Scotland’s National Strategy for Economic Transformation - Delivering Economic Prosperity

2 — Entrepreneurial People and Culture 15

2. Entrepreneurial People and Culture 15

3 — New Market Opportunities 22

3. New Market Opportunities 22

4 — Productive Businesses and Regions 30

4. Productive Businesses and Regions 30

6 — A Fairer and More Equal Society 42

6. A Fairer and More Equal Society 42

8. Acknowledgements Image of peat sampling at Blawhorn Moss Scotland’s National Strategy for Economic Transformation Foreword by the Cabinet Secretary for Finance and the Economy Scotland has extraordinary economic potential. Our natural resources, heritage, talent, creativity, academic institutions and business base in both established and emerging sectors are the envy of many across the world. Every citizen holds Scotland’s economic potential in their hands. Our economic growth and prosperity over many decades has been the result of entrepreneurial, talented and motivated workers in every sector, geography and demography working in a culture that rewards and celebrates innovation and initiative. This strategy recognises the opportunities and the challenges facing Scotland. It sets out how, over the next ten years, we aim to deliver economic growth that significantly outperforms the last decade, so that the Scottish economy is more prosperous, more productive and more internationally competitive. We will do this through focused interventions, working in collaboration with businesses and other building on our strengths in sectors like energy, financial services, creative industries and life-sciences and carving out new strengths in technology, space and decarbonisation. We have identified five key transformational of action that can drive improvements in Scotland’s economy: stimulating entrepreneurship; opening new markets; increasing productivity; developing the skills we need for the decade ahead; and ensuring fairer and more equal economic opportunities. The next ten years have been branded the “decisive decade”. In the next decade, we face a choice to either lead or to lag behind other successful economies all whilst we recover from Covid, deliver net zero, tackle structural inequalities and grow our economy. We choose to lead. Scotland’s National Strategy for Economic Transformation Executive Summary Our ambition for 2032 is for Scotland to be successful. Success means a strong economy where good, secure and well-paid jobs and growing businesses have driven a significant reduction in poverty and, in particular, child poverty. It means a nation of entrepreneurs and innovators, with resilient supply chains and competitive advantages in the new industries generated by technological change, scientific advance and our response to the climate and nature crises. It means a society in which everyone can participate in economic success, in every community and in every region. Our vision is to create a wellbeing economy: a society that is thriving across economic, social and environmental dimensions, and that delivers prosperity for all Scotland’s people and places. We aim to achieve this while respecting environmental limits, embodied by our climate and nature targets. The next ten years will be a time of incredible change and extraordinary opportunity – but success is not inevitable. The time for brave and bold action is now. The pandemic has hit our economy hard, forcing us to re-evaluate questions of economic value and national resilience and revolutionising the way in which some of our industries work. As we recover we must map out a future role in a world where Brexit has undermined so many of the trading and collaborative relationships on which we have relied for many years and efforts must go into rebuilding, restoring and identifying new markets and relationships. Whilst the foundations of Scotland’s success exist, there remain long-standing challenges, with weak productivity compared to international competitors, a relative lack of new business growth and persistent poverty. We need to take action to shift the dial in these areas, not just by doubling down on the things that are producing results but by working together – government, public sector, business, trade unions, third sector and social enterprises – to deliver five bold new policy programmes of action. 1 The detailed analysis of the Scottish 1 Scotland’s National Strategy for Economic Transformation Scotland’s National Strategy for Economic Transformation Conclusion 53 55 © Dougie Barnett NatureScot 3 Kate Forbes MSP Cabinet Secretary for Finance and the Economy This strategy is about delivering the best economic performance possible for Scotland within the current constitutional constraints. It takes decisive steps towards the creation of a wellbeing economy, and drives a green economic recovery to meet our climate and nature targets while ensuring we maximise the benefits as part of a just transition. But with the full powers of an independent country we can, of course, deliver more. At present, macro-economic, fiscal, migration and other levers lie with the UK Government. We cannot ignore that fact when pursuing economic prosperity, nor that even the limited powers we currently have are being steadily eroded through the Internal Market Act. The economic prospectus for an independent Scotland is being prepared ahead of an independence referendum and will set out how those additional powers can be deployed to build greater prosperity over the long term. partners, Our approach has been informed by the Advisory Council for Economic Transformation and wide-ranging engagement with businesses, unions and other stakeholders. programmes Throughout the development of this strategy, one message has been particularly clear. As a country we will be judged on the outcomes we deliver, not the strategy we write. Words and intentions matter, but only actions deliver change. The task of transforming our economy requires an equally radical transformation in the way we deliver results. Government will provide clear and decisive leadership, but it can’t and shouldn’t do everything. Ours must be a country in which the public, private and third sectors respect each other’s strengths, draw on each other’s talents and work together to create and sustain an economy that works for all. 4 These will: • establish Scotland as a world-class entrepreneurial nation founded on a culture that encourages, promotes and celebrates entrepreneurial activity in every sector of our economy; • strengthen Scotland’s position in new markets and industries, generating new, well-paid jobs from a just transition to net zero; • make Scotland’s businesses, industries, regions, communities and public services more productive and innovative; • ensure that people have the skills they need at every stage of life to have rewarding careers and meet the demands of an ever-changing economy and society, and that employers invest in the skilled employees they need to grow their businesses; • reorient our economy towards wellbeing and fair work, to deliver higher rates of employment and wage growth, to significantly reduce structural poverty, particularly child poverty, and improve health, cultural and social outcomes for disadvantaged families and communities. This strategy is intentionally focused on a small number of priorities; it does not seek to do everything. It focuses on five policy programmes with the greatest potential benefit and on how to achieve them, rather than address every potentially beneficial action for every industry.1 The programmes have been carefully chosen, based on the evidence. A sixth programme on delivery introduces a new streamlined delivery model in which all participants are clear about their roles and accept accountability for their actions. We will draw on the strengths of people and organisations from all sectors of the economy – a “Team Scotland” approach. In combination, these six programmes will transform the Scottish economy over the next decade and drive economic opportunities. economy underpinning this strategy can be found - here. -- 5 Our Future Economy The ambition of this strategy is not just to grow our economy but, in doing so, to transform our country’s economic model so that we build an economy that celebrates success in terms of economic growth, environmental sustainability, quality of life and equality of opportunity and reward. 6

