Written evidence submitted by Prosper (SCDI) – ITS0017

About us and reason for submission

Prosper (SCDI) is a unique membership organisation, with a proud history of bringing people together from government, business and civil society to effect change. Our purpose is to create a prosperous Scotland which benefits all of its people and places.

With members from across Scottish society - from businesses to third sector organisations to universities and colleges - our shared ambition is to support economic growth and prosperity for all of Scotland and better social and environmental outcomes.

As Scotland’s independent industrial council, we and our members have significant interest and concern in how the UK government’s industrial strategy relates to industrial change and supports economic growth in Scotland.

For more information on this submission, please contact our Policy Team:

Executive Summary

Scottish industry has been subject to almost constant transition since the Industrial Revolution. The rise and fall of heavy industries such as shipbuilding, steel, coal, and mass manufacturing have left lasting social impacts. As Scotland’s industries face further transition today, from the move towards net zero and the development of AI, a modern industrial strategy designed in partnership between government, industries, trade unions, and the third sector is vital for delivering economic opportunities and protecting communities against decline. The UK government’s Invest 2035 forthcoming industrial strategy is generally well aligned with the challenges and opportunities facing Scotland today. However, it is important to ensure that sectoral strengths for Scotland do not fall through the gaps between the eight identified growth sectors, such as in food and drink. There is a disappointing lack of Scottish representation on the Industrial Strategy Advisory Council and the place-based aspects to the new industrial strategy will require tailoring to the Scottish institutional context. The overlap between Invest 2035 with the Scottish government’s Green Industrial Strategy and National Strategy for Economic Transformation, is encouraging and it is incumbent on both governments to continue to work together in removing barriers to industrial growth in Scotland, such as grid connections, electricity market reform and zonal pricing, the consenting and planning system, skills and workforce shortages and housing supply.

Call for evidence questions

1. Which industries in Scotland have previously experienced industrial transition, and to what extent were these transitions effectively managed? In what ways did these historic transitions in Scotland differ in their causes, impacts and results? Relevant examples could include (but may not be limited to) coal, steel, heavy engineering, textiles, and shipbuilding.

Economic historians would be better placed to provide analysis of historical examples of industrial transitions and give detailed answers to the supplementary questions grouped under question 1.

Following the Industrial Revolution, Scotland’s economic history has been one of almost constant industrial transition with the country’s sectoral mix changing markedly. For example, the 1929 Wall Street Crash and resulting Great Depression in the 1930s had a significant negative impact on industries in Scotland, including coal, iron, steel and shipbuilding, with resulting social impacts in relation to high levels unemployment and poverty, particularly in west central Scotland.

Prosper’s own history and legacy comes from this period, which started in 1931 as the Scottish National Development Council – a collaboration between local government, employers, and trade unions, to make an “effective contribution towards the economic recovery of Scotland”.[1] As well as researching the causes of the Crash and making representations to Parliament for potential solutions, the Council also had a practical aspect, establishing Scotland’s first industrial estate at Hillington to provide modern facilities for new industries.

Prosper’s other forerunner institution was the Scottish Council on Industry which was setup by the then Secretary of State for Scotland Tom Johnston in 1942 to bring together business and trade union leaders, including the Scottish Development Council. This addressed concerns that wartime production was being concentrated in the English Midlands and so the Council’s support for the Scottish defence sector attempted to both assist the war effort and also increase jobs in industry. The parallel with the current Government’s focus on increasing defence spending as a response to both global geopolitical tensions as well as maximising its potential for supply chain and skilled employment opportunities is worth considering.

The Scottish Development Council and the Scottish Council for Industry merged in 1946 to form the Scottish Council for Development and Industry (SCDI), which took a key role in shaping postwar industrial transition in Scotland, such as through the creation of New Towns, expansion of hydro-electric power in the Highlands, attraction of inward investment from the US into the electronics industry, development of the modern tourism industry and growth of the North Sea oil and gas supply industry. The foundation of the New Towns to support industrial investment and the catalytic impact of energy investments also have parallels today. These postwar industrial transitions took place against a backdrop of the transition, decline, and eventual collapse of traditional heavy industry from the 1950s onwards, such as shipbuilding on the Clyde as decolonialisation decreased demand from markets in the former British Empire, reduced the size of the merchant navy and competition from more modern yards in East Asia increased.

