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Background Analysis to the Framework for Economic Development in Scotland

6. The National Economic Infrastructure

6.1 The Planning System

The Scottish Executive Approach to Land-Use Planning

The land-use planning system guides the future development and use of land in cities, towns and rural areas with the aim of ensuring of ensuring that these changes occur in suitable locations. The process respects the rights of the individual while acting in the interest of the wider community. The planning system is designed to balance competing and often conflicting demands to make sure that development is sustainable and beneficial to society, while avoiding harm to the long-term needs of people, the economy and the environment. The objectives of the planning system are:

• to set the land use framework for promoting sustainable development;
• to encourage and support regeneration; and
• to maintain and enhance the quality of the natural heritage and built environment.

The devolved Scottish government's planning policy on economic development ¹⁴ recognises that the planning system has an important role to play in supporting a competitive Scotland by deciding planning applications in an efficient and consistent manner on the basis of positive and up to date development plans. It indicates that planning authorities should:

• provide a range of development opportunities - to ensure that there is a range and choice of sites for new employment opportunities throughout Scotland;
• secure new development in sustainable locations - to improve integration between transport and locations for development and to encourage more sustainable forms of development;
• safeguard and enhancing the environment - to make sure that new development contributes to a high standard of quality and design and that the natural and built heritage is protected; and
• promote dialogue between councils and business - to encourage a positive culture of engagement and better understanding of the priorities of the business community and the role of the planning system in enhancing economic competitiveness.

The Contribution of Planning to Wider Policy Areas

There are a number of policy areas which will not only influence the planning system but will also be influenced by the planning system. These policy areas include sustainable development, economic development, social justice, environmental quality, and integrated transport. The linkages with these other policy areas needs to be taken into account in decision making, along with an understanding of where trade-offs between policy objectives might arise.

The location and scale of development has an important impact on the demand for travel. Travel can generate negative external costs through impacts on congestion, road safety and pollution which are not fully captured in prices. By focusing new development in places which are accessible by foot, bicycle and public transport as well as by car, the planning system can make a difference to the demand for travel over the longer term.

National planning policy encourages the re-use of previously developed land in preference to greenfield land. Tackling derelict land, improving physical infrastructure and upgrading environmental quality can help to promote social and environmental justice and provide employment opportunities for those less well equipped to participate in the knowledge economy.

Economic diversification is a key strategic aim across Scotland. Encouraging a greater range of economic activity can help to reduce vulnerability to sectoral downturns, improve local investment levels and increase activity rates, so attracting more people to live and work in the area. A commitment to place-making, environmental improvement and connectivity and a flexible and positive approach to land allocations and the use of buildings are important elements of a diversification strategy. It is crucial that sufficient information exists in order for the public sector to intervene successfully in the market place.

Scottish Executive planning policy is designed to provide stability so that businesses may formulate and implement their investment with greater certainty and not be undermined by inappropriate development. One key requirement is that decisions be taken efficiently and on a consistent basis.

The Strategic Approach

In response to the consultation on the Review of Strategic Planning (2001), there was strong and widespread support across the public and private sector for the Executive to adopt a more overtly spatial approach to policy. The business community was particularly supportive of the Executive producing a document that looked at long-term land use and infrastructure issues. In its Conclusions on the Review of Strategic Planning (2002), the Executive announced its decision to draw up a National Planning Framework for Scotland.

In April 2004, the National Planning Framework ( NPF) to guide the spatial development of Scotland to 2025 was published. It complements this Framework, highlighting the importance of place and identifying priorities for investment in strategic infrastructure to enable the different parts of the country to play to their strengths in building a Scotland that is competitive, fair and sustainable.

The NPF puts issues relating to place and space firmly back on the policy agenda. To retain and attract investment we must support our areas of high environmental quality. But there are also areas in need of regeneration which, with co-ordinated investment, can realise their potential and contribute to a vibrant, confident Scotland. Key development, regeneration and infrastructure challenges, for example in transport, water and drainage and affordable housing are highlighted.

The National Planning Framework is not a comprehensive master plan or fixed blueprint. Instead, it offers a perspective on Scotland's long-term spatial development. It provides a context for development plans and planning decisions and is one of the factors the Executive and its agencies will take into account in reaching decisions on policy and spending priorities.

The NPF identifies connectivity and environmental quality as crucial factors in achieving the Executive's objective of sustainable long-term economic growth. It reflects the commitment to supporting the development of Scotland's cities as the main drivers of the economy and identifies priorities and opportunities for different parts of the country in spatial perspectives for the Central Belt, East Coast, Ayrshire and the South-West and Rural Scotland.

The Edinburgh-Glasgow relationship is seen as being of key importance and West Edinburgh and the Clyde Corridor are identified as areas where major changes are already occurring and where the complexity of the issues means that co-ordinated action is needed in the national interest. The East Coast is identified as a key strategic corridor where the reduction of journey times can help to unlock development potential. Ayrshire and the South-West is accorded an important gateway role. For rural Scotland the emphasis is on promoting diversification of the economy in combination with a strong commitment to environmental stewardship.

The planning system has an important role to play in ensuring that there is an adequate supply of land for housing. Demographic change is an important starting point but, in allocating land for housing development, account has to be taken of local needs assessments, market signals, environmental, infrastructure and amenity considerations.

The housing market has a major effect on the economy. An inadequate housing supply, or poorly functioning housing market constrains economic growth, not only in respect of house building but also through the impact that a lack of available housing has upon the ability of businesses and labour to locate in the most appropriate areas.

Given the lead times associated with major physical infrastructure investment, much of what will happen in our cities, towns and rural areas over the next 5 to 10 years is already fairly clear from existing expenditure commitments. Beyond that, there are important choices facing Scotland. Some parts of the country have a buoyant economy and that is placing significant strains on existing infrastructure. Other areas have experienced difficulties and a co-ordinated approach to regeneration will be needed to bring genuine economic, social and environmental benefits and close the opportunity gap in places.

The publication of the National Planning Framework marks the start of a process of engagement and debate on Scotland's long-term spatial development. Planning decisions on these issues are of national importance and need to be guided by making the best possible use of all the available evidence. There are already well-developed procedures and guidance on how to appraise proposals for public expenditure. For example, the appraisal of proposals for physical infrastructure investment marshals the available evidence to allow informed public sector decisions. The same general principles apply to strategic decisions concerning Scotland's spatial development. In addressing these issues, there will be a role for modelling work and other appraisal tools to inform decisions by making careful use of the available data and to improve our understanding of the complex set of factors that influence land use patterns.

Land-use and transport modelling offers a potential analytical framework for examining the interactions between policies on planning, transport, economic development and social inclusion. Although land-use and transport modelling is still very much a developing field, the Scottish Executive has commissioned work to develop a land-use element to the existing Transport Model for Scotland. This work will provide evidence of the potential usefulness of these modelling techniques in supporting future policy decisions.

Modernising the Planning System

The planning system is in need of reform. There are particular concerns around delays and, in particular, the lack of up-to-date development plans. Scottish Ministers are committed to the reform of the planning system and the Partnership Agreement indicates that " we will improve the planning system to strengthen the involvement of local communities, speed up decisions, reflect local views better and allow quicker investment decisions."