1 — Our Future Economy

1. Our Future Economy 1.1 Our Vision By 2032 Scotland’s economy will significantly Scotland will be recognised at home and outperform the last decade, both in terms of throughout the world as: economic performance and tackling structural economic inequalities. Our people will be • an international benchmark for how an at the very heart of an economy that offers economy can transform itself, de-carbonise and opportunities for all to succeed and where rebuild natural capital whilst creating more, everybody, in every community and region of well-paid and secure jobs and developing new the country, will share in our economic prosperity. markets based on renewable sources of energy and low carbon technology; Internationally, we will be recognised as a nation of entrepreneurs and innovators, who will have • a great place to live and work with high living embraced the opportunities of new technologies. standards, and a vibrant, diverse culture in We will have boosted productivity considerably which all sectors of the economy work to and focused resources on opportunities that will eliminate the scourge of poverty; transform our economy and our society. We will • the best place to start and to grow a business be a nation confident of our place in the world, or social enterprise; attracting international investment in research and innovation, in the industries of the future, • a leader in its chosen areas of research and and an exemplar of a just transition to net zero. development, collaborating with other centres of excellence across the world and using these strengths to stimulate business opportunities; • a country where economic power and opportunity are distributed fairly across our regions, cities and towns, rural and island communities; • a magnet for inward investment and global private capital; • an outward-looking nation, engaging internationally, exerting a meaningful influence on the policies, trends and events that shape our world; and • a nation where people can continually upgrade their skills and help shape their workplaces to navigate a changing economy, and where employers have the supply of skills they need, and fully utilise these to grow and take advantage of opportunities. As a consequence of the actions set out in this strategy, we will have achieved our vision of building a wellbeing economy (see Figure 1). Scotland’s National Strategy for Economic Transformation 7 Figure 1: Our Vision, Ambition and Programmes of Action for Scotland’s Economy by 2032 Vision A Wellbeing Economy: Thriving across economic, social and environmental dimensions. Ambition Fairer Wealthier Greener Ensuring that work pays Driving an increase in Demonstrating global for everyone through productivity by building leadership in delivering better wages and fair an internationally a just transition to a net work, reducing poverty competitive zero, nature-positive and improving life economy founded on economy, and rebuilding chances. entrepreneurship and natural capital. innovation. Programmes of Action Entrepreneurial Productive A Fairer and People and New Market Businesses and Skilled More Equal Culture Opportunities Regions Workforce Society A Culture of Delivery Scotland’s National Strategy for Economic Transformation 8 1.2 Our Commitment We can only succeed and achieve our goals if We recognise that it is our citizens who will we pull together as the nation of Scotland. This actively transform the economy through work, economic strategy calls for a national endeavour, innovation, and investment. As such, we are drawing on the talents, resources and commitment committed to working in partnership with these of every citizen. The benefits of our success many individuals and organisations – business will be shared, and so must be the actions we founders and leaders, trade unions and workers, undertake to deliver that success. We will draw local authorities, institutes of education and on the strengths of people and organisations from research and many others. all sectors of the economy in what is commonly described as a “Team Scotland” approach. Achieving the economic prosperity we want also requires accountability. To ensure that At a time of unprecedented change, our the actions described in the strategy are taken, commitment as a government is to provide clear we will establish a robust governance structure leadership and direction to pursue economic co-led by business, with immediate access to growth and prosperity, ensuring that Scotland Scottish Ministers, that will hold the public sector has the infrastructure, resources, skills and talent and the business sector directly to account for to respond quickly and seize the opportunities delivery of this strategy. As a first step, delivery before us. plans will be finalised for each of the new programmes of action, within six months In doing so, we recognise that the Government of the publication of this strategy. must continue to play a direct role in the economy, taking an entrepreneurial approach New initiatives identified in this strategy do itself to drive forward innovation across the not mean that we are abandoning actions or economy and to ensure more of the nation’s initiatives that have proven to work. We will wealth and services are managed for the “double down” on the things that are shown collective good. to work. The strategy is aligned with our National Performance Framework, with existing plans We are not blind to the immediate and targeted at specific aspects of our economy long-term structural challenges facing the (see Figure 2) and regional and sectoral strategies. Scottish economy, and this strategy is upfront Whilst we will challenge the progress and in grappling with these. Neither do we ignore efficiency of each of these plans there will be no Scotland’s fundamental economic strengths letting up in our commitment to achieve them. which we must build on. We pledge to listen and respond to calls that are made on government, but in return we ask business to join us in relentlessly pursuing the strategy’s ambition for a fairer, wealthier and greener country. Scotland’s National Strategy for Economic Transformation 9 Figure 2: Alignment with Existing Plans National Strategy for Economic Transformation @> @ Entrepreneurial Productive A Fairer Regional People New Market businesses Skilled More Equal Sectoral Strategies and Culture Opportunities and regions Workforce Society Strategies Scottish Scotland’s Infrastructure Future Skills Fair Work Technology Vision Investment Action Plan Nation Ecosystem for Trade Plan mti Review Population Community A Trading Housing Strategy Wealth Unlocking Nation 2040 Building • Regional Ambition National Including Economic Inward National Mission Gender Pay • Making Strategies Scotland Investment Transport for Jobs Gap Action Scotland’s • City Region CAN DO Plan Strategy Plan Future Deals Green • Scottish Space • Place Plans Scottish Global Capital Jobs Fund Fair Start Greenports Strategy (for example EDGE Investment Scotland Climate • Tourism: Clyde Mission) Plan Emergency Scotland Women’s National No One Outlook 2030 Business Centre Supply Chain Planning Skills Action Left Behind Development Plan • The Scottish Framework Construction Women in Programme Culture Youth Work Industry Enterprise Digital Strategy Strategy Framework Scotland: Strategy and Adult for The Perfect Learning • Food and Scotland Rural Productivity Strategies Drink Ambition Stage 2030: Industry Entrepreneur Clubs Strategy for Fund Growth • Life Sciences Strategy for Scotland 2025 • Scottish Retail Strategy Net Zero and Environmental Strategies Environment Climate Just Biodiversity Circular Strategy change Plan Transition Strategy Economy Update Plans and Energy Strategy National Performance Framework - Programme for Government - Covid Recovery Strategy - Tackling Child Poverty Scotland’s National Strategy for Economic Transformation 10 1.3 Immediate Challenges 1.4 Long-Term We recognise that this strategy is being published at a time when many households and Structural Challenges businesses are still focused on survival rather Some of Scotland’s economic challenges precede than long-term planning and that life is precarious the impact of the pandemic. Our population for many low-income families. We are still living is ageing and around one in five of Scotland’s through a pandemic and we acknowledge that it working age population is economically inactive.3 has both exacerbated existing inequalities and Despite our wealth, too many households heightened awareness of the need to protect continue to live in poverty as a result of structural those at risk in society. inequalities. Healthy life expectancy is too low in The pandemic has also highlighted underlying the most deprived areas of our country. Tackling weaknesses in parts of our economy and the underlying causes of inequality in our society exacerbated change in others – such as retail. and providing economic opportunity is vital in Customer-facing sectors of the economy, such order to improve life chances. as hospitality, tourism and the culture sector, Scotland’s productivity lags behind that of many have been most affected by Covid restrictions. other advanced economies and whilst we continue Although Scotland’s economic output returned to innovate too few of our ideas are turned into to pre-pandemic levels in November 2021, the businesses and too few of our new businesses pandemic has fundamentally altered our economy are scaling up successfully. For example, as a and society. However, over the longer term, share of Scotland’s businesses with more than according to the Office for Budget Responsibility,2 10 employees, high-growth enterprises account Brexit will inflict greater damage on the economy for 3.9% – lower than the comparable figure of than even the pandemic. This is becoming 4.5% for the UK as a whole. increasingly apparent given the current challenges in meeting our skills and workforce requirements. And yet if we address poverty this will in turn boost productivity. If Scotland’s productivity In our view these challenges make this the matched that of the OECD top quartile, average very time to demonstrate leadership and set annual wages would be almost 10% higher. out a long term approach to our economy. That means, as well as delivering growth, we take Whilst many parts of Scotland are performing on the big challenges of structural inequality, well, there are deep-seated regional inequalities, the transition to net zero, and securing a green with post-industrial areas performing less well recovery from Covid. and rural and island areas facing particular challenges such as a falling labour supply, poorer access to infrastructure and housing challenges which are holding back local businesses. The transition to a net zero economy presents Scotland with the further challenge of achieving a just transition that delivers positive employment, revenue and community benefits, in contrast to the industrial transitions of the 1980s. Our ability to address these long-term structural challenges is made more difficult by a lack of economic powers. For example, our ability to directly effect change in the labour market is limited as long as employment law remains reserved. And without migration powers we cannot design and implement an immigration system to address our demographic challenges. 2 Economic and fiscal outlook – October 2021 – Office for Budget Responsibility (obr.uk) 3 The economically inactive figure includes full time students. Scotland’s National Strategy for Economic Transformation 11 1.5 Investing 1.6 Embracing New in Our Strengths Opportunities Despite these short-term and long-term This strategy aims to maximise our economic challenges, Scotland has enviable strengths. strengths, tackle our weaknesses and build a We perform well internationally on a number of wellbeing economy (see Box A). It does so by important indicators of economic performance. identifying the greatest economic opportunities We have more top universities per head of for Scotland over the next decade, the most population than any country in the world obvious of which is the just transition to a net and a quarter of Europe’s offshore renewable zero economy. energy potential. Scotland is in the top quartile of OECD countries for higher education R&D, A just transition must focus on protecting jobs the percentage of the population with tertiary and diversifying our economy whilst contributing education and young people’s participation significantly to sustainable growth and meeting in the labour market. our net zero commitments and can also make a meaningful contribution to reducing child Scotland has a proud history as a trading nation poverty. In other words, it should create new and is an increasingly connected, global economy. jobs, businesses and open up markets in new We start from a strong position in the innovative sectors as well as supporting the transition of technologies that underpin the industries of the existing sectors, in a way that has fairness and future and produce high-quality products and equality built in. Restoring nature and investing services, such as our food and drink, our creative in our natural capital and land-based economy industries and our major events and tourism offer, will support Scotland’s role in tackling the climate that are in demand across the world. and nature crises, while also creating new opportunities for nature-based businesses and Being bold and transformational isn’t just about jobs, spreading the benefits of a just transition new industries and markets, it’s about backing our to our rural and island economies. greatest assets and existing industries, supporting them to improve, to be more productive and Scotland’s statutory target of achieving net zero creative, to transition to net zero and to be more by 2045 provides the ambition to drive action resilient to economic shocks in ways that ensure and innovation. Sectors like financial and legal that we, as a country, maximise the opportunities services, food and drink, manufacturing, energy, for more, better paid and fairer employment that creative industries, major events and tourism lifts living standards. have the international reputation, expertise and opportunity to reap the benefits of a just transition, through a combination of early action and investment. For industries like oil and gas, which will continue to be part of the energy mix while we transition to net zero, diversification using the expertise and skills built up over decades presents an opportunity of enormous significance. We are already seeing the benefits in the development of Scotland’s offshore wind sector. While this transition will need to be managed carefully, by acting early, and by being leaders not followers, we can maximise the benefit of the transition for Scotland and develop industries and skills that can be exported around the world. It is by embracing these new opportunities that we will deliver economic prosperity. Scotland’s National Strategy for Economic Transformation 12 Our ability to maximise our economic prosperity The rest of this document sets out the key is constrained by Scotland’s current constitutional interconnected policy programmes that will position in which macro-economic, employment, overcome long-term and short-term economic energy and the majority of revenue raising challenges, build on our economic strengths and powers are reserved to the UK Government. For secure international advantages in new economic example at a very practical level, the expansion opportunities, and secure economic growth and of our energy sector is constrained by the energy prosperity through a ruthless focus on delivery. regulator’s decisions on charges for access to A summary of the strategy is available -here. -- the power grid that disadvantage Scotland’s energy producing areas. This strategy therefore focuses on actions that can be taken within current constitutional arrangements. It is the Scottish Government’s view that the full powers of independence would enable an even more ambitious and joined-up approach to transforming Scotland’s economy, delivering greater benefits to our population. Box A: A Wellbeing Economy: Thriving Across Economic, Social And Environmental Dimensions. A wealthier economy and a fairer economy go hand in hand: the most productive economies in the world also score highly on wellbeing indicators. A wellbeing economy, based on the principles of prosperity, equality, sustainability, and resilience, is at the heart of our vision for the economy in 2032. It means taking a broader view of what a successful economy, society and country is and putting people and the planet at the heart. It will improve economic resilience and in turn reduce our vulnerability to future economic and environmental shocks, improving wellbeing for current and future generations. This builds on our previous inclusive growth approach, recognising that the narrow pursuit of growth at all costs, without resolving the structural inequalities in our communities or respecting environmental limits, is reductive. Scotland is already leading this agenda on the international stage as a member of the Wellbeing Economy Governments network (WEGo) with New Zealand, Iceland, Finland and Wales, with Canada becoming a member in 2022. Scotland’s National Performance Framework, first introduced in 2007, provides a clear long-term purpose and set of outcomes for Scotland’s future wellbeing, and is our vehicle for delivery of the United Nations Sustainable Development Goals. What we measure matters. Traditional economic metrics like GDP will remain an important measure but cannot be viewed in isolation. This strategy commits to publishing a new Wellbeing Economy Monitor (see section 6.4). This will include measures such as healthy life expectancy, fair work indicators, mental wellbeing, child poverty, greenhouse gas emissions and biodiversity. Community Wealth Building is one example of our practical approach to local economic development that supports a wellbeing economy. We will also publish a Wellbeing Economy Framework, a toolkit to support local councils and regions across Scotland. The principles of a wellbeing economy can’t be achieved through simply redistributing wealth, they need to be hard-wired into everything we do in this strategy. Scotland’s National Strategy for Economic Transformation 13 1.7 Bold Programmes of Action There is a big prize for Scotland if we get The five policy programmes are all interconnected, economic transformation right. mutually reinforcing (see Figure 3) and should not be seen in isolation. A new delivery programme The ambition of this strategy is not just to grow forms the sixth programme of action. Modelling our economy but, in doing so, to transform our contained in the accompanying evidence paper country’s economic model so that we build an estimates that this strategy could increase the economy that celebrates success in terms of size of the Scottish economy by at least 4.9% economic growth, environmental sustainability, (or £8 billion) more than it otherwise could have quality of life and equality of opportunity been in 2032.5 and reward. Our economic model seeks to position Scotland Our five bold new policy programmes of action as a more entrepreneurial nation, driving the will shift the economic dial and deliver our innovation needed to seize new economic vision. They have been carefully chosen, based opportunities. That, in turn, should increase the on the evidence and informed by the analysis in productivity of organisations, both public and the accompanying evidence paper.4 They tackle private, and boost overall regional and national the long-term structural challenges, build on our productivity. When more productive organisations economic strengths, and position Scotland to work with a more productive public sector to maximise the greatest economic opportunities of invest in upskilling the workforce, to break the next ten years in a way that will transform the down structural barriers to participation and very fundamentals of how our economy works. to fairly share the benefits of success, we can These five policy programmes will: increase wages, reduce poverty and inequalities. That then enables more people to work in more • establish Scotland as a world-class entrepreneurial ways, repeating the cycle. entrepreneurial nation founded on a culture that encourages, promotes and celebrates entrepreneurial activity in every sector of our economy; • strengthen Scotland’s position in new markets and industries, generating new, well-paid jobs from a just transition to net zero; • make Scotland’s businesses, industries, regions, communities and public services more productive and innovative; • ensure that people have the skills they need at every stage of life to have rewarding careers and meet the demands of an ever-changing economy and society, and that employers invest in the skilled employees they need to grow their businesses; and • reorient our economy towards wellbeing and fair work, to deliver higher rates of employment and wage growth, to significantly reduce structural poverty, particularly child poverty, and improve health, cultural and social outcomes for disadvantaged families and communities. 4 The detailed analysis of the Scottish economy underpinning this strategy can be found - - here. - 5 The modelling incorporates the key components of this strategy, such as exports, inward investment and capital investment, but the modelling framework does not allow all of the transformational actions of the strategy to be captured. Scotland’s National Strategy for Economic Transformation 14 Figure 3: Policy Programmes of Action Form a Cycle with Delivery at the Centre 1 Entrepreneurial People and Culture 5 A Fairer and More Equal 6 2 New Market Society Opportunities A Culture of Delivery 4 Skilled 3 Productive Businesses Workforce and Regions Entrepreneurs and an entrepreneurial mindset A skilled population is fundamental to business are vital at a time of change. It is people who productivity and economic prosperity. We will make the difference. We will create a culture in refocus our activity on the transition to net zero, which entrepreneurship is encouraged, supported the digital revolution and lifelong training, making and celebrated, and where Scotland is recognised sure that employers have the skills they need. as one of the best countries in the world to start and grow a business. Significantly reducing poverty boosts our economy but achieving it requires better wages Rapid global decarbonisation will represent and fair work. We will ensure that work provides a profound change, far outwith the control a sustainable standard of living and a genuine of any government or sector. The transition route out of poverty. to net zero is not just an environmental imperative but an economic opportunity – This strategy is intentionally focused on a small one where Scotland will become world-leading number of priorities; it does not seek to do and secure first-mover advantage. everything. It focuses on the programmes with the greatest potential benefit and on how to We will deliver a step change in our productivity achieve them. In combination, these bold new performance and address regional inequalities in programmes of action will transform the Scottish economic activity as well as boosting traditional economy over the next decade and and digital infrastructure across every sector, and drive economic opportunities. every region, of the economy. Scotland’s National Strategy for Economic Transformation 15 Entrepreneurial People and Culture 2 Entrepreneurs and an entrepreneurial mindset are vital at a time of change. It is people who make the difference. We will create a culture in which entrepreneurship is encouraged, supported and celebrated, and where Scotland is recognised as one of the best countries in the world to start and grow business. Scotland’s National Strategy for Economic Transformation 16

