Yesterday saw the delivery of the King’s Speech which unveiled the new UK Government’s legislative priorities for the year ahead. The speech included many policies aimed at strengthening the UK economy, with an overarching aim of “creating wealth in every corner of the country, and improving the living standards of working people.”

A number of the key announcements relate to areas that are devolved to the Scottish Parliament, and will therefore not directly impact Scotland. These include reforms to the planning system and the strengthening of tenants’ rights – both of which are fully devolved. However, other bills announced in the speech will have an impact on Scotland’s economy, which in turn may also have implications for devolved policy. 

Here we look at some of the most significant economic policies the UK Government has announced, and assess what implications they could have for Scotland. 

As part of the UK Government's ‘New Deal for Working People’, the speech pledged to bring forward a new Employment Rights Bill. The Bill aims to strengthen workers’ rights in a number of areas, including banning ‘exploitative’ zero-hours contracts, ending the practice of fire and rehire, removing some restrictions on trade union activity, and introducing stronger employment rights in areas like parental leave, sick pay and flexible working. 

As employment law is reserved to Westminster, these changes could potentially have a significant impact on Scotland’s labour market. As we have previously highlighted, use of zero hours contracts in Scotland has increased by nearly 500% since 2011, and today Scotland has the highest proportion of workers on zero hours contracts of all UK nations. The UK also has among the most flexible labour markets in the OECD, which in turn has been linked to problems of low pay and insecurity. 

As such, the new Bill could mark an important step towards creating a fairer labour market and a stronger economy. As with many aspects of the speech however, the devil will be in the detail when it comes to implementation. What some of the proposals mean in practice remains unclear, and the proposals will be subject to extensive consultation with trade unions and business before being introduced. 

One of the Labour Party’s flagship policies during the election campaign was to create a new public energy company called Great British Energy (GB Energy). The King’s Speech confirmed that GB Energy will be established as a “new, publicly-owned energy production company which will own, manage and operate clean power projects up and down the country.” The firm will be headquartered in Scotland, though we still don’t know where, and endowed with a capitalisation of £8.3 billion of new money over the Parliament. 

Given Scotland’s vast renewable energy resources, GB Energy has the potential to play an important role accelerating decarbonisation and strengthening Scotland’s economy. As Future Economy Scotland has previously highlighted, although Scotland has significantly scaled up renewable energy in recent years, to date it has failed to maximise the associated economic benefits in terms of employment. Instead, much of the work has been carried out by overseas companies, including other state-owned companies such as Denmark’s Ørsted and Norway's Equinor. According to analysis by the Common Wealth think tank, nearly half of the UK's offshore wind capacity is owned by state-owned foreign entities. This also means that much of the profit made from Scotland’s renewable energy resources is extracted abroad rather than reinvested domestically. 

As such, by scaling up domestically-owned renewables, GB Energy has the potential to accelerate decarbonisation, establish new domestic supply chains, and create new well-paid, secure jobs in Scotland. And if the company owns and operates the assets directly, it should  also help deliver financial returns for the taxpayer and energy customers.

However, the exact role that GB Energy will play, and the extent to which it will own energy assets or simply act as a de-risking “investment vehicle”, remains unclear. There is also a question over the extent to which the £8bn capitalisation will be sufficient to fully harness the company’s transformative potential. But while GB Energy will not become a global competitor to Ørsted overnight, it marks an important first step towards embracing a more proactive role for the state in accelerating the UK’s energy transition. 

Throughout the general election campaign the Labour Party put a strong emphasis on ‘fiscal responsibility’, arguing that Liz Truss’s ‘mini budget’, which included large unfunded tax cuts, created fiscal instability. Reflecting this, the King’s Speech pledged to introduce a new ‘fiscal lock’ that will “ensure any Government making significant and permanent tax and spending changes will be subject to an independent assessment by the Office for Budget Responsibility (OBR)”. Because the Scottish Government’s budget is still to a large extent determined by fiscal policy decisions made in Westminster via the Barnett Formula, the new ‘fiscal lock’ may have knock-on effects on the devolved public finances. 