Other examples of industrial transition and decline in heavy industry include steel, most notably the closure of the Ravenscraig steel mill in 1992, and coal mining and coal fired power stations, such as the closure of Cockenzie in 2013 and Longannet in 2016. Plans to redevelop brownfield sites have often not been fully realised and take longer timescales than originally planned. For example, the proposal for a new train factory on the site of the former Longannet power station has not been realised.

A more recent example of industrial transition concerns the decline of electronics manufacturing in the so-called “Silicon Glen” across the central belt of Scotland after the dot.com bubble burst in the early 2000s and multinational companies moved production to cheaper locations. This industrial transition has likely had less scarring on local economies – although there was an impact on Scottish GDP, there was less of an impact on employment. People from the industry also helped to grow the Scottish tech industry in subsequent decades.

• How were Scotland’s industrial transitions different in nature to those experienced in other parts of the UK?
• What have been the socio-economic impacts of these transitions, and in what ways do Scottish communities continue to be impacted by the legacy of them today?
• How effectively have UK Government policies and interventions, both existing and historic, mitigated the negative impacts of these industrial transitions?

Again, economic historians would be able to provide a more expert response to this supplementary question. However, Prosper is aware of concern on the part of some of our members, particularly in the energy sector, of how Governments of all stripes and at both Westminster and Holyrood have managed past industrial transitions and the risk that communities facing industrial transition today risk being “left behind”.

2. Which industries in Scotland today are likely to experience industrial transition or decline in the near future? The Committee is interested to hear from a wide range of industries including, but not limited to, oil and gas and manufacturing, as well as growth-sectors in Scotland such as space and data technology.

Multiple long-term fundamental changes are underway in Scotland’s economy including the transition to net zero carbon emissions and shift away from hydrocarbons; technological developments such as advancements in AI; and demographic changes from an ageing population. While these developments will lead to industrial transition across the economy and the risks of industrial decline, with industry leadership supported by the right policy levers, these changes offer opportunities for industrial growth in Scotland.

The net zero transition will affect all industries, not only oil and gas production. Economic activities currently reliant on hydrocarbons, such as transport, domestic heating, and in manufacturing, will shift towards electrification or rely on mitigations such as Carbon Capture, Usage, and Storage (CCUS). Other high emission sectors, such as agriculture, will require more bespoke adaptations and mitigations. However, it is likely that some sectors will emerge through the transition largely intact, but with different operational and technology requirements – for example moving away from diesel buses and towards electric vehicles for public transport operators. These adaptations will require significant upward investments for these industries to smooth the transition to decarbonisation.

There will clearly be major changes in Scotland’s oil and gas offshore energy industry. Oil and gas production on the UK Continental Shelf peaked in 1999 and the plunge in prices in 2014-16 had a serious long-lasting negative impact on the industry. The recent report from EY found that the mining and quarrying sector at UK level (which is dominated by oil and gas production from the North Sea) is forecast to have negative growth of -1.8% from 2025 – 2028. However, recent analysis by Offshore Energies UK (OEUK) found that the North Sea could continue to supply around half of the UK’s oil and gas needs up to 2050 with enough investment in new projects, particularly to increase recovery from existing fields.[2]

A key challenge is that, under the current regulatory and fiscal regime, the North Sea basin has become increasingly uninvestable. A well-managed and just transition to net zero that allows the industry and supply chain to gradually phase into clean energy production mitigates the risk of industrial decline. However, it is also the case that not all parts of the oil and gas industry will be able to phase into low carbon energy – a report published last year by OEUK found that, despite first-mover advantages and promising investments, the UK supply chain has struggled to gain market share in fixed-bottom wind in particular, because of relatively low capability and asset overlap with the hydrocarbon sector.[3] It will also be more difficult for the opportunities presented by clean energy industries to be fully realised without ongoing investment in the North Sea to produce revenues which can fund the transition and anchor the industry in Scotland rather than relocate to oil and gas centres around the world. Prosper repeatedly hears from our members in the energy supply chain, particularly SMEs, need certainty for continued projects servicing oil and gas contracts while making the transition to an energy sector led by renewables.