2 — Entrepreneurial People and Culture

2. Entrepreneurial People and Culture 2.1 Our Aim Scotland has had a number of high-profile scale-ups such as Skyscanner, FreeAgent, To establish Scotland as a world-class Rockstar North and, most recently, Current entrepreneurial nation founded on a culture Health. Nevertheless, Scotland currently lags most that encourages, promotes and celebrates OECD countries in indicators of entrepreneurial entrepreneurial activity in every sector dynamism, with a total rate of early-stage of our economy. Entrepreneurial Activity (TEA) of 7.3% in 2019, compared with 10.5% in England, and 12.4% in 2.2 The Opportunity Ireland. Scotland would need another 60,000 businesses to match the equivalent rate for Entrepreneurs and an entrepreneurial mindset England. Scotland like other countries also suffers are vital at a time of change. It is people who from a gender gap with regards to business make the difference. It takes ingenuity, creativity start-up rates with the TEA for women, at and determination to spot and take advantage 5.3%, consistently below that of men, which was of the opportunities that uncertainty creates. 9.3% in 2020. The TEA for ethnic minorities, at 12.3%, is significantly higher than that of the High growth start-ups and scale-ups can create general population, showing the value of diversity skilled jobs, pay higher wages, drive increased to the Scottish economy. productivity and radiate innovation across the wider economy. Entrepreneurial thinking Our approach is therefore threefold. First, we will in the public and third sectors can improve seek to dramatically increase the total number services, increase efficiency and result in the of new businesses created in Scotland – of all commissioning of new products and services that sizes and across all sectors. Second, we will can then be exported across the world or help seek to achieve a step change in the percentage to address societal challenges. This requires us of Scottish start-ups and existing mid-sized to create a culture in which entrepreneurship is businesses that grow to scale. Third, we will seek encouraged, supported and celebrated, and where to build entrepreneurial mindsets right across the Scotland is recognised as one of the best countries economy – in start-ups, scale-ups, SMEs, large in the world to start and grow a business. corporates and government. Perhaps more than any other domain of the economy, it is in the creation of new companies, and the scaling up of successful companies, where data shows the greatest gap between current performance and Scotland’s potential. Scotland’s National Strategy for Economic Transformation 17 2.3 The Foundations of Success Scotland already has many of the essential These programmes are positive foundations. ingredients of a successful entrepreneurial nation We will now go further by working to embed an – world-class colleges and universities producing entrepreneurial culture and by engaging more exceptional people and cutting edge research, an people in entrepreneurship right across society, active investment market and respected initiatives particularly those groups where there is real and organisations such as CivTech, Converge potential, including women, ethnic minority Challenge, Scottish Edge, Young Enterprise communities, and young people. We will foster Scotland and Scotland CAN DO. We also have a entrepreneurship from an early age, recognising business start-up rate amongst 18-24 years olds that today’s young people are our entrepreneurs double that of the population as a whole. of the future. We have also already begun to take action to We will seek to build entrepreneurial mindsets drive increased entrepreneurship by recognising across all enterprises and organisations, including the ethical and economic imperative of tapping in the public sector. In doing so we must overcome into a more diverse talent pool to drive the current social and economic barriers to starting a creation and growth of new businesses through, business and make entrepreneurship an attractive for example, the commitment of £50 million over and accessible road to social mobility and the lifetime of this Parliament to support more economic fairness. women into entrepreneurship. It is important to be clear that our focus on Scotland has taken the first steps towards boosting entrepreneurial activity is not about the creation of a network of tech-scalers, as a false stereotype of creating a small number recommended in the Scottish Technologies of successful individuals; it is much broader. Ecosystem Report.6 These tech-scalers will form Entrepreneurship across the wider business a national network of institutions dedicated to base can drive social mobility, create fulfilling the intensive schooling of tech entrepreneurs in jobs and deliver the economic prosperity the best available leadership, commercial and necessary to sustain thriving local, and rural scaling techniques and will, for the first time, communities and positively disrupt traditional provide our best tech start-ups with a truly sectors that might ordinarily be considered as world-class developmental environment less productive. In particular alternative business (see Box B for definitions). models such as cooperatives, social enterprises and community-owned businesses can deliver strong outcomes on fair work and benefits to local communities. 6 Scottish Technology Ecosystem Review Scotland’s National Strategy for Economic Transformation 18 Box B: Definitions of Scalers, Incubators and Accelerators Term Definition Tech-scaler World-class incubation and developmental environments for high-growth internet economy start-ups. Tech-scalers will provide a mix of commercial education, physical co-location, peer learning, networking and the capacity for full virtual access to high-growth businesses all over Scotland. Start-up scaler An extension of the tech-scaler concept. Over time, the focus of the tech-scaler network will be shifted from software-based start-ups to all high-growth start-ups, irrespective of sector. Pre-scaler Highly supportive entry pathways into starting and scaling new businesses. Pre-scalers will provide new environments in local communities where prospective entrepreneurs and very early stage businesses can receive first-rate support and advice to develop products, access funding and adopt sound commercial strategies. They will be closely linked to the start-up scalers and will have access to the support services provided by them. Incubator Incubators provide start-ups and early stage businesses with resources young companies find difficult to access. They are generally medium to large in size, with long-term time horizons, offering co-location working facilities, and enabling market square activities and networking opportunities. Generally, incubators do not provide business education. Accelerator Accelerators support start-ups and early stage businesses through short-term mentoring and training. They are typically small in size, and offer co-location working spaces, market square activities and businesses education. The tenure for start-ups admitted to accelerators typically ranges from a few weeks to a few months. Scotland’s National Strategy for Economic Transformation 19 2.4 Our Programme of Action Project 1: Embed First Rate Entrepreneurial Learning Across the Education and Skills Systems We will Who Promote the best available project-based entrepreneurial learning across Government, the school and post-16 education curricula. Build a new partnership between Public Sector, business and our education system, offering every school, college and university Business and a network of relationships with high-quality start-ups and entrepreneurs Partners providing inspirational role models and mentors who can show young people what can be achieved and develop a culture that celebrates entrepreneurship. This will focus initially on schools in areas of multiple deprivation. Embed entrepreneurship in the Young Person’s Guarantee to cultivate the Government, business leaders of tomorrow by exposing them to first-rate start-up techniques Public Sector, and experiences and presenting business start-up as an aspirational, realistic and Business and deeply fulfilling career choice. Partners Adapt and review Scotland’s apprenticeship system so that it is available Government and for start-ups and early scale-ups to use, focusing in particular on providing Public Sector opportunities for women and other under-represented groups and on specific skills, such as digital. Develop an entrepreneurial campus infrastructure, working with the college and Government and university sector to establish campuses as hotbeds of start-up creation. This will Public Sector include, for example, incubation spaces, seed funding, central banks of technical expertise to help budding entrepreneurs develop minimum viable products. and summer schools targeted at generating new business ideas. Develop innovative, industry-led pathways to redirect the best entrepreneurial Business and talent into building new companies. This could, for example, include working with Partners industry to create corporate venture studios – programmes focused on building new start-ups from the innovation needs of large corporate industries such as financial services, aerospace and telecoms. Scotland’s National Strategy for Economic Transformation 20 Project 2: Create a World Class Entrepreneurial Infrastructure of Institutions and Programmes Providing a High Intensity Pathway for High Growth Companies We will Who Expand the scope of the current tech-scaler programme, shifting its focus over Government and time from software-based technology businesses to become “start-up scalers” Public Sector – world-class incubation and developmental environments for all high growth start-ups irrespective of their sectoral domain or ownership model. Create a national system of “pre-scaler hubs” that will stimulate the very earliest Government and stages of high growth commercial and social entrepreneurship and provide the Public Sector expanding scaler network with a steady supply of promising new businesses. This will widen access to entrepreneurship by providing a clear entry point for very early stage founders, including those leaving formal education, supporting them to conceive new ideas, start companies, design and develop products and support early tests of market traction. Develop and align private sector incubators within our national entrepreneurial Business and infrastructure and leverage external networks to identify potential talent and Partners build Scotland’s international reputation as a start-up nation. Attract the world’s best private sector accelerators to Scotland and support high Government and potential Scottish start-ups to participate in relevant accelerator programmes Public Sector elsewhere in the world and bring their learning, contacts and experiences back into the Scottish economy. Set targets and focus on providing access to support programmes from amongst Business and the most under-represented groups, particularly women, those on low incomes Partners and those without qualifications at further or higher education, including the six priority groups at greatest risk of child poverty. This would include the offer of financial support for those who are unable to afford time out from a full-time job or caring responsibilities to develop ideas. An early priority will be to deliver our commitment to review how we support more women into entrepreneurship. Appoint a Chief Entrepreneurship Officer in the Scottish Government to work Government and in partnership with industry and investors to drive forward our ambitions on Public Sector entrepreneurship, including support for businesses with alternative ownership models, and working across the wider skills system. Project 3: Attract and Retain the Very Best Entrepreneurial Talent from at Home and Abroad We will Who Attract international entrepreneurs to Scotland by rolling out an international Government, marketing and engagement platform for Scotland’s start up scene with a Public Sector, coherent branding strategy and through engaging in initiatives such as Wayra Business and and expanding the CivTech Alliance Programme. Partners Attract entrepreneurial students from around the world by supporting Scotland’s Government, universities to provide post education pathways that help retain their expertise Public Sector, in our country. Business and Partners Scotland’s National Strategy for Economic Transformation 21 We will Who Enhance Scotland’s profile at key international set pieces such as international Government, conferences and make use of Scotland’s strong international networks and Public Sector, diaspora that can help can attract talent and investment. Business and Partners Build strategic partnerships with key entrepreneurial ecosystems in other Business and countries to create company exchange programmes, new commercial Partners partnerships and international trade opportunities for Scottish businesses. Project 4: Build an Entrepreneurial Mindset in Every Sector of our Economy We will Who Expand the application of entrepreneurial thinking and approaches to public Government, service reform and ensure staff at every level working in the public and third Public Sector, sectors are exposed to entrepreneurial training as part of ongoing professional Business and development. Implement metrics to reward entrepreneurial approaches and Partners activity within public sector bodies. Make the use of the CivTech programme a mandatory part of the way in which Government and the big change programmes of government are delivered and launch a new Public Sector National Challenge Competition for Economic Transformation (see Box C) that brings innovators and communities together to develop better solutions to the challenges that matter most to people in Scotland. Build on the success of CivTech, leveraging public procurement to stimulate Government and more business start-ups and support Scottish scale-ups delivering products and Public Sector services that can be proven in Scotland and exported to other governments wrestling with similar challenges. Proactively promote business start-up opportunities to those at risk of Government and redundancy through the Partnership Action for Continuing Employment (PACE) Public Sector programme. Box C: National Challenge Competition on Economic Transformation We want to encourage pioneers and entrepreneurs to help reshape the Scottish economy. To do this, our new National Challenge Competition for Economic Transformation will further the strategy’s principles and complement the mission-led work of the Scottish National Investment Bank. This competition will provide funding of up to £50 million to the project or projects with greatest potential to transform Scotland’s economy. It will set challenges and seek to attract the widest possible range of ideas and expertise. The challenges will reflect the fairer and greener economy issues that matter most to Scottish communities and provide the greatest potential in delivering our vision of a wellbeing economy. Successful projects will be cross-cutting, impactful, and boost the delivery of this strategy’s programmes of action. We will work with CivTech and its international partners, social innovators and the new Chief Entrepreneurship Officer to deliver this National Challenge Competition. Everybody in Scotland will be welcome to apply and offer solutions and we will take steps to ensure that we address potential barriers to participation. Scotland’s National Strategy for Economic Transformation 22 New Market Opportunities 3 Rapid global decarbonisation will represent a profound change, far outwith the control of any government or sector. The transition to net zero is not just an environmental imperative but an economic opportunity - one where Scotland will become world leading and secure first-mover advantage. Scotland’s National Strategy for Economic Transformation 23

