By Martin Kelly
An academic at Glasgow University has challenged claims that the Scottish economy is on a sustained road to recovery.
Economist John McLaren, who is a member of the university based Centre for Public Policy for Regions (CPPR), has insisted a survey carried out by the Bank of Scotland this week which claimed Scotland was on course for a “robust recovery” was unreliable.
According to the Bank of Scotland survey, Scottish output is the highest it has been in over two years. The bank’s chief economist Donald MacRae said the recovery was becoming “more strongly embedded”.
Speaking on Monday, Mr MacRae said: “Output grew in manufacturing and activity was strongly up in the large services sector, with an encouraging rise in new orders across the economy evident for the sixth month in succession.”
He added: “These results show the recovery in the Scottish economy is becoming more strongly embedded with every passing month.”
The latest survey comes within a week of figures showing foreign investment in Scotland reached a 15-year high last year. A total of 76 foreign direct investment projects were secured in 2012, the largest number since 1997 and 49 per cent more than in 2011.
However, speaking yesterday John McLaren said he disagreed with the conclusions of the Bank of Scotland survey. According to Mr McLaren, the BoS survey could not be used as a barometer as it looked “at the private sector only” and did not include the public sector which he said was experiencing cuts.
Speaking on Radio Scotland’s Newsdrive, the former Labour party researcher said: “It’s positive news but I don’t personally think it’s a turning point.”
Mr McLaren claimed that Scotland had been outperformed by other areas of the UK.
“The two areas of the UK that are doing best are Yorkshire and Wales and I don’t think those are the ones that will be leading the charge for a recovery in the economy in the long run.”
The Bank of Scotland survey showed that, overall, Scotland posted a stronger increase in employment than any other part of the UK, except for the West Midlands.
Factory output in Scotland increased for a second straight month in May, while the rate of job creation at Scottish manufacturers accelerated. Workforce numbers expanded at the fastest rate since February, and have now risen in each of the past four months.
The amount of new business increased for the sixth month in a row, with the latest rise being the most marked in more than two years.
However, despite this, Mr McLaren defended his own analysis by insisting the negative elements from the public sector had to be factored in and that fast growth was needed in order to get the economy back to growth rates required:
“At the minute I still struggle to see where that is going to come from, we’ve still got a lot of problems in the euro area, we’ve still got problems in the banking sector – the Co-op only recently got into great problems … given that background I find it difficult to see that this is a turning point and that we’re about to steam ahead.”
Mr McLaren’s refusal to accept positive forecasts for the Scottish economy follow equally pessimistic claims published by his CPPR group which recently challenged Scottish Government estimates for North Sea oil.
The CPPR, which has strong links to the Scottish Labour party [see notes below], has dismissed both the Scottish Government’s upbeat forecasts for the oil and gas sector and those of industry experts, preferring instead the more pessimistic figures based on predictions from the OBR, a body set up by UK Chancellor George Osborne in 2010.
In March this year, the CPPR rejected Scottish Government claims that the North Sea was experiencing another oil boom. The CPPR insisted that revenues would at best remain the same or fall slightly in real terms and remain well below the 2011-12 level.
It added that “to suggest some sort of new oil-tax revenue boom is about to emerge is not readily supported by the evidence”.
The CPPR’s claims have been used by the head of the anti-independence Better Together campaign, Alistair Darling, who said their report was “devastating for the nationalists”.
He added: “Salmond, Sturgeon and Swinney have all said that a boom is coming. This latest independent report says that there is no evidence to back this up.”
However industry experts have appeared to challenge the CPPR’s view that there is “no evidence” of another oil boom.
The latest forecasts by Oil and Gas UK suggest that production could reach the equivalent of 2 million barrels a day by 2017. This would represent a 30% increase on current production levels.
Last month, speaking at a conference in Aberdeen, the CEO of Oil and Gas UK Malcolm Webb said the amount of oil still to be extracted from the North Sea had been “underestimated”.
Analysis published by industry expert, Professor Alex Kemp in November 2012, also projected that production could rise in the years to 2017 under a number of different scenarios.
New estimates published last month which were based on Economic Co-operation and Development (OECD) forecasts, shows that the total revenue still to come from Scotland’s oil and gas sector could be as high as £4 trillion.
OECD economists at the Paris based Organisation have forecast that the price of a barrel of oil will rise to between $150 and $270 throughout the coming decade. The OECD envisages a baseline value for a barrel of oil of $190 which, the new report will say, will lead to an independent Scotland benefiting to the tune of between £2.25 trillion and £4 trillion.
The Scottish government’s own estimates, based on a more conservative price for a barrel of oil of $100, suggests that there is at least £1.5 trillion worth of oil and gas still to be extracted.
Notes:
John McLaren worked as a researcher for the Labour Party for a year leading up to the first election (1999) of the new Scottish Parliament, being subsequently appointed as a Special Adviser by Donald Dewar, and then by Henry McLeish, for the period up to 2001.
He was a member of the Labour Party from 2000 to 2005.
In 2006 Mr McLaren was hired by the Labour Party on a consultancy basis to undertake work leading up to the 2007 election.
Mr McLaren’s CPPR colleague, Jo Armstrong, was an adviser to Labour First Minister, Jack McConnell.