The impact of new technologies, especially AI, is hard to predict while products on the market are developing very rapidly. However, if AI is a “General Purpose” technology – a technology that affects the entire economy – then all industries will be affected as they adopt this new technology. This may include more significant industrial transitions for services industries which currently dominate the Scottish economy. Increased automation raises the obvious risk of job losses (as has been the case historically, particularly in manufacturing industries). A recent report from IPPR found that currently available AI tools, including generative programmes could replace 11% of common tasks currently undertaken in workplaces, with back office jobs (such as personal assistants), entry level jobs and part time jobs at the greatest risk.[4] The IPPR analysis further found that 59% of common tasks could be exposed if AI systems are more deeply integrated into organisational processes, suggesting that a much larger number and types of jobs could be impacted, including higher-paid workers.

As regards the data technology sector itself, there are potential opportunities for Scotland from locating data centres for AI servers. However, these require vast amounts of energy and substantial expansion in this sector would require an upgraded and decarbonised electricity network. It is also unclear the extent of number and quality of jobs that would come from investment in data centres.

It is worth noting the impact of demographic shifts on industrial transitions, as Scotland’s population ages and the share of the workforce in the population is in relative decline and/or the population falls as deaths outstrip births (in the absence of high levels of immigration). Demographic change has a direct impact on the ability of Scotland to realise the opportunities offered by the net zero and technological transitions due to the availability of a sufficiently large and skilled workforce. An ageing population will also have wider economic impacts with Scotland’s growth rate and productivity likely to slow. As demand for health and social care services – largely in the public sector – increases, there will be continued pressures on public spending and the size of the public sector will remain large relative to the private sector economy. Increased automation (from advancements in AI) may be less problematic in this context as labour becomes increasingly scarce and technology plays an increased role in health and social care delivery.

• Which communities in Scotland could experience the effects of industrial transition or decline in the near future?

The relative dominance of the oil and gas industry in Aberdeen – and the North East of Scotland more widely – means that communities in this region will be most immediately impacted by the transition to net zero in the near future. Recent analysis from Centre for Cities found that 30% of jobs in the “exporting base” of Aberdeen (businesses that sell into regional, national, and global markets) were in the oil and gas industry, with 9,000 related jobs lost since 2010. Furthermore, the number of retail jobs in the city has declined by 30% in that time (compared with 6% across the UK as a whole), demonstrating wider consequences for communities from industrial decline in a dominant sector. A recent forecast from EY suggested that Aberdeen will have the slowest economic growth of any UK city in the next three years, which will have a resulting impact on employment.[5] It is also the case that the relative decline of North Sea oil and gas production will have an impact on communities outside of the North East – a recent OEUK paper showed that 200,000 skilled jobs across the UK are supported in the offshore energy supply chain.[6]

The extent to which the North East of Scotland will experience industrial decline in the near future will depend on whether Government and industry address the barriers to investment in oil and gas production, especially by reforming the fiscal regime before 2030, and on whether the barriers to clean energy industries, such as timely planning consents and grid connections, and transmission charging, are removed. The 2023 report by RGU Energy Transition Institute “Powering Up the Workforce”[7] found that, if UK Government’s targets for “new” offshore energy technologies such as offshore wind (including floating wind), hydrogen and CCUS are met, the offshore energy workforce across the UK could grow from just over 150,000 in 2023 to close to 225,000 by 2030. The Scottish-based offshore energy workforce would increase by 25% from 79,000 to close to 100,000 over the same timescale. However, if these targets are not achieved the UK offshore energy workforce could drop by around 15% to around 130,000 by 2030, while the Scottish-based workforce could fall by almost 40% to below 50,000.