3 — New Market Opportunities

3. New Market Opportunities 3.1 Our Aim • space, leading Europe in end-to-end capability for small satellite design, manufacture To strengthen Scotland’s position in new markets and launch, including earth observation and industries, generating new, well-paid jobs data solutions that are critical in tackling from a just transition to net zero. climate change; • the circular economy, where resources are 3.2 The Opportunity kept in high-value use, creating new market, innovation and job opportunities that will As the global economy accelerates towards a net be key to achieving our targets for net zero zero future and artificial intelligence, genomics and nature; and other scientific advances change the way we live, new markets will be created and new • the blue economy, utilising the potential, industries will emerge. Scotland has the potential and sustainable management of our ocean, to build world-leading industries in areas where sea and coastal resources; our human and natural capital and technology and research capabilities provide the basis of • sustainable farming & forestry, nature global competitive advantage. Realising that restoration, eco-tourism, and nature-based potential requires a coherent and focused set of solutions to climate change mitigation strategic interventions including a new Net Zero and adaptation; Industrial Strategy that successfully blends inward investment with the building of strong indigenous • our financial services and fintech sectors including Scotland’s leading positions in local supply chains to develop strategic clusters. responsible and ethical finance; Scotland already occupies a position of global leadership in the design, development and • industrial biotechnology, where Scotland has developed innovative technology that operationalisation of a range of current and can transform traditional industries and future key industries including: offer greener alternatives to fossil fuels; • renewable energy, with Scotland enjoying a • enabling and emerging technologies such as quarter of Europe’s wind potential and home to photonics and quantum technologies which globally leading businesses in tidal energy as can contribute to improved productivity part of a wider energy industry with strengths of traditional industries and underpin the in the company base, financial capital, industries of the future and where Scotland infrastructure, knowledge and knowhow; enjoys a world-leading position; • the hydrogen economy, with vast • digital technology including AI and cyber generation potential of renewable hydrogen security, building on Edinburgh as the Data for export markets; Capital of Europe and Dundee’s global • the decarbonisation of transport, leadership in gaming; particularly the development of a high-value manufacturing base for low-volume, high-value zero-emission vehicles; Scotland’s National Strategy for Economic Transformation 24 • one of the biggest life sciences clusters in These will range from the construction and Europe, which played a key role in tackling development of on- and off-shore energy Covid, with world-leading expertise in drug generating technologies, to the development discovery and precision medicine, medical of a hydrogen economy, the decarbonisation technologies and pharmaceutical services, of heat in buildings and construction, innovation advanced therapies, digital health and care, in the circular economy and opportunities animal health and agritech; resulting from improved land-use and forestry including increasing the proportion of timber • food and drink innovation including Scotland’s used in construction. long-standing strengths in premium food and drink products, a key export market, and Our new Net Zero Industrial Strategy, our Supply the transition to technologies of the future, Chain Development Programme and our Making including our world-leading position in vertical Scotland’s Future programme will maximise farming; and opportunities for the use of Scottish manufactured components and ensure that high-value • creative industries, major events and tourism, technology and innovation that is developed which draw on Scotland’s long-standing cultural in Scotland can be manufactured in Scotland. assets and reputation for expertise in delivery, innovation, and growing strengths in digital Our approach to new market development will be skills and technologies. built around the creation of world-leading clusters (see Box D). But we will be agile and alive to further new industries that could emerge over In tandem with our just transition to net zero, we the next decade. will also strive to build a nature-positive economy (see Box E), designed to help reverse biodiversity Our existing Inward Investment Plan and Scottish loss by 2030 and support international efforts Enterprise’s National Programmes are already to tackle the global nature crisis. This will create aligned to support these sectors. Our forthcoming significant new opportunities for nature-based Innovation Strategy will describe how we will businesses and jobs across Scotland, particularly build competitive advantage in these and other in rural and island areas. It will also help to areas where our research and existing business rebuild the natural capital that underpins our base provide us with a competitive advantage. prosperity, health and wellbeing. The just transition to net zero offers Scotland a particular opportunity building on our historic expertise in energy, our engineering skills and reputation. The next ten years are critical if we are to generate significant economic opportunities from that transition. The development of our regional Just Transition plans is already underway, and will identify green industrial opportunities and set priorities, whilst also making a meaningful contribution to tackling child poverty. Scotland’s National Strategy for Economic Transformation 25 3.3 Foundations of Success The Lloyds Banking Group and Oxford Economics In other sectors our network of innovation Green Growth Index7 ranks Scotland as the centres, focused on areas such as industrial number one region in the UK for green growth biotech, data, digital health and care and precision potential and opportunity. This reflects Scotland’s medicine, and the UK’s only Fraunhofer Institute, existing green industrial base which supports a are helping drive the pace of innovation. growing number of green jobs and innovation activity, the take-up of relevant skills and training In 2019, Scotland ranked 7th among OECD and the development and use of renewable countries for Higher Education R&D (HERD) but energy infrastructure. only 24th (3rd quartile) for Business Enterprise R&D (BERD), although recent interventions on We now have the opportunity to go further. boosting R&D grants mean we are running ahead As just one example the ScotWind programme of our target to double Scotland’s BERD by 2025. of offshore wind farm developments is truly Scotland punches above its weight in science historic. It puts Scotland at the forefront of the and research, accounting for 12% of UK research global development of offshore wind, represents output. Scotland has been the highest-performing a massive step forward in our transition to net part of the UK outside of London in attracting zero, and will help deliver supply chain benefits foreign direct investment for the past seven years. and high-quality jobs that will make the climate transition a fair one. ScotWind is also the first We are putting in place the necessary institutions programme to see commercial development and finance to catalyse and take advantage of of floating windfarm technology, putting the new markets and opportunities set out here. Scotland and Scottish industry in a position This will enable the Scottish financial services of global leadership, built upon our capability industry to reap the benefits of the new energy in subsea engineering. opportunities. The establishment of the Scottish National Investment Bank, capitalised with £200 The scale of energy generation potential resulting million each year, is supporting investment in from Scotland also boosts the potential growth sustainable technology, services and industry and of a hydrogen economy. Our Hydrogen Action in innovation and industries of the future, adding Plan sets out the actions, including the need for to existing investment streams. the creation of transformative regional hydrogen hubs, to become a leading nation by 2045 in the We are also equipped to build the international production of reliable, competitive, sustainable trade and investment relationships we want hydrogen including for export. Scotland to have, as set out in Our Vision for Trade,8 which also ensures that our approach In addition, as innovators in the idea of a just to trade contribute to wider economic, social transition, we are already considering the and environmental outcomes. Through our impacts of the move to net zero and how we can Export Plan9 we are taking a targeted sector manage them in a way that will benefit Scotland and country approach to raising the GDP share economically, socially and environmentally, of Scotland’s international exports to 25%. Our securing a prosperous and sustainable future Inward Investment Plan10 focuses on attracting for this generation and generations to come. investment in sectors and opportunities where Scotland has strong advantage and where there Much of the supporting infrastructure necessary is potential for positive spill-over impacts to the to help companies realise the opportunities of wider economy. Our Global Capital Investment new markets has also been established. For Plan11 sets a clear path for attracting private example, the Net Zero Technology Centre is capital to support business growth, infrastructure working to develop and deploy technology and, crucially, given the scale of the challenge and for an affordable net zero energy industry. opportunity, Scotland’s transition to net zero. 7 The UK Green Growth Index – Lloyds Banking Group plc 8 Scotland’s Vision for Trade 9 Scotland: A Trading Nation 10 Shaping Scotland’s Economy: inward investment plan 11 Investing with Purpose: global capital investment plan Scotland’s National Strategy for Economic Transformation 26 3.4 Our Programme of Action Project 5: Build on Scotland’s Strengths to Win an Ever Greater Share of Domestic and International Market Opportunities We will Who Deliver on our export plan which takes a targeted sector and country approach to Government, raising Scotland international exports. Includes actions to scale up trade promotion Public Sector, and Scotland’s overseas reach & profile and actions in Scotland to ramp up our Business and support for firms’ export capacity. Partners Promote Scotland as an innovative test bed for new technologies and markets and Government coordinate action across the public sector to leverage our spending power and the and Public CivTech business incubation model to stimulate innovation in our health and other Sector public services. The creation of an International Innovations capability within the Scottish Government will lead on the global economic and societal opportunities created through our expertise in public service innovation. Provide public sector R&D grant support & finance to businesses to further increase Government Business Enterprise R&D spend in sectors with the greatest economic opportunity, and Public in particular our key industries (see section 3.2). Sector Provide capital investment to support renewable hydrogen production to make Government Scotland a leading nation in the production of reliable, competitive and sustainable and Public hydrogen. The first tranche of investment focus on driving technological progress Sector and advance innovation and cost reduction within the emerging sector. Deliver on the ambitions of ScotWind and future renewable energy developments Government, including on developers’ commitments to invest at least £1bn in the Scottish supply Public Sector, chain for each GW of capacity. The Scottish Offshore Wind Energy Council (SOWEC) Business and has been identified by both industry and government as the key vehicle for taking Partners forward the strategic supply chain opportunities from ScotWind. SOWEC is leading on the development of a Collaborative Framework Agreement to encourage the sector to come together and work collectively to support the delivery of the volume of offshore wind projects from the ScotWind leasing round. Project 6: Support the Development of Scottish Supply Chains, Laying the Foundations of a Net Zero Industrial Strategy We will Who Expand our Supply Chain Development Programme to improve the capacity, Government, capability and development of Scottish supply chains. This will include maximising the Public Sector, manufacture of high-value goods and equipment in Scotland and identifying Scottish Business and companies with the skills, capacity and capability to bid for, win and deliver contracts Partners in our key industries (see section 3.2) and provide access to enterprise and innovation support that specialises in these areas. We will work with recipients of major government-led funding to leave a legacy of stronger supply chains in Scotland. Adopt a cluster building approach to strengthen our position in new markets (see Box D) Government, which can attract inward investment and talent, stimulate new business growth and boost Public Sector, research and innovation. This will be a structured approach, including an accreditation Business and process and international benchmarking, focused on our identified key sectors. Partners Review our strategic approach to public ownership so that public companies are Government managed, developed and initiated for the public good and work collaboratively to provide and Public support and advice to identify opportunities to establish successful public companies. Sector Scotland’s National Strategy for Economic Transformation 27 Box D: Cluster Building Clusters, whether geographically focused within Scotland, or, as appropriate for certain sectors, spread across Scotland in various locations, allow us to build coherent attractors and focal points where success breeds success and which create maximum economic impact and opportunities for growth. Clusters attract inward investment, provide opportunities for local businesses and new business creation and attract talent which benefits from multiple employment options and limits risk. When co-located with technology development, such as around a university or innovation centre, clusters also boost research and innovation. Scotland’s fintech sector was identified a number of years ago as a potential new market cluster bringing together our strengths across financial and professional services, digital and data capability as well as the vibrant start-up community and skills base. Fintech Scotland, as the lead industry body, provides a clear focal point for the development of strategy and actions to support the cluster. The Scottish cluster was identified in the recent UK-wide Kalifa report as a model of best practice. Collaboration between clusters is being driven by the Scottish Cluster Ecosystem Alliance. This was initiated by ScotlandIS, the membership organisation for Scotland’s digital technology industry which achieved Silver Accredited Cluster Management status in 2020 – the first organisation to do so. Key success factors which we would emulate as we build clusters around new market opportunities include: • clarity of focus with a clearly articulated strategy and rationale as to the scale of the opportunity and Scotland’s global strengths and potential. • clear articulation of geographical focus, and rationale for that focus – either within specific location or locations, or as a Scotland-wide cluster. • clarity on the links between key technologies and the global competitive advantage of clusters, ensuring that Scotland can retain competitiveness in the supply chains for each identified cluster. • the creation of an industry-led cluster-builder organisation, which facilitates close working between public and private sectors and academia. • clarity on international positioning, with a clear understanding as to Scotland’s global strengths, who our competitors are, and who potential international partners are. • alignment of policy, and investment support, across government, agencies, universities and others, including skills pipeline. • clarity on our inward and capital investment offers, and how this is positioned to attract international private investment to the cluster and to attract talent. Scotland’s Greenports are a key element of our cluster building approach, creating globally competitive manufacturing centres of excellence in net zero industries. Scotland’s National Strategy for Economic Transformation 28 Project 7: Attract and Deploy Significant Domestic and International Private Investment in Scotland We will Who Establish an investor panel, chaired by the First Minister, to attract investment Government, to a pipeline of projects in Scotland that support our transition to net zero Public Sector, and to bring investor intelligence to policy and regulatory development early Business and in the process. Partners Improve access to private capital for business investment and growth. Working Government, with financial institutions and the investment community and through the Public Sector, Scottish National Investment Bank and our enterprise agencies to deliver on Business and our Global Capital Investment Plan, focusing on sectors where Scotland can Partners demonstrate a real international comparative advantage. Expand and enhance our Green Investment Portfolio to clearly set out the Government, sectors and projects across Scotland seeking private finance to achieve net zero, Public Sector, sending a powerful market signal that Scotland is ready to meet increasing green Business and investor appetite after COP26. Our Green Market Solutions Programme will Partners identify where additional government action is needed to support investment. Establish a values-led, high-integrity market for responsible private investment Government and in natural capital (see Box E) to build on Scotland’s international renown for its Public Sector nature and its environmental policy framework on land and sea, and supported by a national project pipeline for nature-based solutions. Scotland’s National Strategy for Economic Transformation 29 Box E: A Nature-Positive Economy and Natural Capital At COP26, the First Minister endorsed the Leaders’ Pledge for Nature,12 an international commitment to reverse biodiversity loss and create a “nature-positive” world by 2030. The pledge highlights the need to “transform and reform our economic and financial sectors” to safeguard the wellbeing of people and planet. Recent global studies have shown the health of the world’s ecosystems is declining faster than at any point in human history, with a million species at risk of extinction. These trends are reflected in Scotland, where there has been a sustained net loss of biodiversity in recent decades. This rapid decline in nature has profound implications for humanity. The World Economic Forum’s 2022 Global Risks Report13 identified biodiversity loss as the third most severe risk the world faces over the next 10 years. Playing Scotland’s part in tackling this crisis will mean transforming our economy, including a shift to more sustainable patterns of production and consumption. It will mean recognising the embeddedness of our economy in the natural world, and the need to live within the sustainable limits of our single, shared planet. Doing so will also create new opportunities for Scotland to prosper. Globally, the World Economic Forum estimates that transitioning to a nature-positive economy will create up to $10 trillion in annual business value and create 395 million jobs by 2030.14 In Scotland, the nature-based sector is already expanding rapidly, growing at more than five times the rate of all jobs between 2015 and 2019 and accounting for a third of all job growth in that period.15 There is strong potential for future growth, in areas such as sustainable land and marine management, urban green infrastructure, green finance and research. Rebuilding Scotland’s natural capital is key to the long-term productivity of the many sectors of our economy which rely on the resources and services nature provides. The transition to a nature-positive economy – designed to help reverse biodiversity loss by 2030 – will support our international responsibilities, including the Leaders’ Pledge, while also offering enormous opportunities for Scotland’s prosperity and wellbeing. Aligning with the further development of Scotland’s Environment Strategy,16 actions set out in this economic strategy will support this transition, for example by supporting responsible private investment in nature-based solutions (see Project 7). Natural capital is the renewable and non-renewable stocks of natural assets, including geology, soil, air, water and plants and animals that combine to yield a flow of benefits to people. Adopting a natural capital approach enables us to understand the role of our natural environment, alongside its intrinsic value, as an asset that underpins our economy and society. It also helps us recognise the need to invest in the maintenance and enhancement of this asset, so that we can continue to enjoy, within safe environmental limits, the many economic, environmental and social benefits it provides. Scotland has shown an international lead in natural capital thinking and the increasing investment in Scotland’s natural capital, including public and responsible private investment, is both an important economic opportunity and essential to meet the pace and scale of our climate change targets, biodiversity goals and wider land use policy objectives. The Scottish Government is committed to ensuring that local communities are empowered and benefit from investment in natural capital. 12 Leaders’ Pledge for Nature 13 World Economic Forum: Global Risks Report 2022 14 World Economic Forum: The Future of Nature and Business 15 Nature-based jobs and skills for net zero – an initial assessment 16 The Environment Strategy for Scotland: vision and outcomes Scotland’s National Strategy for Economic Transformation 30 Productive Businesses and Regions 4 We must deliver a step-change in our productivity performance and address regional inequalities in economic activity as well as boosting traditional and digital infrastructure. Scotland’s National Strategy for Economic Transformation 31