In April 2004, the Executive published Making Development Plans Deliver. This consultation paper sets out our proposals to re-energise development planning. The emphasis is not on legislative or procedural change but on better management of the process. This includes political support at the local level, leadership and direction from senior officials and the use of project management techniques.

At the same time, the Executive published a consultation paper on Rights of Appeal in Planning. This seeks views on whether the Executive should introduce a wider right of appeal in planning and has been issued in line with a specific commitment in the Partnership Agreement. The paper recognises that without significant reform overall, extending the right of appeal has the potential to create further delays, which add to costs for business and society. The challenge is to devise a planning system where costs and delays are reduced but individuals and communities feel their voices have been heard on decisions that that they believe will damage their environment or way of life. If the decision is to introduce a wider right of appeal, it must be made in the context of the wider programme for the reform and modernisation of the planning system.

Scottish Ministers will consider the outcome of all parts of the modernisation agenda and consider any necessary changes which will require primary or secondary legislation or policy guidance. Subject to other legislative priorities, it is likely that a Planning Bill will be introduced during the current session of Parliament.

6.2 The Transport Infrastructure

The Executive has established the following high-level transport objectives ¹⁵ which have a fundamental role to play in supporting economic development. These are:

• promote economic growth by building, enhancing, managing and maintaining transport services, infrastructure and networks to maximise their efficiency;
• to promote social inclusion by connecting remote and disadvantaged communities and increasing the accessibility of the transport network;;
• protect and enhance our environment by building and investing in public transport and other types of efficient and sustainable transport which minimises emissions and consumption of resources and energy;
• improve safety of journeys by reducing accidents and enhancing the personal safety of pedestrians, drivers, passengers and staff;
• improve integration by making journey planning and ticketing easier and working to ensure smooth connection between different forms of transport.

The Executive also has an aspirational target to:

Strive to stabilise road traffic at 2001 levels by 2021. (Transport Delivery Report: Scotland's Transport - Delivering Improvement, March 2000)

This will be achieved through investing in an integrated package of measures which include modernising and improving public transport, promoting alternative modes of transport to the private car, and targeted motorway and trunk road improvements. Although economic growth can lead to a rise in the number of trips on our transport network, it is possible to have a transport policy which both supports economic development and aims to limit road traffic growth. By adopting road traffic reduction policies that reduce the proportion of trips made by car but maintain or improve the overall total number of trips to a particular destination by alternative modes, transport policy can stabilise road traffic levels and support economic development.

What is our strategic approach to transport?

Promoting economic growth. Executive transport strategy and policy are explicitly focussed on securing a physical infrastructure and a highly efficient transport system that can best promote economic development in its widest sense. Although, in general, markets provide the best means of allocating an economy's resources, transport is subject to some important market failures that, left to themselves, will lead to inefficient outcomes (see the summary of Box 6.2).

These market failures that affect transport mean that, in principle, there may be scope for public sector intervention to generate more efficient outcomes. In practice, this will only be achieved if intervention is able successfully to correct these market failures. For transport policies to succeed in raising levels of economic activity across Scotland, therefore, it is necessary to demonstrate both that a market failure exists and that it can be successfully corrected.

An efficient transport infrastructure is central to Executive's vision of a competitive economy. Infrastructure is both public and private, with private sector infrastructure such as commercial ports playing a vital role in economic development. Located at the periphery of Europe, Scottish industry requires access to fast and efficient transport services in order to remain competitive. The economy depends on people getting to their places of employment and education on time and safely, people being able to travel efficiently on business, and goods getting to market quickly.

Transport, moreover, makes an important contribution to the Scottish economy in its own right, directly accounting for around 7 per cent of Scottish GDP. Individuals need access to transport services for business and for leisure services.

There have been significant reductions in the costs of road-based transport over recent decades. Changes in vehicle technology, which are largely market driven, have been an important factor in reducing transport costs. At the same time, improvements in infrastructure have reduced the cost of travel for both business and leisure purposes, the principal benefits arising via time savings (e.g. savings in drivers' wages) and vehicle operating cost savings.

A key objective is to secure improved efficiency and thereby reduced transport costs that will impact on the wider economy. Business location decisions take account of accessibility to the market place and to the labour market and are influenced by changes in the costs of transport. Businesses can pass on the benefit of lower production costs to consumers in the form of lower prices and, if these cost reductions are significant, enterprises may be able to penetrate more distant markets. The economy can also benefit if lower transport costs help stimulate easier transfer between jobs or greater competition among firms. Peripheral rural areas are especially sensitive to all transport costs - and to fuel costs in particular - and are therefore closely concerned by developments in this respect.

Sustainable Development. The Executive is committed to the development of an economic infrastructure that is sustainable in the future and fully respects the environmental needs of the people of Scotland. Two areas of particular concern: firstly, the impact of the pollutants emitted by road transport on air quality and, thereby, on human and ecosystem health; and, secondly, the impact of the carbon dioxide and other greenhouse gases (GHGs) contained in transport emissions on climate change. These concerns are particularly relevant given the increase of 66 per cent in traffic volumes on Scotland's major roads since 1984.

There are limits to the capacity of the Earth's ecosystems to absorb the large volumes of waste and pollution that are created by economic activity. The only way to maintain economic progress in the long term without approaching these limits is to decouple economic growth from environmental degradation. This means ensuring environmental degradation does not automatically grow with the economy to the extent that environmental limits could be threatened in the medium term. Income growth has a strong impact on demand for travel. It follows that a major challenge for transport policy is to identify efficient and effective ways of decoupling economic growth from traffic growth as a means of protecting the environment.

Spatial dimension. Improved transport services can bring benefits to local communities in the form of improved access to work, education and training, health and other public services, shopping and leisure facilities. In certain circumstances, the availability of transport services can also make a difference to the level of economic activity in a particular area or community and may help to reduce the divergence in levels of economic activity in different areas.

The peripherality and remoteness of large parts of Scotland, combined with issues of transport costs, have implications for economic development in these areas. The role of ferries and air services, and in particular the role of the Executive in the provision of subsidies, in providing a level of service at a reasonable cost, has been an important feature of efforts to maintain and improve economic conditions in some of these areas.

There is, of course, no guarantee that transport improvements will benefit the local or regional economy at one particular end because of the 'two way road' problem. Roads (and other forms of transport) necessarily operate in two directions and, in some cases, the benefits will accrue to other, competing regions. Interventions aimed primarily at influencing the spatial distribution of economic activity need to be appraised on a case-by-case basis to determine how effective such measures are likely to be in practice.

Progress since 1999 in taking the Framework forward

Since devolution, Scottish Ministers have developed a policy approach based on a major shift in the balance of public sector investment towards public transport and have shifted resources towards more sustainable transport options, while maintaining and enhancing the trunk road network and still supporting maintenance of the local road network through the support given to Local Government.