The report also found that while a managed transition from oil and gas to clean energy industries would reduce the oil and gas workforce from 120,000 in 2023 to around 87,000 by 2030, an accelerated decline could reduce the workforce by 50% to around 60,000. It highlighted the significance of sustaining and developing UK supply chain capacity/capability, especially over the period from 2024 to 2028, to maintain skilled employment that supports the industrial transition in energy generation.

These forecasts show the importance of delivering the investment in planned developments to realise employment opportunities, the scale of the demand for skills and the need for a managed rather than a disruptive transition from oil and gas.

Labour demand stimulated by new offshore energy projects will be more dispersed around the UK than employment levels currently are within the offshore oil and gas industry. While the supply chain capacity/capability based in the North East and Moray is a competitive advantage for the region, employment in new technologies is forecast to grow more rapidly in other regions of the UK and therefore employment levels in the North East and Moray are disproportionately at risk from an accelerated decline in oil and gas. Furthermore, although optimistic scenarios for the energy transition offer confidence that employment levels can be maintained, as the report ‘Energy System and Just Transition - Independent Analysis’ by EY for the Scottish Government found, models show that the decline in oil and gas will lower wage levels which will cause a significant GVA gap. This will reduce the prosperity of the economy in the North East and Moray.

The UK and Scottish Governments should be proactive rather than reactive (as has been the case with Grangemouth) in supporting industrial change in the North East. A positive decision about funding for Project Acorn through CCUS Track-2 in the Comprehensive Spending Review is especially vital.

In the immediate term, communities around Grangemouth face a high likelihood of experiencing the effects of industrial change and decline following the closure of the Petroineos oil refinery. The Project Willow study, funded by the Scottish and UK governments, is a welcome opportunity to manage industrial transition in a way that protects communities and provide new sources of employment for workers in declining industries. It is paramount that both governments now work with industry and local partners in Falkirk and Grangemouth to deliver the ambitions of the Project Willow report at pace, address concerns about timescales and make progress on investment over the next two or three years. A green light for funding for Project Acorn is also key to industrial transition in Grangemouth.

The scale of planned investments in renewable energy in the Highlands and Islands – on a comparable scale to investments during the oil and gas boom from the late 1960s to the early 1980s –is an example of highly positive industrial transition but with some potentially negative consequences. In particular, in the absence of effective planning and development of enabling infrastructure (such as housing and the availability of skilled workers), there is a risk of dislocation of existing economies and communities as existing sectoral strengths in the Highlands and Islands struggle to compete for people and resources in the face of large investments in clean energy industries. There is also concern of a repetition of the overheated housing market that was a feature of the oil boom in Aberdeen if sufficient affordable housing is not available, leading to inequalities as local families are priced out of their communities.

• What lessons can be drawn from a) previous governments’ industrial strategies and management of industrial transition b) other countries’ management of industrial transition?

The overarching lesson that can be taken from previous governments’ industrial strategies is that short-termism and instability in UK industrial policymaking has been a barrier. Previous governments have also rarely systematically evaluated the impact of policy interventions to find “what works” in industrial strategy. Policymaking in areas closely linked to industrial strategy, such as major infrastructure projects and further and vocational education, have also been prone to excessive churn.

The short-lived nature of many previous industrial strategies stands in stark contrast to the long-term stability and consistency in economic policymaking in some other countries, such as Germany, Norway, Sweden, the Netherlands, Denmark and Ireland. A higher degree of institutionalisation of partnership working and consensus building between governments, industries, trade unions, and social partners, have helped other countries embed industrial strategy and prevent politicised short-termism in policymaking.

• How can these lessons be applied to transitions affecting industries in Scotland today?

Applying lessons from previous industrial strategies to the transitions affecting industries in Scotland today reinforces the importance of developing and sticking to an industrial strategy which is based on a strong partnership between government, industry, trade unions and education.  