4 — Productive Businesses and Regions

4. Productive Businesses and Regions 4.1 Our Aim sectors while recognising that the success of our internationally tradable sectors – manufacturing To make Scotland’s businesses, industries, regions, and services – is key, as they provide the wealth communities and public services more productive on which our domestic services sectors rely. and innovative. Good progress is being made in extending and improving the resilience of Scotland’s broadband 4.2 The Opportunity and mobile infrastructure through programmes Productivity is driven by a multitude of factors, such as Reaching 100% (R100) and Scottish 4G including quality of jobs, skills, entrepreneurship, Infill (S4GI). However, organisations in all sectors levels of investment and innovation, and quality of the economy have been slower to adopt digital of infrastructure and connectivity. Improving technology than comparators and, in particular, to productivity will increase the competitiveness of transform their business and operating models to Scotland’s enterprises, regions and the economy boost productivity as a result of cloud computing as a whole. It raises household incomes and and the intelligent use of data. generates the tax revenues required to invest It is vital that every region in Scotland benefits in our public services and critical national from, and contributes to, a more productive and infrastructure. International evidence shows that innovative economy. Every part of Scotland has economies with strong productivity score highly unique strengths, assets and opportunities and all on the indicators of a wellbeing economy. businesses and communities, rural and urban, can All the policy programmes in this strategy are bring innovation and creativity and support the interconnected, and while the other programmes resilience of the economy. This strategy intends to will also drive productivity improvements, through work with businesses, public bodies and citizens in for example reducing structural inequalities, this every part of Scotland to ensure that local economic programme focuses on the opportunities from plans reflect the greatest economic opportunities digital infrastructure, leadership, pioneering new for communities. Our Community Wealth Building approaches and addressing current geographical approach will use public and private investment disparities to deliver prosperity for all Scotland’s through procurement and other means to create people and places. We can also improve the new employment opportunities, help local productivity of our public services. The public businesses to expand, and place more assets sector in Scotland is one of the largest employers in the hands of local people and communities. but there is scope to increase the positive impact National success cannot leave any region behind. this sector has on the economy. This strategy will not, in detail, outline the critical Scotland has closed the productivity gap with interventions in each local economy, but we the rest of the UK in recent years, but our do intend to ensure strong regional economic productivity performance remains below that of strategies and local economic development plans other small advanced economies. Our productivity covering every area of Scotland to enable this work performance varies across different sectors and to progress (see Box F for further details on the there are long-standing regional inequalities with role of Scotland’s Regional Economic Partnerships). regional differentials in GVA per capita and a It needs to be built from the grassroots, rather range of other indicators of a wellbeing economy than imposed top-down by government. This including quality of jobs or public services, will include a unique socio-economic plan based the health of citizens, the index of multiple on supporting and growing the number of Gaelic deprivation and child poverty. We need to boost speakers. Ensuring that Scotland’s cities are able to productivity across the whole economy. This will compete, and win, against other major European require different approaches for high productivity or world cities, remains an important approach to sectors than it will for low-productivity/low-pay driving productivity improvements. Scotland’s National Strategy for Economic Transformation 32 Box F: The Role of Regional Economic Partnerships in Driving Productivity Scotland’s Regional Economic Partnerships bring together key economic actors to enhance regional interests, focus and align resources, sharing knowledge and expertise. This partnership working results in nuanced economic strategies and related action plans that will accelerate economic prosperity. Distinct approaches to regional economic opportunities include the following: The North East’s partnership, including public sector and Opportunity North East, developed the Regional Economic Strategy which provides a shared vision and ambition for the region to strengthen through diversification. The strategy’s Action Plan has a sustainability theme, building on the diversification of the regional economy and broadening the business base. Opportunities are associated with the circular economy, carbon capture and storage, and energy transition to support the evolution to low carbon. To further diversify the regional economy, the RES also emphasises opportunities related to on Tourism, Life Sciences, and Food and Drink. The partnership has a key role in aligning this strategic work with wider investment such as the Energy Transition Fund, the Just Transition Fund and the North East Economic Recovery Skills Fund. Core projects such as the Energy Transition Zone (ETZ Ltd) exemplify an approach that optimises the opportunities in offshore wind, hydrogen and Carbon Capture, Utilisation, and Storage (CCUS) to create a globally integrated energy hub focused on net zero. The Ayrshire Growth Deal includes the HALO Enterprise and Innovation Centre, which opens early in 2022, and is delivering projects focusing on Community Wealth Building and Working for a Healthy Economy. Further business cases are in development for large scale projects related to Aerospace and Tourism. Both the Scottish Government and the UK Government are investing up to £103m each over 10 years, with the Ayrshire Councils contributing a further £45.5m to the Deal. Building on the Deal, Ayrshire REP are currently developing a Regional Economic Strategy that aims to take a Community Wealth Building approach to economic activity across the region, catalysing the Deal approach and embedding it as a tool for ensuring inclusive growth. The Edinburgh and South of Scotland region has a vision to become the data capital of Europe, whilst ensuring that the social and economic benefits of this capability extend to all. To help the region achieve this vision, the £1.3bn City Deal focuses on key themes including: Research, Development and Innovation, and the Integrated Regional Employability Skills (IRES) Programme which aims to develop career pathways from the classroom to the workplace to meet current and future skills requirements in key sectors across the region. The ESES Regional Prosperity Framework sets a 20 year vision for the future of the regional economy up to 2041. Using the Deal as a catalyst, the RPF articulates long-term aspirational goals, focusing on Environment, Transport and Place, in order to guide the future direction of shared regional economic and related policies. The Forth Valley region aims to formalise a Regional Economic Partnership during 2022, with the areas of focus relating to transport, tourism, business support and low carbon. There are also several ongoing and planned initiatives for the region, including the Falkirk Tax Incremental Finance scheme, Town Centre and Tourism Action Plans and the transformational programmes to assist the Grangemouth petrochemical complex in its transition to net zero. Glasgow’s Regional Economic Strategy identifies three Grand Challenges: Creating an Inclusive Economy; Enhancing Productivity; and Addressing the Climate Emergency. By addressing these challenges the Glasgow City Region aims to have “the most innovative, inclusive and resilient economy in the UK” by 2030. There are a number of transformational opportunities to reshape the economy for all. These cover the Foundational Economy; High Growth Sectors; Accelerating Climate Action; Health; Skills; Technology; and Place and are tied to the twelve regional programmes which make up the first phase of the Regional Economic Strategy Action Plan. Scotland’s National Strategy for Economic Transformation 33 The Highlands and Islands has recently established a Regional Economic Partnership which will support collaboration on strategic issues to grow the region’s economy. The REP will build on work to pursue strategic regional opportunities and create high value jobs in areas like renewable energy, space and the blue economy whilst recognising the significant cultural strengths, including the Gaelic language, and opportunities arising from more traditional sectors. In anticipation of rapid scaling of offshore wind activity in response to ScotWind and INTOG leasing rounds, the University of the Highlands and Islands (UHI), the Energy Skills Partnership, Skills Development Scotland, and Highland and Islands Enterprise (HIE) are actively expanding Global Offshore Wind training and certification, and advanced manufacturing training capability within UHI colleges (including industry-led provision), to meet demand for a skilled offshore wind workforce. HIE, local authorities and the Scottish Government are working with industry to secure affordable and timely grid capacity and address other barriers to deployment and Wave Energy Scotland and EMEC continue to further the region’s lead on marine energy through technology deployment. Partners are engaged in cluster development to stimulate innovation and supply chain development in key areas such as offshore wind, hydrogen, heat decarbonisation and energy systems. Infrastructure to support these sectors is being considered for support through the Islands Growth Deal, including the development of the UK’s first ultra-deep-water port in Shetland. The South of Scotland’s first Regional Economic Strategy has a 10-year timeframe and targets a significant shift in the region’s economic performance, its outward profile, and the way in which wealth is created by and shared amongst people. The strategy has been developed following an extensive period of engagement and will deliver against six themes including: Skilled and Ambitious People; Innovative and Enterprising; Rewarding and Fair Work; Cultural and Creative Excellence; Green and Sustainable Economy; and Thriving and Distinct Communities. An overarching ambition of the Tay Cities Regional Economic Strategy is to increase the number of businesses and create more, better paid jobs across the Tay Cities. Key targets include raising the regional employment rate above the Scottish average, increasing the 5-year business survival rate to above 50% and reducing the percentage of jobs that pay less than the living wage. There are a number of initiatives which are in place or being developed to support the region in its aims, including: the Michelin Scotland Innovation Parc to support net zero and the move to clean growth in the manufacturing sector, and the Forth & Tay Offshore Cluster which focuses on growing the offshore energy supply chain in East Scotland. Further details of the regional perspectives of each Regional Economic Partnership is included in an accompanying evidence paper.17 17 Evidence from Regional Economic Partnerships Scotland’s National Strategy for Economic Transformation 34 4.3 Foundations of Success The National Infrastructure Mission, Infrastructure Scottish local government, our enterprise agencies Investment Plan, the National Transport Strategy and local groups of businesses and citizens are (NTS2), Housing 2040, Scotland’s Digital Strategy currently delivering strong regional and place – and The Strategic Framework for a Cyber-Resilient based initiatives. City region and regional growth Scotland are all driven by a determination deals are being delivered across the country to create and sustain a resilient national through a partnership of national and local infrastructure that can support a high productivity government and other regional players including economy. Scotland’s Innovation Centres, National higher and further education, enterprise agencies, Manufacturing Institute Scotland and CivTech are and the voluntary and private sectors. These have all demonstrating how new ideas and commercial inspired the development of a growing network opportunities can spring from a successful of new Regional Economic Partnerships across the partnership between businesses, academia and country that have an increasingly important role the public sector. The Global Capital Investment in increasing productivity and driving innovation Plan (GCIP), the Inward Investment Plan, our on a regional basis (see Box F). There are also enterprise agencies, city and region growth deals innovative private sector models (see Box G) and Scottish National Investment Bank offer an which this strategy is supportive of. ecosystem of financial and business support for innovative companies and entrepreneurs. Box G: Case Study: Opportunity North East as a model of private sector engagement in delivery of economic development Opportunity North East (ONE) is a private sector catalyst for economic diversification in north east Scotland. ONE leads action, investment and transformational projects to deliver sustainable business growth and jobs for the future in the just transition to a low-carbon net-zero economy. More than 80 business leaders shape priorities across entrepreneurial growth, digital transformation and low-carbon in the digital, food, drink and agriculture, life sciences and tourism sectors in Aberdeen and Aberdeenshire. Members drawn from the region’s business community, its two universities and colleges, and regional and national partners sit on ONE’s main and sector boards Business founders, owners and leaders are engaged in ONE-led business growth, innovation, market development and leadership support. Accelerator programmes stimulate start-ups and spin-outs in digital, food and drink, and life sciences. ONE leads the delivery of the BioHub, SeedPod and ONE Tech Hub projects for life sciences, food and drink, and digital in the region and is developing the Seafood Transformation Project, North East Adventure Tourism and Gourmet Food Festival projects with industry and partners. ONE created the Energy Transition Zone concept and led the business case that secured £54 million of UK Government and Scottish Government funding. ETZ Ltd was established in April 2021 to spearhead the region’s energy transition activity. ONE will contribute £5.7 million of funding to ETZ over the next five years. ETZ will play a pivotal role in establishing the region as a global leader in energy transition and a net exporter of products, services, technologies and skills. The Wood Foundation has provided ONE with a 10-year £62 million funding commitment. Over the past five years, ONE project funding of £27 million has secured co-funding and investment of £75 million from public, private and philanthropic partners. In ensuring all Scotland’s regions are as productive as they can be, we must build an economy that is resilient to future external risks and shocks, taking a proactive approach to monitoring and assessing economic resilience and identifying key actions to mitigate against potential future shocks. As part of improving resilience, businesses have adapted their business models throughout the pandemic, including promoting working from home where possible. There are opportunities for further experimentation in ways of working post-pandemic, including hybrid working, to deliver good jobs and to help businesses attract and retain talent. Scotland’s National Strategy for Economic Transformation 35 4.4 Our Programme of Action Project 8: Improve Connectivity Infrastructure and Digital Adoption Across the Economy We will Who Deliver the Strategic Transport Projects Review 2 (STPR2) to help make Scotland Government, more accessible for residents, visitors and businesses; create better connectivity Public Sector, with sustainable, smart and cleaner transport options; and highlight the vital Business and contribution that transport investment can play in enabling and sustaining Partners Scotland’s economic growth. Provide an efficient and resilient digital infrastructure. This includes continued Government, investment in improved broadband, fibre and mobile coverage for residential Public Sector, and business premises. Enhance the resilience of digital infrastructure through Business and direct international links to the internet and the development of data centres Partners aligned with renewable power sources. Establish a Digital Productivity Fund focused on supporting business to improve Government and firm-level productivity through the adoption and successful integration of new Public Sector and advanced technologies. Develop joint programmes of action to increase digital understanding and Government, adoption in sectors where business models have been transformed rapidly due Public Sector, to new technology. Examples include action to better use data and adopt cloud Business and based services. Partners Project 9: Upskill Business and Public Sector Leaders, Pioneering New Approaches to Driving Productivity Improvements We will Who Design and implement programmes on the practical actions business and leaders Government, can take to boost productivity, at scale. This will include business development Public Sector, capabilities, ensuring our leaders have the skillsets to sell ideas, policies, Business and products or solutions both within Scotland and globally. Partners Design and implement a Team Scotland leadership programme across the public Government, and private sector to attract and develop the ambitious, skilled, empowered Public Sector, leaders that Team Scotland needs, with delivery capabilities and governance Business and skills. A programme that embraces diversity and values-based leadership. Partners Appoint Productivity Ambassadors to promote understanding of driving Government, productivity improvements, build international networks with their peers Public Sector, and deliver learning as part of the Team Scotland leadership programme. For Business and example, early projects to be investigated are around shifting the culture of Partners late payments between businesses to improve SME productivity and around considering the most effective ways to incentivise business improvements in productivity. Establish a new measure of the resilience of the economy, monitoring, assessing Government and and identifying actions to future-proof the productivity of Scotland’s economy Public Sector over the long term, including on issues such as climate adaptation, cyber security, international trade links and critical domestic supply chains. Scotland’s National Strategy for Economic Transformation 36 We will Who Launch the Centre for Workplace Transformation in 2022 to support Government, experimentation in ways of working post-pandemic, including hybrid working, Public Sector, to deliver good jobs and to help businesses attract and retain talent, recognising Business and the importance of the way workplaces operate and making the best use of Partners employees’ skills to enhance business performance and profitability. Expand Scotland’s SCDI-led network of Productivity Clubs for businesses to use Government, peer to peer learning to identify opportunities to improve productivity. Public Sector, Business and Partners Project 10: Realise the Potential of the Different Economic and Community Assets and Strengths of Scotland’s Regions We will Who Reinforce our commitment to regional collaboration through our Regional Policy Government, Review and continue to work with Regional Economic Partnerships to deliver Public Sector, Regional Economic Strategies with strong regional economic policies and tailor Business and interventions to evidenced regional strengths and opportunities. This includes Partners identifying the most transformational interventions in each local economy, including infrastructure investment, attracting inward investment or supporting local networks of businesses. We will also work with regional partners, including trade unions and businesses to co-produce Just Transition plans for every sector and region. As part of developing the Just Transition plans we will ensure that all those impacted, particularly employees and communities, have a voice. Introduce Community Wealth Building legislation that builds on the successes Government and and learnings of all of the Scottish Government community wealth building local Public Sector and regional pilot areas in urban and rural Scotland. Undertake and publish a review of how best to significantly increase the number Government and of social enterprises, employee-owned businesses and cooperatives in Scotland, Public Sector supporting regional regeneration and the wealth of local communities. This will learn lessons from best practice in other countries. 5 Scotland’s National Strategy for Economic Transformation 37 Skilled Workforce A skilled population is fundamental to business productivity and economic prosperity. We will focus our activity on the transition to net zero, the digital revolution, and lifelong training making sure employers have the supply of skills they need. Scotland’s National Strategy for Economic Transformation 38