The Transport (Scotland) Act 2001 was the Scottish Parliament's first transport legislation and provided the legislative framework to improve regional transport planning, enable local authorities to implement road user charging, support quality bus measures and allow the establishment of an Integrated Transport Fund (ITF) to support strategic transport projects via central government grant.

In December 2002, the Executive published a set of 11 key transport indicators to measure progress in key policy areas of road safety, modal shift away from car use and road freight, increasing public transport patronage, emissions, condition of the road network and provision of transport information to the public. The indicators are intended to measure progress against policy objectives and assist transport users and stakeholders as well as the Executive.

The Central Scotland Corridor Studies for the A8, A80 and M74 were multi-modal studies addressing the problems of moving people along transport corridors on all modes of transport. Corridor Plans for 2010 were announced in January 2003, consisting of a 450 million package of public transport and road improvements for central Scotland.

In November 2003, the Executive published Scottish Transport Appraisal Guidance (STAG), an analytical framework that ensures greater consistency in the appraisal of transport developments across all modes by basing decisions on sound analysis and cost benefit analysis. STAG is an objective-led, process for local authorities and the Executive to use built around 5 key appraisal criteria: economy, environment, safety, accessibility and integration.

The Transport Model for Scotland (TMfS), developed by the Scottish Executive, provides a broad base for transport modelling in Scotland in order to assess the likely impacts of potential transport-related projects. It allows the Executive to target valuable resources and ensure maximum value for money. It is an essential tool to provide a robust assessment of future travel demands to allow decisions on provision of transport projects to be made from a sound understanding of likely requirements for people movement.

Since 2003, the Executive has adopted a ten-year financial planning approach for its major infrastructure commitments. The long-term strategic investment plan has provided the ability to look beyond the usual 3-year budgeting cycle and plan on the sort of time scale needed for the delivery of projects that take many years from inception to completion.

The Implementation of the Framework

The Framework has four principal elements that will address these priorities:

• Improving transport planning and structural landscape

Scottish Ministers are consulting on proposals to create a strategic transport authority focusing on delivery and strategic planning. This new national body will be a Scottish Executive agency accountable to Scottish Ministers. It will become a centre of excellence by recruiting specialist transport skills needed in the management and delivery of major infrastructure projects. By working closely with regional transport partnerships across Scotland, it will strengthen transport planning at the regional level and, by contributing to a strategic project review of all transport modes, it will help to develop a ten-year transport plan for the decade after 2010. Improvements in the strategic planning and delivery of major transport projects will ensure that our transport network continues to support future economic activities.

• Investing in transport infrastructure

The devolved Scottish government is committed to a major programme of investment which will deliver new transport infrastructure at a cost of 3 billion over the ten-year period between 2002 and 2012.

A Partnership for a Better Scotland committed the Executive to improvements including: delivering rail links to Edinburgh and Glasgow airports; reopening the Airdrie to Bathgate railway; constructing the Larkhall to Milngavie line; redeveloping Waverley station in Edinburgh in co-operation with the Strategic Rail Authority; investing in a tram network in Edinburgh; completing the central Scotland motorway network (M8 and M80 upgrades, M74 completion); completing the Aberdeen Western Peripheral Road; supporting construction of the Borders railway; and improved ferry links to mainland Europe. These future investments in transport infrastructure will help support future economic development by reducing congestion, improving journey time reliability, and increasing the travel options available to both individuals and businesses.

The Executive continues to support the ports industry and its future development, including the potential establishment of container transhipment hubs in Scotland.

• Tackling road traffic congestion in order to help to deliver reliable journey times for all road users

Strategically, congestion can inhibit the operation of cities and regions, restrict the potential to spread economic activity, weaken links to external markets and reduce internal connectivity. Therefore the Executive will support local authorities who wish to pursue road user charging in order to reduce congestion in their area. Improvements in sustainable transport can help to stimulate modal shift away from the private car towards public transport. Targeted improvements on the motorway and trunk road network are dealing with some of the critical congestion spots.

The national awareness campaign is also raising awareness of travel issues, promoting public transport and can influence individual travel choices. Local travel plans are being promoted to maximise the local impacts that organisations and employers can make on transport in their area.

• Improving services for all transport users

Supporting good services at affordable cost, through subsidised ferry and air services has remained a priority because it is vital to maintaining and improving economic conditions in many rural and island areas of Scotland. The provision of 3 new ferries serving Orkney and Shetland has improved the quality of service for islanders and the tourism experience for visitors. New airport terminals at Kirkwall and Stornoway have also improved island accessibility.

The development of concessionary travel schemes for older people initially is increasing accessibility for large sections of society and further extensions to schemes are planned. Pump-priming investment is being made available to stimulate the development of new bus and air routes to increase accessibility of communities and to the rest of the world. The tendering processes for the ScotRail franchise and the Clyde Hebrides Ferry Services are ways of testing the ability of the market to deliver better services for passengers.

An integrated approach to transport also embraces cycling and walking which are healthy and environmentally friendly means of travel. The Executive is making available grants to local authorities for cycling, walking and safer streets that make it easier and safer for pedestrians and cyclists to get around. The National Cycle Network in Scotland is also being enhanced through grant to Sustrans.

6.3 The Contribution of School Education

School education and services to support children, families and young people have a crucial contribution to make to the Executive's top priority of growing the Scottish economy and the Executive's social and equity objectives.

Direct links between education and economic development . It is clear from previous chapters that the critical element in stimulating economic growth is the enhancement of productivity throughout all Scottish enterprises. Further, that one of the main channels through which increased productivity can be approached is by increasing the quality of human capital (traditionally understood to mean the knowledge and skills of individuals). Since formal schooling is one of several important contributors to the skills and knowledge of individuals, it may represent a direct mechanism which the Executive can use to enhance productivity and hence raise the long-run sustainable growth rate of the Scottish economy.

School education is seen as contributing to economic growth in two ways: first, it equips young people with the core skills they require for further education and work, thereby increasing the productivity of the future workforce; second, it contributes to the skills and knowledge of a subset of young people who will go on to become highly qualified researchers and innovators, leading to the creation of knowledge, ideas and higher rates of technological growth. The latter has the potential to make everyone more productive through the ability of firms to introduce new and better production methods and the former may lead to the more rapid implementation of new technologies. Education is essential, therefore, to benefit from technological advance as well as contribute to it.

Links between education and equity objectives. The provision of publicly funded education is important not only for economic development but also for promoting economic equity. A significant amount of educational spending is aimed at ensuring that all in society have equal access to education services and therefore have equal opportunities to develop the skills and knowledge they need to contribute to, and prosper from, economic activity. Although this type of spending is not aimed at promoting economic development, the longer-term efficiency of the economy is linked to initiatives which bring increasing numbers of people into the productive labour force. It is the productive capacity of as wide a section of the working-age population as possible, which ultimately leads to improvements in average standards of living and opportunities to improve the distribution of income.

Wider Benefits of Education

There are also wider benefits to education. Education, for example, has been linked with better public health, better parenting, lower crime and a better environment. Such social improvements are capable of feeding back into economic development although it is difficult to quantify the extent of these linkages.

