Efficiency and equity: Mapping the landscape of economic wellbeing in Scotland

This report examines Scotland’s efforts to tackle inequality, its policy evolution, comparing progress with the rest of the UK, and exploring the interplay between policies, enhanced equality, and economic growth.

The Royal Society of Edinburgh’s Economy and Enterprise Committee hosted a seminar in the summer (2023) looking at the progress towards enhanced equity in Scotland. This was held in collaboration with the Institute for Fiscal Studies (IFS) and Fraser of Allander Institute (FAI). The RSE is most grateful for their valuable input.

Together, we explored the progress in addressing inequality in Scotland, both in absolute terms and in comparison, to the rest of the UK. We considered how Scotland’s policy objectives have evolved in recent years and then summarise some of the data and analysis provided. We next considered how policies have worked in relation to enhanced equality and economic growth and briefly considered some options for further progress in terms of equity and efficiency to achieve enhanced economic wellbeing across Scotland.

DEFINITION

Efficiency: the efficient use of resources, working to maximise economic growth.

Equity: The distribution of various measures of wellbeing across areas, between income groups etc.

Wellbeing: An overarching measure of achieving the Government’s objectives for the economy and participants therein.

Impact of inequality on economic efficiency

Health inequality

Health inequality is symptomatic of economic inequality. Poor health outcomes make it harder for people to remain in employment, which impacts both the person’s ability to escape poverty and wider economic efficiency. This cycle has become increasingly concerning since the Covid-19 pandemic, with a marked increase in economically inactive people (in part related to long-Covid) and geographical trends suggesting people from more deprived areas are at a higher risk of becoming economically inactive due to ill health. Long-term physical and mental health illnesses/disabilities tend to impact more deprived regions of Scotland. Areas such as North Lanarkshire (28.1%) and North Ayrshire (28.5%) are cited as two of three areas reporting the highest levels of economic inactivity in 2020/21.

Education attainment gap and inequality of opportunity.

The gap in education attainment between children from low-income households and children from higher income households risks further inequalities, with parental socioeconomic circumstances having a greater impact on education outcomes than the quality of the school they attend.29 Between 84-88% of children from affluent backgrounds reach the expected level of numeracy and literacy skills for their age, whilst only 63-72% of children from disadvantaged backgrounds score the same metric.

Educational attainment impacts future socioeconomic circumstances. Failure in school has a negative impact on the individual, not just in childhood but also later in life. It correlates with poorer employment prospects. Further, in terms of efficiency, it has a disadvantageous impact on society, with fewer taxpayers, more benefit recipients, and missed opportunities for the talents the person could have perhaps developed if they had been better nurtured.

What direction is the Scottish Government moving towards now?

Since 2018 there has been a move towards the wellbeing economy, with the establishment of Wellbeing Economy Governments (WEGo) group. The approach that is being taken to implement this is variable, with a lack of consensus within the Scottish Government. While there are good intentions, there are also contradictions, with apparently no clear statement of what the wellbeing economy actually means.

In terms of taking steps towards the implementation of policies that incorporate all five factors of inclusive growth, under the new First Minister, there may be signs of a shift towards a greater emphasis on growth:

That’s why there has never been a conflict, to my mind, between supporting our economy to grow, in line with our net-zero ambitions, and introducing policies – such as progressive taxation – which enables us to reduce poverty. Both go hand-in-hand as part of that wellbeing economy many of us support.

Extract taken from the “New Leadership, A Fresh Start for Scotland”: First Minister’s speech – 18 April 2023

The OECD has argued that income inequality has a negative and statistically significant impact on growth. The overall objective for economic wellbeing in Scotland should be to facilitate economic growth whilst simultaneously addressing inequalities but working to ensure that policies to achieve one of these ends do not result in significant adverse effects on the achievement of the other.

Perhaps the key conclusion to note is that, even during Scotland’s period of relatively rapid wage and employment rate growth, there was only a marginal diminution in inequality; while the regions in Scotland that have been historically deprived have remained unchanged. There are still significant health inequalities and concerning gaps in attainment between children with affluent parents and those from low income families. This perhaps evidences the need for policy that is designed to address the multifactorial nature of inequality, with policies that incorporate the five areas of inclusive growth.

INCLUSIVE GROWTH

The concept of inclusive growth emerged around 2015 in the Scottish Government strategies, and the idea is that if policymakers address issues simultaneously, we have a no trade-off approach. The concept is related to five outcomes:

Productivity

ensuring businesses are competitive and economic growth is resilient and sustainable.

Population

aiming to achieve a sustainable working-age population in Scotland.

Participation

tackling inequality of opportunity and aiming to ensure everyone has access to employment opportunities and jobs that are fulfilling, secure and well-paid.

People

ensuring Scotland’s population is healthy and skilled and that economic benefits are spread more widely, with lower levels of inequality.

Place

communities across Scotland should have the natural and physical resources to ensure they are strong and sustainable.

However, addressing these factors simultaneously in practice is difficult, and policymakers still tend to look to address these in isolation. This resulted in a move away from the idea of inclusive growth.

NEXT STEPS

The RSE would welcome comments, additions or criticisms of this paper and will actively seek engagement with the Scottish Government, public bodies, MSPs and other interested parties to discuss its contents. If you have any enquiries about this advice paper or if you wish to engage with the RSE, contact Stephanie Webb, Policy Advice Officer ([email protected]).

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