3. To what extent is the UK Government’s forthcoming industrial strategy, Invest 2035, geared towards the challenges and opportunities facing Scotland today?

The Invest 2035 forthcoming industrial strategy is focuses on eight ‘growth driving sectors’, which are generally well aligned with the challenges and opportunities facing Scotland today. There are clear Scottish sectoral strengths that are covered in the eight growth driving sectors. However, while the sectoral approach is right to identify existing sectoral strengths and their importance for driving growth across the economy as a whole, there are gaps which are not covered by the identified eight sectors. Industries may not fall solely within one sector but contribute to the success of a range of sectors – for example, the UK’s biggest single food and drink export is Scotch whisky, with the industry both part of the advanced manufacturing sector and also a major driver of tourism. However, it would not appear to have a prominent role in the industrial strategy – the Invest 2035 consultation pointed to stubbornly low levels of productivity growth in the food and drink sector although in Scotland, Scotch whisky manufacturing is second only to energy in terms of productivity and there continues to be long-term export growth opportunities for its premium products.

The sectoral lens is an example of a “vertical” approach to industrial strategy, through targeting specific firms.[8] However, successful industrial strategies do not only identify potential growth sectors but also support existing industries which have comparative advantages internationally, strategic significance, and/or offer good quality and stable jobs in regional economies. This means building a positive environment for business growth across all UK industries.

It is also important that the final industrial strategy has a strong interest in “horizontal” concerns that affect the economy as a whole, for example, skills, infrastructure, tax, and regulation. Many of these policy levers are devolved responsibilities for the Scottish government and both sectoral support and horizontal interventions require careful coordination and collaboration between the two governments (discussed in more detail in relation to the final question). It is also important that a focus on growth driving sectors does not negate consideration of “foundational” sectors that support frontier industries, for example, housing, transport, retail, and public services. These are also important employers in their own right in Scotland and make an important contribution to the economy and government tax revenues.

• What are the barriers to and enablers of industrial growth in Scotland, both now and in the future?

Prosper members have highlighted the following barriers to and enablers of industrial growth in Scotland which they have in common, but this is not an exhaustive list:

• Grid connections: Securing connections between new renewable energy developments and the electricity is frequently cited as a barrier to growth of the clean energy industry. The current grid connection process is overburdened with many non-viable projects, creating a backlog and delaying essential infrastructure development.
• Electricity market reform and zonal pricing: The ongoing Review of Electricity Markets Arrangements is creating uncertainty which has a cost and is undermining investment and industrial growth in the UK’s low carbon infrastructure. Prosper believes that reform is necessary and can be delivered, but is concerned that zonal pricing would be a distraction when disruption to investment must be minimised
• Consenting and planning system: The delays in gaining approval for infrastructure developments such as housing, energy, and utilities upgrades create uncertainty, pushing up costs for investors and developers, presenting a barrier to regional growth. Prosper members reports that delays in the end-to-end project planning process are caused by parts of the consenting system such as public inquiries and staff and skills shortages in the Scottish government, planning authorities, and statutory consultees. Prosper members report examples of public inquiries into critical infrastructure being triggered without good cause and being conducted contrary to good practice, resulting in uncertainty and protracted delays that are not in the interest of applicants or communities.
• Skills and workforce: Prosper members frequently cite skills shortages as a barrier to industrial growth, with particular challenges in the construction industry and in the sectors required to deliver the net zero industrial transition. A flexible, employer-focused vocational skills and apprenticeships system which allows employers and workers to access training to up/reskill would be a key enabler of industrial growth.
• Housing: Related to the above two points, Prosper members find that a lack of availability of affordable housing restricts industrial growth in both urban and rural areas. Despite previously declaring a housing emergency, there has been a lack of action by the Scottish government in addressing housing shortages.

• To what extent does the Industrial Strategy Advisory Council reflect the make-up and priorities of Scottish industries? How can the Council ensure the needs and interests of Scottish industries are represented within the UK Government’s policy-making processes?