There are also benefits to education beyond its contribution to economic development. Education enhances the whole quality of life and is a gateway to personal development and personal enrichment.

High-quality early years services can also contribute to economic development by helping all children achieve their potential and thus maximise their contribution to economic development in due course. The provision of pre-school places and good quality, affordable, childcare also enables parents to return to work, extend their working hours, or, access training opportunities. This contributes to economic development by increasing the number of people engaged in productive activity and reducing the decay in skills that may be experienced by those who are absent from the labour market for long periods. ¹⁶

What is our Strategic Approach to Education?

The Standards in Scotland's Schools etc. Act 2000 sets out a school improvement framework which gives strategic direction to school education through the National Priorities in Education. The National Priorities were agreed in December 2002 and define high-level outcomes which educational authorities and schools have to deliver:

• Achievement and Attainment: to raise standards of educational attainment for all in schools, especially in the core skills of literacy and numeracy, and to achieve better levels in national measures of achievement including examination results;
• Framework for Learning: to support and develop the skills of teachers, the self discipline of pupils and to enhance school environments so that they are conducive to teaching and learning;
• Inclusion and Equality: to promote equality and help every pupil benefit from education, with particular regard paid to pupils with disabilities and special educational needs, and to Gaelic and other lesser used languages;
• Values and Citizenship: to work with parents to teach pupils respect for self and one another and their interdependence with other members of their neighbourhood and society and to teach them the duties and responsibilities of citizenship in a democratic society;
• Learning for Life: to equip pupils with the foundation skills, attitudes and expectations necessary to prosper in a changing society and to encourage creativity and ambition.

These priorities, together with commitments set out in A Partnership for a Better Scotland (2003) and Building a Better Scotland: Spending Proposals 2003-2006, are aimed at maximising the contribution of Scotland's education system to the Executive's efficiency and equity objectives.

The priorities continue to promote the importance of traditional academic skills such as reading, writing and mathematics which are vital in enabling young people to be effective users and creators of information. The priorities also reflect a new emphasis on:

• modernising the school curriculum to equip children and young people with the additional skills required by the modern economy. For example, the fundamental computing skills, creative thinking and problem-solving skills and a desire to continue to learn. By equipping children with traditional and modern skills, the Executive is laying the foundations for a highly skilled and innovative workforce which can respond rapidly and flexibly to the pressures of the global economy;
• improving the quality of the teaching workforce and school environments, in recognition of the important role these factors play in enhancing attainment;
• increasing access to, and use of, ICT to take full advantage of the potential to improve the delivery of education and accelerate the rate of improvement of standards in school education;
• promoting 'Enterprise in Education' activities to prepare children for the world of work and encourage a spirit of enterprise in later life;
• helping every child benefit from education by promoting equality, inclusion and diversity and reducing structural inequalities of opportunities, expectations and outcomes;
• equipping children with values, morals and citizenship.

Progress in achieving the outcomes is being systematically monitored and reviewed each year. The National Priorities in Education Performance Report (2003) sets out the current position and provides an excellent basis for reporting on future improvements in the quality of school education in Scotland.

What has happened since 1999 with respect to policy development and implementation?

A wide range of national and local programmes, policies and initiatives have been developed and implemented to achieve the desired educational outcomes. The key initiatives and the contribution they will make to the economic development are described below.

Enhancing achievement and attainment. Literacy and numeracy have been promoted nationally and locally through a wide range of initiatives, including: the Early Intervention Programme, the Review of Assessment in Pre-School and 5-14, staff training and study support programmes.

There are clear links between attainment and economic development. Individuals who leave education without basic skills normally find it difficult to function in a modern economy. As these individuals are likely to be unemployed, there is clearly a cost to be borne by society as well as the individual. In contrast, individuals who achieve higher levels of attainment are more likely to be employed and enjoy higher earnings. In addition to the individual benefits, higher levels of attainment benefits society as a whole by increasing the skills and knowledge of the workforce - the key drivers of innovation and change. A large number of empirical studies have demonstrated that the amount of schooling/level of attainment is a statistically significant determinant of economic growth.

The latest evidence from both national and international surveys presents a mixed picture of current levels of attainment in literacy and numeracy in Scottish Schools. In some areas, there have been very positive findings. For example, in reading, writing and mathematics in P2/P3 and P7, there has been an across the board increase in the recorded levels of attainment against the National 5-14 levels of attainment between 1998/99 and 2000/01. ¹⁷ Good levels of attainment have also been achieved in the early stages of primary, suggesting that the Early Intervention Programme is effective. There is no room for complacency, however, as much remains to be done to improve attainment levels in other areas.

Enhancing ICT skills. The National Grid for Learning (NGfL) is a project that has been running since 1999 to make sure that Scottish schools are able to take full advantage of modern information and communications technology (ICT). As a result of this programme, there has been a significant increase in access to computers, the internet and e-mail in schools. For example, in primary schools, the modern computer to pupil ratio has improved from 1:28 in 1999 to 1:9 in 2002, and, in secondary schools, from 1:9 in 1999 to 1:5 in 2002. In addition, the Scottish Schools Digital Network (formerly known as SPARK), an ambitious and innovative project which forms an integral component of the Executive's Broadband Strategy - Connecting Scotland, Our Broadband Future, will deliver a high-capacity backbone connecting every Scottish education authority, a fast national connection to the internet and a national schools' intranet providing teachers, pupils and education managers with a range of online applications and services. A wide range of local initiatives have also been introduced to promote competence in the use of ICT (e.g. establishing centres to promote the innovative use of technology in teaching and learning, enhancing the provision of support staff). Together, these initiatives are ensuring that children and teachers (and indeed members of the community) have access to the equipment and training required to enhance ICT skills, improve the delivery of education and accelerate the rate of improvement in standards of school education.

Increasing Attainment by Improving the quality of the workforce. In January 2001, the Executive published A Teaching Profession for the 21 ^st Century, an agreement to improve teachers' pay and opportunities for professional development. A commitment for the full implementation of the national agreement by 2006 is contained in Building a Better Scotland: Spending Proposals 2003-2006 (BABS). A Partnership for a Better Scotland (2003) also contains a commitment to ensure that "teachers have the right skills, through implementation of the national agreement on their pay and conditions". The priority given to this initiative is in line with the results of recent empirical analyses which suggest that the most productive reforms are likely to be those that improve the quality of the teacher workforce.

BABS and A Partnership for a Better Scotland also contain a commitment to significantly increase teacher numbers to 53,000 by 2007. Many of these additional teachers will be used to reduce class sizes in Maths and English to a maximum of 20 in S1 and S2 and 25 in P1. The aim is to improve attainment (particularly in literacy and numeracy) and help close the attainment gap, by providing more focused attention on children's individual learning and development.

Increasing Attainment by Improving the Framework for Learning. The Executive is committed ¹⁸ to improving the quality of the schools' capital stock and is currently developing the largest ever school building programme ¹⁹ in Scotland's history, renewing 200 more schools by 2006, rising to 300 by 2009. Public Private Partnerships (PPP) play a major part in achieving this aim. The investment in school infrastructure reflects an understanding that improving the quality of the schools capital stock has a positive and statistically significant impact on pupil performance ²⁰. The school estate programme will also contribute to the sustainability dimension of the Executive's vision by ensuring that all new schools meet the highest design and environmental standards (i.e. make the most effective use of energy, water and waste).

