Yahoo Finance Humza Yousaf: Why Scotland's new First Minister will make economic crisis even worse
As Scotland’s new First Minister, Humza Yousaf faces an uphill battle when it comes to the economy.
With growth in the doldrums, Scottish business chiefs are crying out for support. Yet to many observers, the SNP’s focus has been elsewhere.
Ken Murphy, the chief executive of Tesco, became the latest business leader to criticise one of the party’s flagship policies this week, attacking its bottle recycling scheme as "not fit for purpose”.
“It risks driving up prices and undermining consumer confidence,” Murphy said at the Retail Week Live conference on Tuesday.
The scheme, scheduled to launch in August, is meant to encourage recycling by forcing buyers to pay an extra 20p deposit on single-use drinks containers, which would then be refunded when returned.
Yet Murphy said "the blueprint is incomplete", with confusion over how containers will be collected and what price retailers should be displaying.
To many, the debacle typifies the SNP’s mishandling of the economy: the party has been too focused on what they see as ethical and environmental issues at the expense of bread and butter issues that keep the economy running.
Yet those hoping for a change in emphasis under Yousaf are likely to be disappointed.
The 37-year-old campaigned as the continuity candidate, pledging to keep Nicola Sturgeon “on speed dial”.
In fact, he has signalled he could be more radical than his predecessor. Asked by Scotland’s Daily Record if he would describe himself as a socialist, Yousaf said: “Yes, I believe absolutely in the redistribution of wealth.”
Yousaf said he was committed to looking into wealth taxes and adding another income tax band on earnings between £43,662 and £125,140.
The focus on extracting wealth from businesses, rather than stimulating growth, has sparked alarm.
Dr Liz Cameron, chief executive of the Scottish Chambers of Commerce (SCC), says: “Growth is still largely projected to be flat and there looks to be no end in sight for issues such as labour shortages and rising business costs.
“Firms need the new First Minister to adopt a pro-business attitude that helps drive growth, attract investment and create jobs so that Scotland can build a globally competitive economy.
“This can only be delivered if the Scottish Government makes economic growth its driving mission and works in a real, honest and open partnership with the business community.”
The SCC lobbied all of the SNP’s leadership candidates during the race. Yousaf was the only one to respond but his reply may not have inspired hope.
Yousaf said that, while economic growth was a priority, it had to go hand in hand with the SNP’s commitment to “progressive taxation”.
“I want to focus particularly on the framing of economic success around not just GDP growth, but also building an understanding of how a wellbeing economy and wellbeing society go hand in hand,” he wrote.
John Ferry, finance spokesman for the Scottish Liberal Democrats, says of Yousaf: “There is a general sense of someone who isn’t willing to be realistic about growing an economy.”
Yousaf himself has little track record in economics or business. He worked in a call centre before going into politics and was Scotland’s youngest member of parliament when he joined aged just 26. He has served as justice secretary and then health secretary under Sturgeon, but notably not business or Treasury.
Scotland’s economic challenges are stark. Many of the UK’s economic problems are amplified north of the border.
Almost a third of economically inactive people are out of work because of ill health, compared to a quarter in England.
In addition to the cost of living crisis, Scotland faces a greater demographic challenge than the rest of the UK, with an older population putting more pressure on taxpayers.
GDP growth is forecast to be consistently below the UK’s for the next 40 years, according to the Scottish Fiscal Commission’s forecasts.
“There has been nothing to suggest that Yousaf is in tune with these challenges,” says Ferry.
Scottish Government finances are also in a parlous state: the deficit is 12pc of GDP – double the UK’s 6pc.
“The outlook for the Scottish Government’s budget, even within the union, is really, really difficult,” says David Phillips, head of devolved and local government finance at the Institute for Fiscal Studies.
Holyrood faces a funding crunch in 2024, according to Phillips. Government funding will fall year-on-year by 1.6pc after 2024.
By 2027-28, funding will still be lower than in 2023.
“Unless there are more tax rises, or the Scottish Government finds more temporary funding sources, that 1.6pc cut across the board could require some significant cuts to public services,” says Phillips.
Yousaf clearly favours taxation as a way to plug the gaps but this method may have already reached its limits.
Sturgeon increased the top rates of income tax last year but estimates suggest the increase may raise as little as £3m for the Government. There have been warnings that any further increases could risk driving high earners south of the border.
Even if the new SNP leader succeeds in balancing the books, his ideas still appear to be lacking when it comes to stimulating growth.
One place to start would be to scrap the recycling plan, which most business leaders have said will harm the economy.
Scottish hospitality chiefs have said the proposals will have a “devastating impact”. The Secretary of State for Scotland Alister Jack has said the plan will be inflationary as it will force up the price of drinks at the till.
Business leaders should not hold their breath. While Yousaf promised to exempt small businesses from the scheme for the first year, he stopped short of pledging to scrap it during the leadership race.
“Yousaf has experience across a range of government portfolios, but not in business or the economy,” says Ferry, “and there is no evidence that I’ve seen so far to suggest that he has either knowledge or interest in this area.”
