The forthcoming industrial strategy paper by the UK government will shine a light on the areas and sectors that it expects to see developed in the coming years. With a strong focus likely on regional growth and investment in key sectors, such as AI and digital technology, what will it mean for Scotland?

Scottish politicians have been smarting from shock of the announced closure of the Grangemouth refinery and job losses at Alexander Dennis Ltd in Falkirk, so the political backdrop is piling on the pressure on both governments in London and Edinburgh to find solutions and grow the economy. Easier said than done.

The productivity gap

Recent conferences and events have highlighted Scotland’s relatively low productivity and the need to grow our businesses and help them scale up. The nation’s education and skills system is being reshaped but will take time to prove itself. To date, Scotland has proven poor at growing and retaining scalable companies and there is consensus across the politicians in Edinburgh and Whitehall that unlocking domestic investment from pension funds and other investors is critical.

Of course, just recently the UK Government announced the previously delayed investment of £750 million in the proposed Edinburgh-based supercomputer. That could and should be a game changer for Scotland and a real shot in the arm for the wider digital and R&D economy. Yet the benefits will only really be felt if there is a clear growth plan to create a cluster of research organisations and businesses that can benefit from the plans. The Scottish Government is expected to publish a new digital strategy but there is already a feeling that Scotland is lagging behind competitors on the uptake of AI to improve productivity.

A sectoral approach

The energy sector is also poised to star in the forthcoming strategy. Hot on the heels of the UK Government’s announcement to proceed with the Acorn carbon capture and storage project in Aberdeenshire, we should also expect to hear a change of tack around oil and gas. The UK Government has been paving the way for new investment in the sector, with the announcement of new environmental safeguards before new oil and gas fields can be developed, though the Scottish Government continues to oppose onshore oil and gas exploration.

The Scottish Government is also looking to further expand offshore renewables to 40 gigawatts (GW) of new capacity by 2040, which could provide the long-term certainty investors will be seeking to secure investment. However, with so much uncertainty remaining in the UK energy regulatory environment whether even the current field of ScotWind projects become a reality remains open to question.

Building on Scotland’s more traditional industries, further investment in the nation’s shipbuilding and marine sectors are expected, along with support for the expansion of the construction sector, which is so critical to deliver housing targets.  Glasgow will be top of mind for politicians wanting to see the dividends of additional defence spending in the UK. Supporting Scotland’s space sector and satellite clusters will also almost certainly receive support.

If energy and technology are expected to lead the way, the other sector we would expect to see at the fore of any new strategy is healthcare. Scotland continues to lead in areas like health research, biotech and medical devices but not at the scale to create significant job opportunities and create the unicorns of the future. So, we can expect to see a renewed focus on growing Scotland’s healthcare clusters. Nevertheless, these clusters are competing against the Oxford-Cambridge Arc and the South-East where the bulk of investment and decision-making in the sector is made.

The challenge of deliverability

Finally, there are questions about the deliverability of any industrial strategy in Scotland. The challenge remains for governments in Edinburgh and London to work together. Reducing the regulatory burden on industries will help but there’s little sign of that and the education system is significantly underfunded, which will hamper the growth of all sectors. An industrial strategy will be welcome for Scotland, but the need to address lack of investment from the private sector, lower productivity and skills gaps shouldn’t be overlooked. The challenge for industry now is to articulate its wider needs to government and ensure quick implementation.

Contact Grayling’s dedicated public affairs team to find out more about Scotland’s policy landscape and the upcoming elections.