LESSONS FROM IRELAND FOR SCOTLAND’S ECONOMY

It may seem an odd place to start on an analysis of what we can learn from the Irish experience, but let’s start with America.

On August 2022 President Biden passed the Inflation Reduction Act – an oddly named $370 billion bill to boost clean energy, reduce health care costs and increase tax revenues. It contains some £500 billion in new spending and tax breaks…The estimates on impact run into several hundreds of thousands of new jobs.

Meantime Ireland drives Foreign Direct Investment (“FDI”) with multiple incentives, not least a 12.5% corporation tax rate moving to 15% in 2025. In 2021 this drove 249 such investments compared to Scotland’s 122. The other key component – aligning education to economic development; per 1000 of population 39.9 were STEM graduates compared to Scotland’s 20.9.

From 2012 – 2022 Ireland’s GDP grew on average 8.9% PA compared to Scotland’s rather anaemic 0.9%.   They are home to nine out of the top ten Pharmaceutical companies in the world and fourteen of the fifteen top Medtech companies… 

And recently the Irish Government forecast a staggering Euro 65 Billion surplus over the next three years…

So how does Scotland compete on global investment opportunities when faced with that challenge?

If Scotland were a business it would be a small business and that’s to our advantage; we can focus, be agile and compete.

Sure we can point to a beautiful place to live and work, wonderful Universities and one of the highest tax regimes in Europe with the added burden of Brexit to contend with, or, we can do something about it.

The answer is not progressive taxation as we learn from the Irish experience – it’s a focussed, low (and at one point no) tax system that targets sticky jobs in growth sectors in a highly focussed manner.  By sticky I mean high value, permanent jobs that do not – as in Silicon Glen – drop off as lower cost nations compete.

So here’s my suggestion to Holyrood and Westminster – make all of Scotland a 15% corporate tax zone for three key global growth sectors: renewables and low carbon manufacture and services; life sciences and medical technologies and software, big data and AI. 

The Irish experience tells us we will net more tax, more jobs and more value from this highly focussed approach with one agency delivering that approach than we will with our current strategy. And that one agency should deliver domestically and for inward investment.

And as the Ireland Strategic Investment Fund starts to deploy their sovereign wealth fund to support economic growth we need to compete and, in time, grow our own fund. 

The Innovation Fund of circa £100m over ten years launched a couple of months back is frankly not enough – R & D funding in Scotland is circa £4.5 billion per annum; £100m will transform very little indeed.  But we also have a competitive advantage in our Universities, something we should double down on aligned to these three key growth sectors.

The announcements on two new Investment Zones for Scotland is welcome but let’s face it we are talking £16m per annum for five years; not to be sniffed at but hardly jaw dropping either. Moreover all of Scotland should be a competitive location not just the Glasgow City Region and the North East of Scotland.

We need big ideas that can be delivered and we need a one door approach to attracting FDI that rivals IDA Ireland (their investment arm for inward and domestic growth)…We need to understand, over and above what’s noted here, why their 162 employees in 23 offices globally delivers so well against Scotland Development International and their 348 employees across 30 offices. Is Ireland’s trick pathological focus on key sectors?  

It’s time for a grown-up debate and action over how we make Scotland an economic powerhouse. We need to stop doing those things that don’t add any value and focus on what delivers otherwise, with a ticking demographic time bomb, we will leave an unbelievably appalling legacy for the next generation of Scots to contend with.

We at the Hunter Foundation do not claim to have all the answers but we do believe through constructive debate we will get better answers and outcomes for Scotland. Our Foundation offers this paper, produced independently of us by Oxford Economics, to start a debate, not finish one, after which, as in the Enlightenment, we need to come together as one and unite to drive prosperity for future generations to enjoy. 

Sir Tom Hunter, serial entrepreneur and philanthropist

Read the full report here.