Promoting an Enterprise Culture. The Executive's Response to Determined to Succeed: A Review of Education for Work and Enterprise, published in March 2003, represents the Executive's strategy to promote Enterprise in Education. Key features of the strategy are: annual enterprise activities for all pupils from P1 to S6; every pupil has the opportunity to learn entrepreneurial skills at school; work-based vocational learning opportunities for pupils over 14; and, strengthening the links between schools, colleges and workplaces. These initiatives aim to contribute to economic development by preparing young people for the world of work and encouraging a spirit of enterprise in later life.

Promoting Problem Solving and Creativity Initiatives directed toward the promotion of Problem Solving/Thinking Skills are underway in all authorities (e.g. Cognitive Acceleration through Science Education/Mathematics Education, critical skills programme, co-operative approaches to learning). The promotion of creativity is also being supported through National developments deriving from "Creativity in Education" published by LT Scotland and IDES Network in 2001 and the wide range of local activities. These activities have already had a positive impact on pupil's confidence, creativity and willingness to engage in learning.

Increasing Participation in the Labour Market. Meeting the Childcare Challenge: A Childcare Strategy for Scotland (1998) aims to provide good quality, affordable childcare for children aged 0 - 14 in every neighbourhood and a pre-school place for all 3 and 4-year olds whose parents wish it. The Executive plans to achieve this by: raising the quality of care, including developing new national standards for early education and childcare; making childcare more affordable and available through the new 'Child Tax Credit' for working families; and, making childcare more accessible by increasing places and improving information. Significant progress has already been made. The results of the pre-school and daycare census for 2003, for example, show that 99 per cent of 4-year olds and 83 per cent of 3-year olds now attend pre-school education, compared with 97 per cent and only 49 per cent, respectively in 1999. ²¹ There has also been a considerable expansion of out-of-school care services over the last few years. These developments have the potential to impact on economic development by raising attainment in the longer term and opening up labour market opportunities for parents. The Childcare strategy also commits the Executive to raise the status and professional standing of the early education and childcare workforce. In addition to the longer-term benefits that education brings to society by raising the general levels of skills and knowledge, therefore, early education and childcare may have a more immediate and discrete impact by enhancing the skills and knowledge of the early education and childcare workforce.

Building the Evidence Base Action is required to build the knowledge base that underpins the strategy for education and young people. In particular, more sophisticated, Scottish-specific, analysis is required to answer the following questions:

• What is the public's valuation of the benefits generated by education?
• How efficient is the school education system in producing the desired skills and educational outcomes?
• What is the aggregate economic impact of education in Scotland?
• What is the relative impact of existing policies/initiatives (e.g. teacher quality, investment in ICT) on education outcomes?
• What are the relative returns of different types of educational spend (i.e. early years, primary, secondary)?

6.4 The Role of Lifelong Learning

The Executive's strategic approach to lifelong learning is founded on the understanding that a skilled and educated workforce is essential to economic growth. Human capital theory points to the contribution that increases in knowledge and skills can make to productivity and growth. Moreover, the effectiveness of capital investment and the capacity for innovation are also heavily dependent on the quality of the available skills. It is widely recognised that the creation and adoption of new ideas can permanently raise economic growth. Human capital formation, through investment in education and training, assumes increased importance in creating a skilled, innovative labour force necessary to raise economic growth. Studies have shown a positive association between the average number of years of education and the level of GDP and economic growth.

In the light of this context, the challenge for Scotland is critically important. The qualifications of young people in Scotland - as in the UK as a whole - have increased over time, but the rate of increase is less than in most other countries. ²² Recent evidence from the OECD shows the UK falling behind other countries in the skill composition of the workforce. Among older people (aged 45-54), the UK is reported as being 15th among 30 countries (having 61 per cent with qualification at around level 2 or above, compared with 60 per cent in all OECD countries). Among younger people (aged 25-34), the UK has dropped to 22nd position (with 68 per cent at level 2 or above, compared with 74 per cent across the OECD) ²³.

As was noted above, Britain has not improved its relative productivity position in the past decade. Output per hour worked in the USA, France and Germany remains significantly higher than in the UK. Up to a fifth of the gap with Germany and France is a direct consequence of lower skill levels in the UK, with skills playing an indirect part in much of the remaining gap. For example, capital investment relies on workforce skills for its effective use, and innovation is an expression of workforce skills. Skills do not provide such an explanation of the advantage in the USA. For that we have to look to capital stock, innovation and economies of scale.

One key objective of the Executive is to develop a skilled and adaptable workforce that will underpin an effective and efficient labour market, capable of adjusting to changing circumstances and new challenges in the global economy and, therefore, to facilitate speedy structural adjustment in the economy.

For the Executive, the term "lifelong learning" embraces all the means by which knowledge and skills are developed. For younger people, most learning takes place in educational establishments. The primary channel for learning for those out of full time education is elsewhere, mostly through employer-supported training, whether on or off the job. Learning, though, has benefits beyond growth and productivity. For the individual, it improves employment prospects and therefore wellbeing and security. It promotes economic and social participation of all citizens. Education is a vital lever to enable those on the margins to participate in the rest of society. Education also helps people to make better informed decisions, and so is associated with better outcomes. For instance, it appears to be associated with better health. There are also potential social benefits: for example, lower crime.

A number of commentators have described the UK as having a low-skill equilibrium. They have argued that there is a perception that businesses are often producing more basic, less customised and less skill-intensive products than their competitors overseas, and are less likely to compete on the basis of quality, adapting over many years to the poor availability of skills in the workforce. This has reduced the incentives for individuals to acquire skills and thus has become self-reinforcing. It may be that some sectors of the economy are more able than others to survive within a low skilled equilibrium. To improve living standards in Scotland, however, it is important to break out of this cycle, and create a highly skilled and adaptable workforce that can support dynamic and competitive enterprises.

What is our strategic approach?

The Executive's strategic approach in the field of lifelong learning is underpinned by a recognition that individuals and employers, left to themselves, will invest less in training than is socially optimum, because of a variety of market failures.

The most obvious arguments relate to the positive externalities generated by training, but there are also a number of barriers to firms and, particularly, to individuals investing to an efficient level. These elements are summarised in Box 6.3.

These failures affect particularly the demand for vocational qualifications at level 2. Scotland has a relatively high proportion of its population with high-level qualifications, but relatively few at intermediate level and this level is generally seen as important in contributing to economic growth and productivity; in other words, there are large positive externalities. However, while those with higher level qualifications benefit in higher employment rates and higher wages, vocational qualifications at level 2 produce relatively small returns to the individuals. ²⁴ Indeed, the returns for level 2 qualifications gained by adults appear to be negligible. There is, therefore, a big gap between personal and social benefits with little incentive for individuals to undertake the training (except as a stepping stone to a higher qualification). There will continue to be an emphasis on developing skills of people who are currently marginalised within the labour market, but who do have the capacity to undertake productive employment.