In practice, the impact of the fiscal lock will be heavily determined by the methodology used by the OBR to assess any tax and spending changes. Some economists argue that the approach historically taken by the OBR has acted as a constraint on bold policymaking. As the economist Jonathan Portes, Professor of Economics and Public Policy at the School of Politics & Economics of King's College, London has noted: “the OBR’s remit and methodology bake in a specific approach to the public finances that militates against any radical policy changes – whether those are tax cuts or big public spending commitments.” This is because the costs of such changes are reasonably easy to quantify, especially in the short term, whereas the long-term benefits are much more difficult to quantify – and are often ignored or underestimated by the OBR as a result. When combined with Labour’s strict “fiscal rules” which target the public debt and deficit in the near future, there is a risk that such an approach may create a bias against transformative policies that deliver long-term benefits, such as preventative health and welfare spending. 

As such, it may act as a constraint on ambitious policymaking if the OBR’s methodology does not consider the long-term, dynamic impact of transformative policy changes. This in turn could constrain UK Government spending in Scotland in reserved areas, and reduce the Scottish Government’s devolved budget as a result. 

Another key policy in the King’s Speech is the establishment of a new National Wealth Fund (NWF) that is intended to “deliver growth and a greener economy.” Capitalised with an additional £7.3 billion, the NWF will aim to make “transformative investments across every part of the country – mobilising billions of pounds worth of additional private sector investment.

The focus on mobilising investment across the UK is welcome. As we have written about previously, both the UK and Scotland have long suffered from chronically low investment, with levels of investment consistently being among the lowest among advanced economies. National wealth funds play an important role in mobilising investment and building public wealth in many other countries. However, their objectives and activities vary widely in different contexts, as does their impact on the economy. As such, the NWF’s success will depend significantly on how it is designed and governed – particularly in relation to its mandate, investment strategy, governance, approach to risk and reward, and financing model. As with GB Energy, concerns have been raised about whether the £7.3bn capitalisation will be sufficient to have a transformative impact on the economy. Questions also remain over how the NWF will interact with the UK Infrastructure Bank, British Business Bank and Scottish National Investment Bank. 

In principle however, the creation of the NWF marks a welcome development that – if effectively designed and governed – can help to mobilise the investment that Scotland so desperately needs. 

A key factor affecting Scotland’s economy in the coming years will be the relationship between the new UK Government and the Scottish Government. The King’s speech pledged that the UK Government will “strengthen its work with the devolved government in Scotland, so that the best possible outcomes are delivered for citizens across the UK.” 

Although the speech pledged to introduce a new English Devolution Bill to “transfer power out of Westminster and into our local communities”, it did not commit to devolving any new powers to the Scottish Parliament. However, the speech did pledge to establish a new Council of Nations and Regions to “renew opportunities for the Prime Minister, heads of devolved governments and mayors of combined authorities to collaborate with each other.” What this means in practice, and what the role of the Scottish Government will be, remains unclear. But it is clear that overcoming major challenges – from raising living standards to delivering net zero – will require constructive collaboration between the UK and Scottish governments. It is therefore important that the new Council provides a meaningful mechanism for dialogue and decision-making, and that the devolved governments are given a meaningful stake and say over policy. 

Going forward, Future Economy Scotland hopes that the UK Government engages constructively with the Scottish Government to devolve more economic powers to the Scottish Parliament. Foremost among these should be granting more flexible borrowing powers to the Scottish Government to ensure it can invest on the scale needed to deliver a just transition. 

One policy that was notably absent from the King’s Speech was Labour’s commitment to stop issuing licences to explore new oil and gas fields. The issue became a highly contested issue in Scotland during the general election campaign, with political parties clashing over the potential impact on jobs. 

Future Economy Scotland believes that drilling for more oil and gas is not the solution to secure and affordable energy, and that issuing new licences is wholly incompatible with the UK’s climate targets. However, it is critical the managed phase-out of fossil fuels is accompanied by a coordinated plan to deliver a just transition for impacted workers and communities across Scotland. We look forward to engaging constructively with the UK and Scottish governments to ensure the policy agendas being brought forward deliver the just transition that Scotland needs.