Scottish productivity outstrips everywhere outside South East – KPMG

A new study has revealed that Scotland ranks fourth for productivity out of all of the UK’s 12 key regions, behind only London, the South East, and the East of England.

According to KPMG’s inaugural regional productivity performance report, Scotland has a good sectoral mix of businesses, which is conducive to high productivity.

However, the big four firm notes that Scotland’s large proportion of rural areas creates a marked difference in production levels between cities and the countryside.

The report reveals, in comparison to the rest of the UK, companies based in Scotland perform well on innovation indicators, which include research and development (R&D) expenditure and patent count. Increased foreign direct investment and more companies exporting would help drive productivity further.

Promisingly, the report reveals that employers have a very favourable view of the current skills mix of school leaver and graduates – a key factor in high productivity economies. However, the report recommends action should be taken to address Scotland’s recent falls in global literacy, numeracy and science rankings in order to bolster future productivity performance and international competitiveness.

A shortage of digital and technology skills in the workforce features significantly throughout the report, and while broadly all regions are affected, the findings emphasise the need for Scotland to invest in digital skills to future proof productivity. However, the region would benefit from enhanced managerial and leadership training in both public and private sectors to cope with challenges ahead.

On infrastructure, the report notes significant investment in recent years in major transport links between regions of Scotland has had a positive impact but additional connectivity within regions, including more bus routes, would improve access to employment opportunities across Scotland, particularly for those from more deprived communities.

The study also highlights Scotland’s need to improve digital infrastructure to compete with other regions, and reveals 4G coverage is among the worst performing of all UK regions. Connectivity is a particular challenge in rural areas which have less superfast broadband coverage than Scotland’s cities. Actions are underway to address this.

Speaking ahead of the Chancellor of the Exchequer’s Autumn Budget next week, Catherine Burnet, senior partner for KPMG in Scotland, said: “Scotland has done well over the last 10 years in closing the productivity gap with the rest of the UK, but the UK level remains a low benchmark by international standards and more can be done.

“Scotland’s economy holds key strengths in our financial services; higher education; food and drink; and oil and gas sectors. Oil and gas, in particular, has made significant productivity gains over the last 18 months.

“Looking ahead, we believe there are some key actions for business and policy makers to drive further improvements. Further enhancing digital and technology skills across the workforce; providing more managerial and leadership training in both private and public sector; and improving numeracy, literacy and science skills in schools, will play a significant role in improving productivity across the country.”

The new figures are measured on the performances of the following three drivers of production:

Across the UK the report highlights:

Yael Selfin, chief economist at KPMG UK, said: “The Chancellor is facing tough choices in his budget next week. With little money to spare, priority should be given more than ever to initiatives that can raise productivity. The UK faces a number of challenges in the coming years, with economic growth likely to come under pressure. The Government has an opportunity to play an important role in securing better growth prospects for the UK through policy programmes which focus on lifting regional productivity levels.

“Our research shows that a regional approach to improving productivity can be an effective way to tackle the productivity puzzle. We hope to see measures addressing the different barriers, as well as a more regionally targeted approach, to improving productivity levels in the Chancellor’s Budget next week.

“Brexit is likely to put some strain on UK productivity performance, as the country’s international links and access to talent suffer. A concrete drive to increase productivity may go some way in offsetting these effects.”