In the light of these key obstacles to the development of a strong culture of lifelong learning on Scotland. The Executive set out its approach at the start of 2003 in Life Through Learning; Learning Through Life. This set out a framework with five goals. These were: a Scotland where

• people have the confidence, enterprise, knowledge, creativity and skills they need to participate in economic, social and civic life;
• people demand and providers deliver a high quality learning experience;
• people's knowledge and skills are recognised, used and developed to best effect in their workplace;
• people are given the information, guidance and support they need to make effective learning decisions and transitions;
• people have the chance to learn, irrespective of their background or current personal circumstances.

The strategy includes forty-eight specific commitments, some of which are already in place. The Executive is developing plans to monitor progress in delivering these and to evaluate the impact of the strategy - both the individual elements and the strategy as a whole - with annual reports to a forum of stakeholders.

What has happened since 1999?

The Executive has taken steps to expand capacity, to provide new incentives and to improve the information available to potential learners.

Improving the flow of information. In order to improve decision-making in the planning of learning, the Executive is enhancing the flow of good quality information at low cost. Individuals need to know about the rewards to various skills and the means to acquire them. Employers need to know about labour availability. Government agencies have long had a role in providing comprehensive and impartial information to inform choices. However, despite the efforts of the public sector in this regard, there is some evidence of "government failure" with a lack of clarity in where to get information, leading to duplication and gaps.

The Executive is, therefore, developing a more authoritative and more transparent system to reduce the costs involved in finding information and thus lead to better decision-making through:

• learndirect scotland, which provides information about learning opportunities;
• Careers Scotland, which provides an all age advisory service;
• Futureskills Scotland, which provides high-quality labour market intelligence; and
• the development of the Scottish Credit and Qualifications Framework, which allows qualifications to be compared on a consistent basis, so enabling learners to follow more flexible routes.

Improving the incentives to undertake learning activities. The Executive has implemented a series of measures to encourage people to undertake learning activities, including:

• tuition fees, which are paid for all full time students in higher education;
• Educational Maintenance Allowances have been introduced to support 16-19 year olds from low income families to stay in school or further education - following a pilot in 2001, they are rolled out across Scotland in 2004;
• the Executive has announced a new Individual Learning Accounts scheme - 'ILA Scotland' - to be launched in autumn 2004 to encourage continued learning by providing financial assistance to people on low incomes.

Expansion of capacity. The Executive has funded expansion of provision from basic skills to higher education

• The Adult Literacy and Numeracy Strategy was launched in 2001 with a commitment to double capacity to 80,000 learners by 2004. ²⁵ The Lifelong Learning Strategy includes a commitment to raise the literacy and numeracy skills in 150,000 adults by 2006.
• It was noted earlier that the market failures affect particularly the demand for vocational qualification at intermediate levels. One means of addressing this is the Modern Apprenticeship programme providing vocational training, mainly to people aged 16-19.
• The number of enrolments in Further Education decreased from 519,000 in 2001/2 to 489,000 in 2002/3. The number of students in Higher Education increased from 238,000 to 273,000.

Improving Employability Prospects

Skillseekers. The Executive provides support through the Enterprise Networks for the delivery of the skillseeker programme. Skillseekers is the national training programme for 16-24 year olds and combines work-based training with study for a Scottish Vocational Qualification at SCQF 5 (level 2). It is funded through the block grant-in-aid from the Scottish Executive to Scottish Enterprise and Highlands & Islands Enterprise and delivered locally through the Enterprise Networks. The Enterprise Networks makes a contribution towards the cost of training, and it is for them to decide appropriate levels of funding. Skillseekers has developed as a 'job with training'. Around 75 per cent of skillseekers are currently employed and receive a wage from their employer.

Training for Work (TfW) is a voluntary training programme for client groups aged 25 plus, unemployed or claiming benefits for at least 6 months (with earlier entry criteria for disadvantaged groups). It currently complements New Deal 25plus by offering a voluntary intervention in advance of the mandatory New Deal programme. It is financed by the Scottish Executive, reflecting Scottish Ministers' responsibility for training for employment. Funding is via grant in aid to Scottish Enterprise and Highlands & Islands Enterprise, who manage the programme through contracting with training providers. TfW capacity for 2004-05 is for 11,150 people to start on the programme, with a target of 40 per cent of programme leavers obtaining job outcomes. Most TfW clients are referred from Jobcentre Plus. Following a recent review of TfW, it is being re-focused during 2004-05 with a clearer emphasis on training towards specific employment opportunities and labour market needs.

Get Ready for Work (GRfW) is a national training model which gives priority to 16-17 year olds with additional support needs who would otherwise be unable to access other training, learning or employment opportunities. GRfW is a 4-strand programme delivering Life Skills; Core Skills (to SCQF 3); Vocational Skills (to SCQF 4); and Personal Skills. GRfW replaced Skillseekers Special Training Needs in 2002. The target for 2003-04 is to progress 1,300 young people to FE, mainstream Skillseekers, or employment. Full-time, part-time, and ad-hoc attendance allowances are paid depending on the strand and participation. Funding is via grant-in-aid to the Scottish Enterprise and Highlands & Islands Enterprise who deliver the programme in partnership with Careers Scotland, contracting with training providers.

New Futures Fund (NFF) is a uniquely Scottish labour market programme aimed at closing the opportunity gap for people aged 15-34 years facing serious disadvantage in the labour market. The service is delivered through a range of agencies with expertise in working with specific client groups including: mental ill-health, drug misuse, homelessness, offending. NFF does not specifically require or expect immediate job outcomes. Rather, the emphasis is on small steps of progress. Funding is through grant-in aid from the Executive to Scottish Enterprise & Highlands & Islands Enterprise. Phase 1 of NFF ran from 1998-2001; Phase 2 is due to end March 2005. A key objective of Phase 2 is to mainstream NFF, that is, where mainstream agencies adapt their provision, learning from NFF, to better meet the needs of the client group.

New Deal. Employment policy is reserved to the UK Government which takes the lead on funding and delivery of the New Deal and Welfare to Work Programmes through the Department for Work and Pensions and Jobcentre Plus. In Scotland it does this in partnership with the Scottish Executive and contributing organisations.

6.5 The Electronic Infrastructure

The strengthening of the electronic infrastructure is important in ensuring that Scotland has an appropriate communications network that allows business and individuals to exploit the opportunities presented by e-commerce. The Executive has therefore made a well-developed electronic infrastructure one of its key objectives, thereby encouraging more e-business to raise the long-run sustainable growth rate of the Scottish economy. It is, moreover, a key contributor to the Executive's vision of digital connectivity, thus ensuring that Scotland is a globally connected nation.

Why is Electronic Infrastructure important to Economic Development in Scotland?

The first FEDS highlighted the fact that countries require a highly developed electronic infrastructure in order for its enterprises to be able to compete in international markets. An increasingly important aspect of developing Scotland's electronic infrastructure is maximising the provision of high-bandwidth services (also known as broadband), which allow for quicker transfers of different and more complex types of information.

