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Friday, 22 November, 2002, 18:04 GMT
Scotland: Lagging behind
A manufacturing worker
Manufacturing woes have affected the whole economy

The Scottish economy has been underperforming the UK economy for some years now, but the extent to which Scotland has been struggling was confirmed recently.

GDP figures from the Scottish Executive show that Scotland fell into formal recession in the first three months of 2002.

CBI Scotland is calling on Gordon Brown to "lay off" business

Although growth edged up in the following quarter, most economic surveys are predicting lower than expected growth for "the foreseeable future".

The last comparable growth figures showed GDP rising by 0.3% in the second quarter of this year, against a rise of 0.6% for the UK as a whole.

Year on year, Scottish GDP increased by just 0.7%, compared with a UK figure of 0.9%

A bank worker
The financial sector is also suffering
Scottish manufacturers have been hit by the global downturn, just like their counterparts elsewhere in the UK. But this year's growth figures show that the malaise in manufacturing was so severe, it had begun to drag the rest of the economy down with it.

Reliant on manufacturing

The situation is starker in Scotland because the economy is more heavily reliant on manufacturing.

Until recently, the "powerhouse" of the sector had been the electronics industry.

But the past eighteen months have brought the industry's worst ever downturn and in Scotland it has led to a succession of factory closures and large scale redundancies, as multinationals in America and Japan have been forced to cut investment and move to lower cost countries.

The impact can be seen in figures from Scotland's engineering firms.

They claim their exports have fallen from 13bn in 2001 to 10bn this year.

Lack of confidence

The service sector has also been hit by the global downturn and lack of confidence.

In particular, the financial services industry has contracted significantly over the past year.

Scotland's economic strategy is now moving away from large scale inward investment, towards indigenous companies.

With this in mind, the rules governing regional selective assistance - grants used to woo multinationals to Scotland - have been changed so that more Scottish firms can qualify for funding. It's hoped such changes will help stimulate investment.

Scottish buisness organisations say firms need to be encouraged to invest in skills and equipment in a bid to boost productivity.

They say the Chancellor must recognise this and accept that he has already placed heavy burdens on business through a raft new taxes.

Before the launch of the climate change levy in April 2001, the industry organisation Scottish Engineering predicted that the so called "energy tax" would cost manufacturing companies around 90m a year.

It now claims that the actual net cost to the industry in the first year alone has been 143m.

Taxing troubles

CBI Scotland is also calling on Gordon Brown to "lay off" business.

One of its major concerns is the 10% hike in corporation tax levied on North Sea oil companies which is threatening to hamper investment and make the mature fields of the North Sea less competitive.

By 2010, CBI Scotland believes changes to oil industry taxation could cost companies between three and ten billion pounds, depending on the fluctuations of the oil price.

The Federation of Small Businesses in Scotland wants the Chancellor to extend the allowance of 10,000 for limited companies to sole traders and partnerships, claiming that all small businesses should be treated equally.

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See also:

06 Nov 02 | Scotland
09 Oct 02 | Scotland
10 Sep 02 | Scotland
25 Aug 02 | Scotland
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