5 — Skilled Workforce

5. Skilled Workforce 5.1 Our Aim 5.2 The Opportunity To ensure that people have the skills they Skills enable people to more effectively need at every stage of life to have rewarding participate and progress in the labour market careers and meet the demands of an and lead fulfilling lives. Providing people with ever-changing economy and society and the opportunities to develop skills, irrespective that employers invest in the skilled employees of who they are and where they live, is key they need to grow their businesses. to ensuring everyone has the opportunity to participate fully in the labour market. For parents and carers to develop the skills and qualifications that will enable them to compete for jobs, and ultimately create a more diverse workforce, we must address the barriers faced by some, including transport and available childcare. A skilled population is also key to business productivity and economic prosperity. The OECD has argued that for the UK “developing the right set of skills and making full use of them in the economy is a recipe for higher productivity, growth and inclusiveness”. The evidence shows that Scotland already performs well on tertiary education levels compared to the rest of the UK and other small advanced European economies. While data shows that the majority of employers are able to find the right people with the right skills to fill vacancies within their organisations the pandemic and EU exit have created labour shortages across almost all sectors. Last year around 21% of vacancies were reported as being hard to fill by employers due to a lack of skills, knowledge or experience among applicants. In the absence of devolved immigration powers, targeting inward migration from the rest of the UK can add to Scotland’s skilled labour pool. A 25% increase in people relocating from the rest of the UK to Scotland would double net migration and add 100,000 people to Scotland’s labour pool over the course of this strategy. Significant inequalities persist in educational attainment with around 10% of Scotland’s working age population having low or no qualifications. Currently 22% of Scotland’s working-age population are economically inactive (this figure includes full-time students). Understanding what policies can be deployed so that people can take part in the labour market is a significant opportunity. Scotland’s National Strategy for Economic Transformation 39 Over the next 10 years, with the greater use of artificial intelligence, changes in the world of 5.3 Foundations of Success work, the decarbonisation of traditional industries A range of initiatives are already in place to and the emergence of new industries, skills grow Scotland’s population, and support skills requirements will change fundamentally. Digital, development. This includes our response to the data, cyber security, creative and leadership skills Scottish Funding Council Review of Coherent are likely to be at a premium, whilst we know that Provision and Sustainability,18 Scotland’s the ability to collaborate and cooperate will be Population Strategy, the Young Person’s essential for the anticipated rise in caring roles Guarantee and the Future Skills Action Plan and as technology replaces routine work and frees which is delivering a strong platform of work people to focus on the elements of human service based learning. A considerable programme of that really matter to people. The precise shape reform is already taking place across Scotland’s of the changes are difficult to predict, but we do schools, including the implementation of the OECD know that people will need to be adaptable and recommendations through Professor Ken Muir’s flexible and we recognise the need to provide consultation and Professor Louise Hayward’s access to information and advice, tailored to review of qualifications. We will also build on individual needs and circumstances. We will the recent Careers Service Review to ensure emphasise the importance of businesses and that individuals considering their career choices skills providers capturing equalities information at any stage of their lives can access the best to understand the diversity of the workforce and information and advice.19 the reach of service provision. We are working with partners to address the Population challenges are being faced in many under-representation of women in science, rural and island communities, and addressing technology, engineering and maths (STEM) courses these challenges will be vital to ensuring and careers, to ensure that Scotland’s STEM these communities can realise the ambitions sectors are diverse, equal and prosperous. Similar of this strategy. initiatives are addressing the gender gap within Scottish agriculture. A key focus of skills provision is the implementation of the Climate Emergency Skills Action Plan. Our Green Jobs Skills Hub will gather and cascade information on skills shortages and opportunities throughout the labour market, enhancing intelligence and promoting more effective responses. The current land-based review of learning offers an opportunity to link across existing work in the Skills Action Plan for Rural Scotland and the Climate Emergency Skills Action Plan. 18 Scottish Funding Council Review of Coherent Provision and Sustainability 19 Careers by Design Scotland’s National Strategy for Economic Transformation 40 5.4 Our Programme of Action Project 11: Adapt the Education and Skills System to make it more Agile and Responsive to our Economic Needs and Ambitions We will Who Develop proposals for a national digital academy focused around the provision Government and of SCQF level 6 qualifications including Highers, to open up access to a wide Public Sector array of subjects to a wider array of learners. This is likely to include broadening young people’s access to subjects which may not be available locally, as well as supporting post-school learners to access learning later in life and around other commitments. Deliver the forthcoming national strategy on adult learning that will ensure that Government and community learning is more consistent and comprehensive, underpinned by Public Sector more strategic investment and building a stronger evidence base around needs, engagement levels, quality of provision, and support for professionals. Deliver key actions from the Scottish Funding Council Review of Coherent Government and Provision and Sustainability including the development of more, shorter Public Sector industry-facing courses; and enhancing approaches to strategic provision and skills planning based on learning from pathfinder projects to enable a more responsive, coherent education and skills system. Implement the next phase of the Green Jobs Workforce Academy and launch a Government, new skills guarantee for workers in carbon intensive industries, providing career Public Sector, guidance and training opportunities, enabling people to seek employment in Business and other sectors. Partners Project 12: Support and Incentivise People, and their Employers, to Invest in Skills and Training Throughout their Working Lives We will Who Implement a lifetime upskilling and retraining offer that is more straightforward Government and for people and business to access and benefit from. This will use evidence from Public Sector the delivery of the National Transition Training Fund and Flexible Workforce Development Fund, and what we know works well from Community Learning and Development. Target more skills investment and support to working age people in poverty Government and or at risk of moving into poverty (particularly the six priority family types). Public Sector Ensuring that access to training for more marginalised groups is made as easy as possible, we will work with learners and delivery partners to better understand the steps we must take to improve provision, including in areas such as training at times that suit people with caring responsibilities, with additional support needs or that fit around current jobs. Develop a new Skills Pact to underpin our commitment to strong partnership Government, working with both employers and unions. The Pact will focus on action we can Public Sector, take together to improve investment in skills and training and ensure provision Business and better meets the needs of employers and employees. As part of this, we will Partners work collaboratively with employers and unions to explore how we can increase employer investment in upskilling and retraining. Scotland’s National Strategy for Economic Transformation 41 Project 13: Expand Scotland’s Available Talent Pool, at all Skills Levels, to Give Employers the Skills Pipeline They Need to Take Advantage of Opportunities We will Who Implement a focused Talent Attraction programme to attract key skills and Government, talent from the rest of the UK. This will align with Scotland’s identified key Public Sector, sector strengths and new market and cluster building opportunities and provide Business and a joined-up “landing zone” for targeted employees and their families supported Partners through our commitment to create a Migration Service for Scotland. We will work closely with industry partners, and the recruitment sector, to leverage best available data and ensure most effective targeting. Progress the actions from Scotland’s Population Strategy aimed at attracting, Government and welcoming and supporting those who choose to make Scotland their home to Public Sector help address rural and island population challenges and sectoral skills shortages in the labour market. Systemically address Scotland’s labour market inactivity challenges. Assess Government, trends within different labour market inactive groups and understand what steps Public Sector, can be taken to bring more individuals into the labour market – including through Business and the use of childcare and transport provision, part-time/flexible working, support Partners for employees with disabilities, and business start-up and work from home opportunities. This is inextricably linked to reducing child poverty, including the approach of pathfinders to test how to ensure holistic support enables parents to enter, sustain and progress in work. 6 Scotland’s National Strategy for Economic Transformation 42 A Fairer and More Equal Society Significantly reducing poverty boosts our economy, but achieving it requires better wages and fair work. We will ensure that work provides a sustainable standard of living and a genuine route out of poverty. Scotland’s National Strategy for Economic Transformation 43