Broadband is potentially one of the major facilitators of e-commerce in both new and existing firms. It offers firms a number of means of reducing costs and expanding their business. Faster internet connections allow firms to simplify their supply chains, reducing transactions costs and prices. Firms are also able to develop and deliver their goods in new and imaginative ways, while smaller firms can establish a reputation for quality by offering after-sales services and ordering facilities that would not have been feasible otherwise. Broadband also offers increased opportunities for education, training and lifelong learning, which should help to improve the economy's human capital, which can lead to a more productive and adaptable workforce.

Increased connectivity can help remove the geographical barriers that may limit Scottish firms' access to new markets and new ideas. Broadband technology can help reduce the barriers to entry faced by new or existing firms in rural or disadvantaged areas, enabling them to increase their range and scale of operations, enlarge their customer base and improve their productivity and profitability. Increased connectivity can also help the flow of information and ideas between individuals and firms, which may generate 'spillover' benefits (in the form of flows of knowledge) from the network. Such benefits may previously have been available only through close geographical proximity between firms. Recent evidence published by the DTI ²⁶ suggests that the introduction of broadband facilities can have positive effects on local GDP, employment and business revenues and costs, although there was evidence of displacement of activity from other areas.

Increased connectivity can also facilitate faster access to online information and resources, allowing employees to undertake more sophisticated training. Broadband therefore offers more opportunities for the current and future labour force to develop their skills and knowledge, which can help to increase the flexibility and productivity of the workforce.

What has happened since 1999?

However, these benefits will only manifest themselves if Scotland achieves a high level of broadband uptake. Evidence suggests that Scotland's connectivity lags behind that of the whole of the UK, and of other OECD countries, in broadband coverage and uptake. In 2001, Scottish broadband coverage was just 43 per cent and the Executive therefore launched a Broadband Strategy, which was set out in the policy document, Connecting Scotland: our broadband future. The Executive has reached its short-term target (set in December 2002) to extend broadband coverage to at least 70 per cent in Scotland achieving access to ADSL-equivalent services by March 2004. This was achieved, ahead of schedule, in January 2004. Furthermore, A Partnership for a Better Scotland (2003) features a commitment to extend broadband coverage to every area of Scotland. This vision is very much in line with the DTI's aim, announced in November 2003, to have broadband in every community by the end of 2005. Indeed the Executive's new target is to ensure access to broadband services in every community in Scotland by the end of 2005.

There has been considerable progress in the roll-out of mass-market broadband services in Scotland - from 43 per cent of households having access in 2001 to 82 per cent coverage as at May 2004. In rural areas, where the incumbent supplier still has a de facto monopoly in voice telephony, the market has been stimulated to extend wholesale broadband services, resulting in some degree of choice for the consumer of broadband services at the retail level. This is to be welcomed. But there is now a clear indication of how much further the broadband market is likely to extend in Scotland in the short to medium term, and this does not go far enough to prevent a digital divide:

• BT has declared its intention to upgrade all remaining telephone exchanges on its demand registration "trigger list" to allow ADSL access. For the UK, this will result in near pervasive coverage with only 600 exchanges left without access. However, 399 of these exchanges are in Scotland, covering about 50,000 households and around 5,900 businesses.
• Even where exchanges have been enabled to provide ADSL, there is a sizeable minority of households and businesses which are out of reach of the service. While commercial technology trials are in hand to extend the reach of ADSL, it is likely that there will still be a minority unable to access services.
• Broadband access via cable modem is now available in the majority of the cable franchise areas in Scotland, but these areas are mainly in the Central Belt, and reach only 40 per cent of households. Cable companies have openly stated that their priority will be to exploit these assets, and hence they are unlikely to build speculatively in the current market.
• Wireless technology has potential to address broadband access problems in rural and remote Scotland. However, operators have made clear that there is unlikely to be a commercial case for addressing all of this dispersed and difficult to reach market without additional funding.
• Powerline technology also has potential, but is not fully commercial.

Without intervention, it is clear that, in the short to medium term, the market will be unable to respond to deliver services to about 4 per cent households in central and southern Scotland, and 20 per cent of households in the Highlands and Islands.

The strategy

Connecting Scotland identified three factors that reduced uptake: access, cost and demand. These constraints influence both the provision and demand for broadband. The Scottish Executive has the overall strategic lead for the various public sector programmes to encourage broadband provision and uptake. These activities are taken forward in partnership with the Executive's enterprise agencies, who are the key implementers of our broadband measures. These measures include:

Scotland-wide (implemented by both SEn and HIE)

• A successful Business Broadband Incentive scheme, which has offered grants to about 6,000 Scottish firms intending to take up a broadband connection;
• High profile marketing campaigns to encourage demand;
• Provision of E-business demo-centres to highlight the benefits of broadband.

Scottish Executive

• The new broadband supply-side intervention will address access where there is no planned commercial coverage.
• The Scottish Schools Digital Network project aims to deliver a safe and effective national intranet connecting together schools, educational authorities and number of other appropriate educational agencies;
• In line with the Executive's overall strategy of promoting affordable and pervasive access to broadband across Scotland, the Pathfinder project is assessing the benefits which can be secured through the aggregated procurement of public sector demand for broadband services in the Highlands & Islands and the South of Scotland.

Scottish Enterprise

• Fixed Wireless Pilot Projects in parts of Ayrshire: Broadband Farming project and Community Broadband project.
• Support for rural Wireless Broadband Trial for small communities in Lochwinnoch and Aberfoyle
• Scottish Borders Rural Broadband Service using wireless technology in parts of the Borders unlikely to receive commercial broadband services
• Part-funding of powerline comms trial in Crieff;
• Wireless Innovation Centre in Hillington;

Highlands and Islands Enterprise

• Community Wireless broadband pilot (Hi-Wide) aiming to bring broadband to very small communities in the Highlands and Islands, subject to demand and non-availability of a commercial solution;
• Major wireless trial being taken forward in the Western Isles;
• Subsidising the upgrade of telephone exchanges to ASDL broadband in Nairn, Forres, Buckie, Dingwall, Oban, Fort William and subsidising further upgrades in Stornoway, Lerwick and Kirkwall as well as Grantown and Fortrose; and
• Part-funding of powerline comms trial in Campbeltown;

Some of the above have been funded under the 4.4 million Scottish element of the DTI's 30 million broadband fund. The Executive oversaw these projects, which were managed by the Enterprise Networks. The Executive has also undertaken to provide the DTI with evaluations of these projects. This is one specific example of a wider process of interaction between the Executive and other interested parties throughout the UK that is geared towards achieving Scottish, as well as overall UK aims on Broadband.

What is our principal strategic approach to Electronic Infrastructure?

In principle, the strategic approach is to allow market mechanisms to act without state involvement where possible. In this key area, markets should provide the best means of allocating resources, and providers' decisions to supply infrastructure and services will be made according to demand for their product. The Executive believes that the public sector should only be involved where there is evidence of a market failure, or where there are significant equity issues involved, and where the public sector has the necessary skills to contribute successfully. It is the principle of social equity which has stimulated the devolved Scottish government to intervene to achieve broadband access in the most "difficult" areas.