It is encouraging that the government recognises the value of partnerships through the new Industrial Strategy Advisory Council (ISAC). However, it is disappointing that there is no Scottish representation on the ISAC and that severely limits the ability of the Council to reflect the make-up and priorities of Scottish interests. Prosper believes that at least one member of the ISC should have been drawn from the Scottish economy, supported by a mechanism which brings together and coordinates the evidence and expertise found across Scottish businesses, academia, trade unions, local government and third sector organisations.

• How can the UK Government achieve its objective of an industrial strategy with a ‘place-based approach’? What should such an approach look like, and how could it deliver for Scottish industries?

The Invest 2035 consultation notes that this will not be the first attempt at a place-based industrial strategy in the UK. The international evidence from countries such a Germany suggests that reducing regional inequalities requires a cross-party, whole-of-government and multi-decade commitment to regional growth objectives, policies and investments. As discussed in answer to question 2, previous UK industrial strategies and regional economic policies have typically lacked firm foundations.

The consultation spotlights devolution of significant powers to Mayoral Combined Authorities in England to deliver local growth plans as the key difference – these are described as “the cornerstone” of the place-based approach. Mayoral Combined Authorities do not exist in Scotland and so a placed-based approach to industrial strategy will require tailoring to the Scottish institutional context and our existing network of enterprise agencies. Prosper has concerns that the greater progress with the city region agenda in England will risk the competitiveness of Scotland’s city regions and that the relatively less coherent regional structures in Scotland may reduce its participation in the new industrial strategy.

The Scottish Government, UK Government and Scottish city regions – through the existing Regional Economic Partnerships - should co-design a model for local growth plans and administrative and policy structures in Scotland which is appropriate for Scotland’s devolved and local institutions and policy mechanisms. Key considerations for this model include alignment with functional economic areas, long term stability, integrated powers, flexible multi-year budgets, genuine collaboration with regional private and third sector organisations, and clear and data-driven decision-making.

• How will the UK Government’s approach cohere with the Scottish Government’s economic plans, including its Green Industrial Strategy and National Strategy for Economic Transformation?

At a high level, there are significant overlaps between the Invest 2035 industrial strategy and the Scottish government’s Green Industrial Strategy and National Strategy for Economic Transformation. However, there are differences – as noted previously, the Scottish government’s plans have a stronger focus on the rural economy’s contribution to industrial growth.

Prosper warmly welcomes the reset in the relationship between the UK and Scottish Governments since the election and their commitment to work in collaboration. The previous adversarial dynamic between the UK and Scottish Governments was challenging and created barriers for businesses. Effective coordination of reserved and devolved powers will be required for the UK government’s industrial strategy to effectively cohere with the Scottish government’s Green Industrial Strategy and National Strategy for Economic Transformation. Prosper recommends that the UK and Scottish Governments jointly engage with businesses about UK and Scottish structures on which representation by Ministers and officials from the other administration would be beneficial. The Secretary of State for Scotland’s recent announcement of the reconvening of the Scottish Business Growth group, co-chaired with the Deputy First Minister to bring together voices from across Scottish business, industry, trades unions and civic society is welcome in that regard.

Prosper members are aware of initial contacts between UK Government Departments and the Scottish Government about the development of sector plans for each of the growth-driving sectors. Which Government Department is talking with different parts of the Scottish Government varies depending on which Department has the sectoral lead. The picture is currently unclear for organisations outwith the Governments, particularly for the ‘horizontal’ organisations and sectors which have an interest in more than one sector. The Governments should therefore immediately provide an overview for stakeholders of who in UK Government Departments and the Scottish Government is leading on input from Scotland into each of the sector plans, and the Department for Business and Trade in Scotland should ensure good co-ordination and communication. Those leading this work in UK Government Departments should engage directly with key stakeholders in Scotland, rather than only through the Scottish Government, including with Scotland’s Industry Leadership Groups, trade associations and organisations with cross-economy expertise.

March 2025