supported with £2 billion of capital over the next decade - enabling it to provide patient finance to ambitious companies and important infrastructure projects. It has the potential to be transformational and to become a cornerstone of Scotland's economy in the medium to long term. While operating commercially, the SNIB's investment decisions will reflect wider social and ethical interests in order for it to contribute to inclusive growth and have the societal impact envisaged.
The Fairer Scotland Duty will be considered throughout the development of the SNIB and will be applied, in particular, to development of the missions for the SNIB and the Advisory Group that will support Scottish Ministers. Given the anticipated Parliamentary and stakeholder interest in the ethical and sustainable aspects of the SNIB's investments, we are developing an Equalities Impact Assessment in relation to the establishment of the SNIB as well as the provisions in the Bill.
The overall budget for Scottish Enterprise (SE) reflects a £3.5 million saving (1.5 per cent) and is primarily expected to be met from efficiencies. Similar to previous years, at this stage it is not possible to know how SE will use this or to assess what the equality impact of budget for SE will be. SE budget will, however, allow the agency to continue to meet its legal requirements and to continue current activities which promote equality outcomes. This includes commitments to build the number of account-managed companies led by women, minority ethnic people, young and disabled people; improve equal pay; and address occupational segregation profiles for gender, ethnicity and disability. It also includes a commitment to add criteria on fair work practices including the Living Wage, being transparent on gender-equal pay and the exclusion of exploitative zero-hours contracts to business support grants through Regional Selective Assistance and other large SE job-related grants - starting with grants offered in 2019-20. Any additional activity associated with the increase will require equality impact assessment by SE.
The enterprise and skills agencies will, for the first time this year, receive formal strategic direction from the Enterprise and Skills Strategic Board. The Board published its Strategic Plan on 17 October and the Scottish Government supports its aims, which includes supporting women and minority groups in business. The Plan's actions include establishing a campaign to foster entrepreneurship and ambition across society, with a particular focus on inclusivity (including women, minority ethnic groups, rural considerations etc.).
Another key priority is the new ring-fenced capital £50 million Town Centre Fund for 2019-20 that will be delivered through the local authority settlement. This will enable local authorities to stimulate and support a wide range of investments which encourage town centres to diversify and flourish and become successful and sustainable places for local communities and visitors to live, work and enjoy. The Scottish Government wants our towns and town centres to be vibrant, creative, enterprising and accessible, as set out in the Town Centre Action Plan and Town Centre First Principle. Town centres are facing challenges as retail patterns change and evolve. This portfolio is supporting town centres to become more diverse and sustainable, creating footfall through local improvements and partnerships including Scotland's Towns Partnership and Scotland's Improvement Districts.
Our shared Women in Enterprise Action Framework seeks to realise untapped economic potential by tackling the gender gap across start-ups and growth companies. This is achieved through support for initiatives such as Investing Women, the Business Women Scotland's Live Events programme, the Women's Enterprise Scotland Ambassadors Programme and the Scottish Chambers of Commerce 'Future Female Business Leaders' programme. Similarly, we are supporting Young Enterprise Scotland to deliver 'Scotland's Enterprising Schools' to ensure a future involving enterprising activity is valid and viable for all young Scots.
Other key priorities within Enterprise and Trade include commitments to drive productivity; ensure that Scotland makes a positive contribution internationally; and address geographical inequalities across Scotland. Specifically, these are to:
- Target up to £18 million in European funds to establish an Advanced Manufacturing Challenge Fund. This will ensure all parts of Scotland benefit from developments in advanced manufacturing.
- Work with business to pilot two 'Productivity Clubs' to support businesses to help each other to improve managerial capability and the diffusion of technology and innovation.
- Expand the role of the Can Do Business Innovation Forum to take action on the economic opportunities and challenges of new technologies.
- Publish Scotland's 'A Trading Nation- A Plan to Grow Scotland's Exports' in spring 2019, with clear actions and a 3-year budgetary commitment of £20 million.
The Scottish Approach to Taxation is founded on four principles of efficiency, convenience, certainty and proportionality to the ability to pay. The Scottish Government has applied these principles to implementing and developing tax policy.
In the case of residential Land and Buildings Transaction Tax (LBTT), while equality data is limited, a progressive approach ensures that higher value properties are taxed at a higher rate than lower value properties, with some 49 per cent (2017-18) of tax payers kept out of the tax entirely.
The Scotland Act 2016 gave the Scottish Parliament powers to set the rates and bands for Non-Savings, Non-Dividend (NSND) income tax paid by Scottish taxpayers. The Scottish Government will continue to use its additional powers over income tax in a progressive way, such that it protects low income taxpayers and provides additional revenue to invest in high-quality public services. An analytical paper was published alongside the Scottish Budget 2018-19, setting out the impacts of the tax policy on different equalities groups. Similar analysis is produced alongside this year's Scottish Budget. However, the impact of income tax policy is limited to those who are in receipt of a taxable income. In Scotland, there were almost two million adults in 2018-19 with no income tax liabilities as their income was below the Personal Allowance of £11,850 - this is over 40 per cent of the 16+ population. This percentage is likely to increase slightly following the UK Chancellor's decision to raise the Personal Allowance significantly to £12,500 in 2019-20. Even with further new income tax powers, the Scottish Government has limited powers to define the tax base or adjust tax reliefs, and National Insurance remains reserved to the UK Government.
Procurement Shared Services
Public procurement policy and legislation is fundamentally non-discriminatory and requires public bodies to treat all bidders equally, without discrimination. The Procurement Reform (Scotland) Act 2014 established a national legislative framework for public procurement. This supports sustainable and inclusive economic growth by delivering social, economic and environmental benefits. This means our approach to procurement is socially responsible and delivers value that goes well beyond financial savings and benefits.
The Sustainable Procurement Duty is an important element of the 2014 Act and we use it as a means of identifying opportunities to promote equality through public procurement. It requires public bodies to think about how the procurement process can enable small and medium-sized enterprises (SMEs), supported businesses and the third sector, to access contract opportunities, as well as delivering greater community benefits which can have positive impacts for equality outcomes.
Spending supported within the Finance, Economy and Fair Work portfolio - which is strongly aligned with both Scotland's Economic Strategy and with the new National Performance Framework - should have benefits for people with protected characteristics across all of Scotland and ensure that spending commitments tackle existing inequalities. Over the course of 2019-20, significant investment will also be made in producing - as well as delivering on - action plans that directly address worse outcomes faced by groups, such as women and disabled people, and in promoting fair work.
1. Scottish Government (2018), Regional employment patterns in Scotland: statistics from the Annual Population Survey 2017
2. Annual Survey of Hours and Earnings 2018, Office for National Statistics.
3. Scottish Government (2018), Regional employment patterns in Scotland: statistics from the Annual Population Survey 2017
4. Scottish Government Analysis (2018) of Annual Population Survey results for year to June 2018
5. Scottish Government 2017, The Scottish Government's Income Tax Policy (Stage 11): Analytical Note on Impacts on Income Levels and Equality
Email: Liz Hawkins