6 — A Fairer and More Equal Society

6. A Fairer and More Equal Society 6.1 Our Aim A fully-functioning childcare sector is a pivotal part of Scotland’s national economic To reorient our economy towards wellbeing and infrastructure, and will be vital to enabling fair work, to deliver higher rates of employment parents and carers to return to work, or increase and wage growth, to significantly reduce their working hours. We have committed to structural poverty, particularly child poverty, building a system of wraparound school age and improve health, cultural and social outcomes childcare, offering care before and after school for disadvantaged families and communities. and in the holidays, which will be free to families on the lowest incomes – as well as expanding 6.2 The Opportunity the provision of funded early learning to all one- and two-year-olds, starting in the course of Our aim is to create a society that is thriving this Parliament with children from low-income across economic, social and environmental households. dimensions, and that delivers prosperity for all Scotland’s people and places. A fair We have the opportunity to design and and equal society and a wealthier, greener deliver employability services tailored for economy are mutually reinforcing.20 Economies local areas and people, using place-based that have stronger productivity growth also and person-centred design, building on our have higher wellbeing – good businesses No One Left Behind approach. recognise that well-paid and respected Tackling poverty will substantially increase workers are productive workers. Scotland’s economic performance, increasing Scotland has the opportunity over the next ten the wellbeing of our citizens and enabling our years to build a successful economic model that business to increase their turnover. Tackling ensures that work pays for everyone through child poverty is an economic as well as a moral better wages and fair work. In this way, and in imperative. The cost of child poverty in Scotland tandem with other government interventions, was estimated to be more than £3 billion in like the Scottish Child Payment, economic 2021.21 Around half of this cost is attributed to opportunities can significantly reduce levels of lower productivity and higher unemployment child poverty and in-work poverty, particularly for levels of those who have grown up in poverty. women, and eradicate low pay. We can improve life chances, achieve equality of opportunity for all to access and progress in work whilst at the same time mitigating the risk to employment through a just transition to net zero. 20 Trends in Income Inequality and its Impact on Economic Growth | OECD Social, Employment and Migration Working Papers | OECD iLibrary (oecd-ilibrary.org) 21 The Cost of Child Poverty in 2021 – based on a UK figure of £37.7 billion estimated by the University of Loughborough Scotland’s National Strategy for Economic Transformation 44 The evidence shows that while Scotland (along with Northern Ireland) has the lowest child 6.3 Foundations of Success poverty rate in the UK at 24% (compared to Our ability to directly effect change in the labour England 30%, Wales 31%), to meet our statutory market is limited as long as employment law 2030 target to have less than 10% of children remains reserved to Westminster. Nevertheless, living in relative poverty, around 140,000 we have used the powers that we do have to children will have to be lifted out of poverty. ensure that the economy is fair and inclusive 15.2% of employees still earn less than the real and that people have the skills and capabilities Living Wage, although this number has reduced they need to access good jobs. We have done this by around a quarter in recent years. through our policies on Fair Work Nation, our No One Left Behind approach with Local Government Despite progress in reducing the gender pay gap and the third sector and our action plans to tackle (reduced from 18% in 2000 to 3.6% in 2021), the gender and disability pay gaps. Our Young more women than men still earn less than the Person’s Guarantee will ensure every person aged real Living Wage. There are significant inequalities between 16 and 24 will have the opportunity in economic and social outcomes including the to study; take up an apprenticeship, job or work disability employment gap (35.5 percentage experience; or participate in formal volunteering. points), and ethnicity pay gap, and a significant gap in healthy life expectancy for those in the Through Fair Work First we are applying Fair most deprived areas (20 years). Work criteria to public sector contracts and grants to ensure that government funding serves to We need to ensure everyone in Scotland earns tackle in-work poverty and low wages by raising at least the real Living Wage as a minimum. the incomes of the lowest paid and improving We recognise that we will not tackle Scotland’s terms and conditions for all. deep-seated poverty challenges without transforming the sectors where low pay or We will ensure that Fair Work principles and precarious work are most prevalent. Moreover, conditionality form the foundation of our we believe that business models that rely on low approach to a just transition, starting with the pay are not sustainable and are incompatible with Energy Strategy and Just Transition Plan, the our vision and strategic direction. We will use all Agriculture and Land Use Plan, and forthcoming levers at our disposal and will work with business regional and sectoral plans. to address this issue. The use of conditionality on Fair Work practices that is enshrined in In August 2021 we launched a Living Hours the bidding process for Scotland’s greenports, Accreditation scheme with the Poverty Alliance ensuring that no bidder who cannot demonstrate to drive progress towards security of income adherence to Fair Work will win, is a model of and away from in-work poverty. In 2021 we how we will roll out these measures. took our commitment further in the Adult Social Care sector by providing funding to take pay for All the programmes in the strategy are direct carers above the real Living Wage, with interconnected, while our initiatives on promoting a minimum pay floor also set for 2022/23 that entrepreneurial culture in under-represented continues to go beyond the real Living Wage. groups, community wealth building, and skills investment for working age people in poverty will contribute to a fairer and more equal society, this programme focuses on the opportunities from Fair Work and structural barriers to participation in the labour market. Scotland’s National Strategy for Economic Transformation 45 Our first Tackling Child Poverty Delivery Plan Our Covid Recovery Strategy focuses on the (2018-22) set out three key drivers to reducing efforts we require to tackle inequality and child poverty, including increasing household disadvantage. If our people are secure and incomes from work and earnings, reducing have firm foundations then our communities, household costs and maximising incomes businesses, economy and society will be more from social security. It also set out the six resilient. Our third sector organisations have led priority family types more likely to experience the way in adopting innovative, person-centred, child poverty.22 holistic services which wrap around families and individuals. The aims of the strategy are to: Our existing employability and wider Fair Work address the systemic inequalities made worse action is a key part of this strategy, supporting by Covid; make progress towards a wellbeing parents to access work and to progress within economy; and accelerate inclusive person-centred the labour market – supported by holistic public services. employability support, flexible working opportunities, sufficient working hours and A Fairer Scotland for Disabled People: payment of the real Living Wage. We will build Employment Action Plan sets out key actions on this within our next delivery plan to be the Scottish Government will take to reduce the published in March 2022 to ensure that work disability employment gap by at least half by offers an effective and sustainable route out of 2038. We announced in December 2021 that poverty for families. we are doubling the Scottish Child Payment from April 2022 and we remain committed to We believe that a progressive approach to extending Scottish Child Payment to children industrial relations and to trade unionism is at under 16 by the end of 2022. We have also the very heart of a fairer, more successful society. committed to build a system of wraparound Trade unions are key social partners in delivering school age childcare, offering care before and our economic and social aspirations. Accordingly, after school and in the holidays, which will be we recognise the importance of unions and free to families on the lowest incomes. collective bargaining in raising worker wellbeing and promoting progressive and fair workplace practices. The best Fair Work outcomes will be achieved where employers, workers, unions, government, agencies and third sector work together and take ownership for delivery of Fair Work collectively. In some key sectors this will involve enhancing the capacity to take collective decisions through forums involving employers, workers, unions and other partners negotiating minimum standards on pay, conditions and other aspects of Fair Work infrastructure. 22 Our Tackling Child Poverty Delivery Plan has identified six priority family types at higher risk of poverty: lone parent families, the large majority of which are headed by women; families which include a disabled adult or child; larger families; minority ethnic families; families with a child under one year old; families where the mother is under 25 years of age. Scotland’s National Strategy for Economic Transformation 46 6.4 Our Programme of Action Project 14: Tackle Poverty Through Fairer Pay and Conditions We will Who Apply Fair Work conditionality to grants, requiring payment of real Living Wage, Government and and channels for effective workers’ voice by summer 2022, and determine how Public Sector these conditions can be applied to non-departmental public bodies. Fair Work conditionality will be further extended with clear standards and minimum requirements to cover all forms of Scottish Government support within the limits of devolved competence in line with the landmark agreement with the Scottish Green Party. We will use all levers at our disposal to deliver on this commitment – including the use of grants, reliefs and licencing provisions Deliver on the commitment to require payment of the real Living Wage in Government and Scottish Government contracts from October 2021, including the forthcoming Public Sector suite of new construction frameworks, starting with the £600 million Civil Engineering Framework. Work with employers and trade unions in sectors where low pay and precarious Government, work can be most prevalent (including leisure and hospitality, and early learning Public Sector, and childcare) to deliver sectoral Fair Work agreements, in partnership with Business and industry and trades unions, that deliver payment of the real living wage, better Partners security of work, and wider “fair work first” standards. We will also promote the benefits of collective bargaining to achieve higher standards of pay, better security of work and greater union representation. Build on the findings from the Business Purpose Commission Report in Spring Business and 2022, to inform how businesses can deliver positive impacts on prosperity, Partners wellbeing – including tackling child poverty – and environmental sustainability. This will recognise that businesses which take a long term (inter-generational) view of their stakeholder commitments fare better in times of crisis, including during the pandemic. It will also promote the stakeholder capitalism model with business leaders, encouraging businesses to see employees, communities and citizens as stakeholders as well as consumers and where businesses are rooted in their communities. Scotland’s National Strategy for Economic Transformation 47 Project 15: Eradicate Structural Barriers to Participating in the Labour Market We will Who Set out how we will support parents to increase their incomes from employment Government and as part of cross-government action to deliver upon the ambitious targets set Public Sector through the Child Poverty (Scotland) Act 2017 within the next Tackling Child Poverty Delivery Plan to be published by the end of March 2022. Simplify the employability system by implementing No One Left Behind, Government and combining funding streams and transferring investment from national to local Public Sector governance to enable the delivery of person-centred, place-based integrated support. Fair Start Scotland contracts end in March 2023, offering significant opportunity for further investment through No One Left Behind. Ensure that Every Contact Counts in delivering an aligned and integrated offer of Government and support for those seeking to move towards, into or progressing within the labour Public Sector market. In this way we will ensure that individuals and families have access to the advice and services they need to thrive, including housing, health, affordable and flexible childcare and transport offers. Take further steps to remove barriers to employment and career advancement Government and for disabled people, women, those with care experience and people from Public Sector minority ethnic groups. We will set these out the forthcoming refreshed ‘A Fairer Scotland for Disabled People: Employment Action Plan’ and the Gender Pay Gap Action Plan, and a new ethnicity pay gap strategy and plan. Build on the principles of the Young Person’s Guarantee, developing an all age Government and guarantee of support for those most disadvantaged in the labour market, with Public Sector an initial focus on parents from the six priority family groups at risk of child poverty. Establish a Centre of Expertise in Equality and Human Rights within Scottish Government and Government, advancing our understanding and embedding equality and human Public Sector rights within the economic policy-making process, as agreed in the Economy Recovery Implementation Plan. Scotland’s National Strategy for Economic Transformation 48 A Culture of Delivery 7 Success demands a culture of delivery and accountability in which objectives are shared and responsibilities are clearly allocated and accepted across the public, private and third sector. Scotland’s National Strategy for Economic Transformation 49

