Calls for ‘shovel ready’ funding as Coalition policies drag Scotland back into recession

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By Martin Kelly

The Scottish government has re-issued calls for the UK coalition to change its economic strategy after figures published today showed Scotland has narrowly re-entered recession.

Despite growth in services and production of 0.2% and 1.2% respectively, the Scottish economy shrank marginally in the last quarter, due entirely to a drop in the construction sector.

The Scottish contraction of 0.1% for the first three months of the year is less than the UK as a whole which contracted by three times as much over the same period.  The previous quarter showed a similar trend with the UK contracting by 0.4% against a Scottish figure again of only 0.1%.

The two successive 0.1% falls in GDP means that Scotland has narrowly entered a double dip recession, the improvement on the UK performance will be of little consolation.

Those in employment in Scotland increased by 9,000, whilst those out of work went down by 4000.  Today’s figures also showed Scottish employment performing better than the UK which now has an jobless rate of 8.1% against a Scottish unemployment rate of 8.0%.

The construction sector showed the biggest drop, shrinking by 6.9% over the last quarter, which prompted more calls for funding for capital projects

Kenneth Gibson MSP, Convener of the Scottish Parliament’s Finance Committee, said that for Scotland’s economy to move forward Prime Minister David Cameron must now meet his offer of funding shovel ready projects.

Mr Gibson said:

“The Scottish economic indicators are positive in comparison to the rest of the UK across GDP, labour market statistics and others including inward investment, but it remains a difficult economic period of now technical recession.

“In terms of employment Scotland is outperforming the rest of the UK but we need more direct action from the UK Government in the form of funding for the shovel ready projects.

“Tackling the scourge of unemployment is an absolute priority for the SNP and we are we using every lever currently available to us to secure new investment and create and safeguard jobs, in the face of severe cuts from Westminster.”

The coalition faced calls last week from the Scottish Chambers of Commerce for more infrastructure spending.  Speaking last week, Garry Clark, Head of Policy and Public Affairs at Scottish Chambers of Commerce, said the Scottish government had led the way in identifying increased capital spending and added:

“it is now time for the UK Government to act boldly to stimulate demand and to reduce the focus on austerity; the evidence clearly shows that the current mix of policies of mainly austerity and limited support for growth is holding back any economic recovery.  The Government’s economic plan needs to move to a new phase focused on growth”

Colleague, Chief executive Liz Cameron said today: “We have a pretty flat economy but there are sectors in Scotland seeing increasing growth and success.”

She added: “The overall (GDP) figure is down due to the continuing difficulties faced by the construction sector.

“This is an area where government investment in infrastructure can have a positive effect – we need to see the pledged government projects get underway for the construction industry to reap the practical benefits of what are welcome commitments to invest.”

On Monday, the IMF downgraded the UK economic outlook from 0.8% growth in 2012 to 0.2%.

Mr Gibson added:

“Monday’s downward revision by the IMF to their growth forecast for the UK economy in 2012 to just 0.2 per cent demonstrates that more needs to be done by the UK Government to kick-start the economy in the form of capital investment to stimulate growth and jobs.

“The latest UK Government U-turn of providing guarantees to loan finance of up to £40 billion is welcome but the scheme will take a year or more to get off the ground – and investment in Scotland is required immediately.

“We now need a further Westminster U-turn with an impact to make an immediate difference. We need direct capital spending on shovel ready projects to the tune of some £5 billion.  Westminster must reverse Darling’s capital investment cuts as we have been arguing for since the first dip of this double-dip recession.

“The Scottish Government is investing an additional £30 million to support youth employment, on top of £2 billion already invested in opportunities for young people.

“Building for economic recovery is an example of how best decisions for the people of this country are made here in Scotland, not at Westminster where less than 10 % of the elected members represent Scotland.”

Scottish Building Federation said the latest data showed a sixth consecutive quarter of stagnation in the Scottish construction industry.

Chief Executive of the Scottish Building Federation, Michael Levack joined Scottish government calls for capital spending and said: “Such a dramatic slump requires radical action to turn things around.

“That’s why we give our full backing to the calls the first minister is now making on the UK Treasury to release £400m in direct capital spending this financial year to kick-start the long list of shovel-ready projects north of the border that have stalled due to a chronic lack of affordable finance.”

Federation of Small Businesses in Scotland policy convener Andy Willox said: “We can take some comfort from the fact that Scotland’s economic contraction looks smaller than the rest of the UK.

“However, we still need every part of government to shelve the distractions and focus on growth.”

However, despite industry figures echoing the Scottish government’s demands for more capital spending, Labour insisted that Alex Salmond’s administration needed to change course.

Labour’s Shadow Economic Secretary to the Treasury, Cathy Jamieson, said “urgent economic growth strategies” were now needed.

“It’s time that both the UK and Scottish governments realised the scale of the crisis, and changed course,” she said.

“Jobs and growth must be the top priorities.  We cannot afford to waste the talents of generation of young Scots because of failed economic policies.”