In the more urban areas, it is generally the case that the market is operating satisfactorily. However, surveys carried out before Connecting Scotland was established found that this was not be the case across the whole country. There was particularly a danger of a 'digital divide' between urban and rural areas becoming established. The potential market failures are illustrated in Box 6.4.

The potential for the development of a digital divide also raises issues over rights of access to services for people living in rural areas. There is the possibility of tension between the efficient market outcome and 'fair' access to high-speed internet connections for those living in rural Scotland. Scottish Ministers believe that it is appropriate to encourage provision in these areas using the initiatives described above, as this will help ensure businesses in more remote areas compete on a level playing field with those in built-up areas, while also helping to promote economic development in communities throughout Scotland.

The Executive's policy has been developed in response to these market failures. Some of the initiatives above have been targeted at:

• improving information as to the benefits of broadband, with the intention of boosting demand. The www.broadbandforscotland.co.uk website created for respondents to the broadband marketing campaign, for example, can help businesses and consumers find out what is available to them, the different technologies, and the benefits of broadband. Increased demand for broadband will have the effect of encouraging providers to increase provision to areas they may otherwise have neglected;
• assisting providers in installing and testing new technologies, which should increase provision and also open up new avenues for competition to take place. Under the UK Broadband Fund, for example, trials of wireless networks and powerline carrier technology are taking place in communities in Scotland that cannot access mass-market technologies. However, these interventions are intended to supplement the market, not replace it.

The Executive and the Enterprise Networks intend to cooperate and assist providers as far as possible in allowing normal market forces to operate. Where the Executive has made the decision to intervene in the market, as in the broadband supply-side intervention, it will do so in a technology-neutral and provider-neutral way. No preference will be given to one type of technology or one provider over another.

6.6 The Health System

Public health expenditure ²⁷ in Scotland is estimated to be broadly equivalent to 7 per cent of the country's GDP. Scotland spends 1,262 per head of population on health - around 14 per cent higher than the UK figure of 1,109. ²⁸

The relationship between health and the economy is a complex one. Much of the empirical evidence on the links between health and economic growth tends to focus on the impact on developing countries. There is a growing interest, however, on the impact of health in developed countries.

Recent studies on the nature of the links between health and economic growth suggest that there is a strong statistical link between health expenditure and economic growth in advanced economies, which has a dual causality effect. Economic growth contributes to the improvement of the health of a nation, yet health itself may be a driver of economic development. The study found that investment in health is significant in explaining the variation in output through human capital in OECD countries, and concluded that "both health and education should be highlighted as indispensable for increased labour productivity and economic growth".

Fogel ²⁹ looked at the impact of improved nutrition, and estimated that around 30 per cent of the estimated growth in per-capita income in Britain between 1790 and 1980 was attributable to improvements in nutrition. This had the effect of raising the labour force participation rate, and the intensity of work per hour for those who were working. A further study by the OECD ³⁰ which reviewed the evidence linking a large number of factors to economic growth, recognises that "health status can potentially have positive feedback on levels of human capital".

Health can therefore impact on economic growth in several ways. Good health can boost productivity. Ill health, on the other hand, can impose a significant cost on the Scottish economy in terms of lost output and reduced productivity. Figures show that 2.4% of employees were sick in any one week in Spring 2004 (LFS, ONS Spring quarter 2004) in Scotland were absent from work due to illness or injury. Of those who were economically inactive (working age), but would like to work, in Spring 2004 38.8% were long-term sick or disabled.

Improved productivity is the key source of international competitive advantage and therefore the preoccupation of the Framework. Thus, the effect of ill health includes the cost of lost working time combined with the cost of less productive working time. Both these factors place a constraint on the ability of a nation to maximise economic development.

Health Policies and Social Integration

Poor health is closely linked to poverty and social exclusion. Major inequalities in health are often the outcome of socio-economic inequalities. For example, mortality rates among people in deprived areas are about twice the rate of those in the most affluent areas, and while overall health is improving, the rate of improvement for the most deprived is outstripped by that of the most affluent.

Reductions in health inequalities will help maintain the vision set out by FEDS. Increasing the rate of health improvement among the most disadvantaged people and communities can lead to improving life chances and opportunities. The Cabinet Delivery Group on Closing the Opportunity Gap is working on key anti-poverty themes of which health improvement and health inequalities is one.

Improving health and increasing social integration cannot be done with health policies alone. There is a significant amount of interdependency between Health and other sectors - education, housing, environment etc. It is recognised that a cross-cutting and multi-agency approach is needed to make our policies more efficient and effective in tackling these issues.

What is our principal strategic approach to health?

The four key objectives of the strategic approach to health as outlined in Building a Better Scotland (2002) are:

• Work towards a step change in life expectancy for Scots, particularly disadvantaged members of the community, including children and older people.
• Ensure that health care providers provide swift and appropriate access to health care, covering primary, community and acute care.
• Improve the patient's experience of the service provided by the NHS.
• Improve services for older people, at home and in care settings.

Towards a Healthier Scotland (1999) and Improving Health in Scotland - The Challenge (2003) provide the policy framework for the Executive's actions. Both have an overarching aim of tackling health inequalities.

The health improvement strategy set out in Improving Health in Scotland - The Challenge (2003), aims to improve health for all while narrowing the opportunity gap. It is focused on four pillars - early years, teenage transition, the workplace and communities - and seven health topic themes - physical activity, healthy eating, smoking, alcohol, mental health and well-being, health and homelessness, and sexual health.

The strategic approach also recognises that health is determined by a complex interaction of physical, social and personal, and environmental factors. In turn, improvements to the nation's health provide benefits for the wider economy and for specific sectors - such as education. There will be particular effort to improve occupational health services, to encourage people to remain in work wherever possible and to return to the labour force after periods of incapacity. Apart from providing health services, promoting the right culture and attitudes can have a significant impact on making Scotland a healthier place.

What has happened since 1999?

Since devolution in 1999, a range of health policies have been implemented, aimed at improving the NHS. These include:

• Free personal and nursing care for older people, benefiting more than 75,000 people (launched 1 ^st July 2002). This involves an annual expenditure of 125 million, and the policy aims to raise the quality of life of the elderly.
• Funding for training 10,000 nurses and midwives - an additional 1,500 - and for an additional 600 consultants has been made available. This will help to ensure that Scotland has the staff required to provide high quality health care.
• Expanding the Active Primary Schools Programme and supporting a School Sports Development Officer in every secondary school to increase the level of physical activity undertaken by school children.
• Launching Social Inclusion Partnerships (SIPs). SIPs are multi-agency partnerships - including the private sector and community groups - targeted on those areas with have the greatest need, and have socially excluded groups. Health promotion staff work in SIPs to support assessment of needs and the delivery of health related programmes.
• Investing at least 750 million in buildings and IT. This involves building modern and pleasant hospitals and primary care facilities. As well as improving the infrastructure and efficiency of the NHS, this policy seeks to improve patients' experience of the NHS.

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