7 — A Culture of Delivery

7. A Culture of Delivery 7.1 Our Aim Our enterprise and skills organisations work well together and have made real strides To ensure we successfully deliver the towards collaborative working, however our interconnected policy programmes of action set future economy requires us to radically rethink out in this strategy and transform the way in and reform the way in which they operate. We which the Government and business listen to, need to build a new model that reaches every support and work with each other. community, rural or urban, and connects people and businesses with the support they need and 7.2 The Opportunity leverages private sector networks, at home and abroad, in a more efficient way. This includes new Achieving the ambition set out in this strategy tailored support for businesses with alternative is critically important for Scotland. ownership models, including cooperatives and social enterprises as well as in our rural and Success demands a culture of delivery and island areas, and we need more effective data accountability in which objectives are shared and and feedback on what our support delivers. responsibilities are clearly allocated and accepted across the public, private and third sector. These The state will continue to play a crucial role in must be built on a willingness to challenge and making mission-based public investments and to adapt any aspect of this strategy that does not will do so in a way that drives forward wider deliver and to draw on the strengths of people innovation. Whilst government has shown we can and organisations from all sectors of the economy take effective action with partners, for example in what is commonly described as a “Team developing Michelin Scotland Innovation Parc Scotland” approach. when faced with the closure of the previous Michelin factory, we need to bring the same It requires strong leadership in the public and purpose and energy to new opportunities private sectors, with leaders working across like ScotWind. these boundaries and learning lessons from the innovative approaches that have been And when businesses in Scotland achieve implemented by other organisations, such individual success we need to ensure that the as the third sector. success of one business reinforces another so that when our economy does well Scotland To deliver this strategy businesses need access as a whole does well. to a range of support that is designed around the requirements of businesses and innovators, It will take time to deliver, but the prize not the internal structures of the public sector, as is enormous. well as increased access to investment, improved connectivity and stronger skills pipelines. Government needs actions from business such as investment in improving productivity, innovation, support for skills training as well as data on outcomes. This strategy should act as a compass to guide the actions of all partners. Scotland’s National Strategy for Economic Transformation 50 7.3 Foundations of Success Successful delivery of this strategy will require all • local government and our agencies, including of our partners to work together. These include: Scottish Enterprise, Highlands & Islands Enterprise, South of Scotland Enterprise, Skills • Scottish Government Ministers and officials. Development Scotland, Scottish Funding Council • Industry Leadership Groups and sectoral and Business Gateway. organisations who will develop and deliver • third sector groups, including local community sectoral strategies aligned to this strategy. organisations which are best placed to identify • Scotland’s businesses and entrepreneurs who the actions and opportunities that matter have a right to expect that the services we to them and ensure that they share in provide will be designed around their needs economic success. and who in turn will invest in improving • further and higher education institutions which productivity and providing Fair Work. supply the skills and research base that drive • Regional Economic Partnerships which ensure economic transformation and are key economic that all of Scotland’s regions are able to actors in their own right. maximise their potential (see Box F). • Scotland’s international networks, including • business organisations which represent the alumni, the Scottish diaspora, Global Scots and views of businesses and play the role of a Scottish businesses, Scottish Development critical friend to government as well as being International’s and the Scottish Government’s an active partner in policy development own international networks. and implementation, as confirmed by the Partnership Principles Agreement.23 • trade unions who give a voice to Scotland’s workers and are central to the delivery of an economic model in which everybody has the opportunity to participate and share in its success. 23 Businesses and Scottish Government: joint principles agreement – gov.scot (www.gov.scot) Scotland’s National Strategy for Economic Transformation 51 7.4 Our Programme of Action Project 16: Strengthen Accountability and Transparency We will Who Restructure the Enterprise and Skills Strategic Board so that it becomes the Government, National Strategy for Economic Transformation (NSET) Delivery Board. The Public Sector, newly structured NSET Board will be co-chaired by the Cabinet Secretary for Business and Finance and Economy and a figure from the private sector, will include worker Partners representatives and will hold to account the public sector, business and third sector partners for the delivery of this strategy (see Figure 4). Establish a Scottish Government Economic Leadership Group. Ministerial group Government to be chaired by the First Minister to ensure the public sector is delivering on its contribution to this strategy. Introduce a common accountability framework with delivery partners with Government and senior named leaders both inside and outside the Scottish Government Public Sector responsible for delivering specific programmes, including establishing key milestones and agreeing metrics of success. Provide multi-year budgets through Resource Spending Reviews to provide Government and greater certainty for business and delivery partners enabling industry to develop Public Sector complementary programmes in support of their actions. Ensure the NSET Board has the best available data, drawn from the public sector, Government, academic and private sources. Public Sector, Business and Partners Figure 4: Governance Structure Key: Scottish Government Input to ■ Policy development Sets strategy with partners future policy ■ Delivery development ■ Scrutiny & accountability NSET Delivery Board Co-chaired by Cabinet Secretary Scottish for Finance & Economy and a figure Government from the private sector, it will include Economic worker representatives, to oversee Leadership group delivery of the strategy. Chaired by the First Minister to ensure the public sector is NSET Programme Leads delivering on its Accountable for the successful aims delivery of each NSET programme Partners • Enterprise & Skills Agencies • Third Sector • Business Gateway • Further & Higher Education Institutions • Local Authorities • Industry Leadership Groups • Regional Economic Partnerships • Trade Unions • Scottish National Investment Bank • Business Organisations Scotland’s National Strategy for Economic Transformation 52 Project 17: Transform the Way Support is Delivered to People and Businesses across Scotland We will Who Establish a programme to radically transform the way in which the public Government and sector in Scotland provides support for workers and businesses. Building on Public Sector the work of the Business Support Partnership, this includes reviewing the products and services available, tailoring them to reflect the priorities of the strategy, and targeting grant support to delivery of local and national aims. It will provide businesses with greater clarity on the support they can expect at a local, regional, national and international level through clear and consistent communication. Ensure that strategic guidance to our key delivery agencies aligns with the Government and priorities and delivers the programmes of action set out in this strategy and is Public Sector consistent with multi-year budgeting that will allow delivery partners to plan ahead. Target support more effectively to businesses in every region of Scotland Government, by introducing common data sets and systems to be used by every delivery Public Sector, partner. Work with business customers to design and develop the model and the Business and supporting technical and data architecture for future services. Partners Work with stakeholders to consider how regulation can be used to support Government, economic and societal aims and use this work to continuously improve the Public Sector, approach to regulation and guidance in the future. Business and Partners Project 18: Measure Success We will Who Finalise detailed delivery plans within six months of publication of the Government, strategy, setting out how the programmes will be taken forward, demonstrating Public Sector, collaborative working with business. These will be strongly aligned with other Business and strategic delivery plans, including the Tackling Child Poverty Delivery Plan, Partners and will be published and overseen by the NSET Delivery Board. We will ensure delivery plans and their actions take full account of different regional circumstances, especially in rural and island areas. Publish an annual progress report from the NSET board in order to enhance Government and public accountability. The report will include equalities monitoring. Public Sector Publish a wellbeing economy monitor, to build on Scotland’s leading work on Government and integrating wellbeing into its measurements and policy development and monitor Public Sector how we are performing as a wellbeing economy (see Box A). Ensure a consistent approach to evaluation to drive continuous improvement Government and and greater understanding of the return on investment and assessing the impact Public Sector of support which will guide future spending decisions. This will scrutinise the performance of public sector investments and operating budgets over a longer time period, avoiding the risks of “stop start” initiatives or those that fail to translate to action at scale. Scotland’s National Strategy for Economic Transformation 53 8 Conclusion As a consequence of the 6 programmes, 18 projects and 77 actions set out in this strategy, we will have achieved our vision of building a wellbeing economy. Scotland’s National Strategy for Economic Transformation 54

8 — Conclusion

8. Conclusion Our vision for 2032 is to create a wellbeing Transforming Scotland’s economy is a national economy: a society that is thriving across endeavour and government, the enterprise and economic, social and environmental dimensions, skills agencies, business, trade unions, third sector, one that delivers prosperity for all Scotland’s local government, social enterprises and the people and places. people of Scotland all have a part to play. We can only succeed and achieve our goals if we We all want Scotland to be successful. Success pull together as one – a Team Scotland approach. means a strong economy where good, secure and well-paid jobs and growing businesses have We want businesses to be exemplars, recognising driven a significant reduction in poverty and, in and acting on their responsibilities to fair work particular, child poverty. and net zero. Taking action that protects and sustains our environment and natural world. We will be a nation of entrepreneurs and Building a new mindset where all businesses innovators, with resilient supply chains and see employees, communities and citizens as competitive advantages in the new industries stakeholders as well as consumers. And where generated by technological change, scientific businesses are rooted in their communities. advance and the climate emergency. This strategy marks a shift in our approach And our society will be one in which everyone to delivery and it is the ruthless focus on can participate in our economic success, in every delivery set out in this strategy that will unlock community and in every region. economic transformation and drive the economic opportunities across Scotland. Scotland’s National Strategy for Economic Transformation 55 Acknowledgements Developing this strategy has been a significant We thank the following: and collective effort and we are grateful for the advice, expertise and insight received from • Maggie McGinlay, Chief Executive Officer many quarters. of Energy Transition Zone Ltd There were more than 260 responses to our • Lynne Cadenhead, Chair of Women’s semi-formal consultation which set out the Enterprise Scotland challenges we face and offered creative and • Chris van der Kuyl, Founder, owner and ambitious solutions for the economy we want chairman of 4J Studios to see going forward. • Sean McGrath, CEO of Entrepreneurial Scotland Industry Leadership Groups, Regional Economic Partnerships, the Enterprise and Skills Strategic • Dame Sharon White, Chair of John Lewis Board along with our enterprise and skills Partnership agencies helped us shape and test our vision, approach and Actions. • Mark Logan, Tech expert and former Chief Operating Officer of Skyscanner We have worked closely with business organisation representatives and a wide range • Lord Nick MacPherson, Former Permanent of stakeholders to ensure those interests are Secretary to the Treasury reflected in the strategy. • Sir Anton Muscatelli, Principal of the University The recommendations from the recent citizens’ of Glasgow assemblies have also been considered throughout • Jamie Grant, Managing Director and Head of the development of the strategy. Corporate Banking Scotland, Barclays Lastly, the support and guidance of the Advisory • Roz Foyer, General Secretary of the Scottish Council for Economic Transformation has been Trades Unions Congress (STUC) invaluable in guiding the programmes which collectively will transform the Scottish economy. • Professor Graeme Roy, Dean of External Engagement at University of Glasgow • Jackie Brierton, CEO of GrowBiz • Cllr John Alexander, Chair of Scottish Cities Alliance and Leader of Dundee Council • Professor Mark Blyth, Director of the William R. Rhodes Centre for International Economics and Finance at Brown University • Professor Mariana Mazzucato, Professor in the Economics of Innovation and Public Value, University College London, and founder of the UCL Institute for Innovation and Public Purpose • Emma Parton, Founder of Highland Soap company ►=◄ Scottish Government Riaghaltas no h-Alba gov.scot © Crown copyright 2022 OGL This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open- government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gsi.gov.uk Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned. This publication is available at www.gov.scot Any enquiries regarding this publication should be sent to us at The Scottish Government St Andrew’s House Edinburgh EH1 3DG ISBN: 978-1-80201-670-3 Published by The Scottish Government, March 2022 Produced for The Scottish Government by APS Group Scotland, 21 Tennant Street, Edinburgh EH6 5NA PPDAS947406 (03/22) w w w . g o v . s c o t

Scotland’s National Strategy for Economic Transformation - Delivering Economic Prosperity

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1 — Our Future Economy 5