Scotland's Productivity Crossroads Strengths, Challenges and Comparisons with the UK

10th December 2025

A summary of the 2025 Scottish Productivity Index (produced by CBI Scotland and Addleshaw Goddard, in collaboration with the Fraser of Allander Institute) published 10 December 2025.

Over the past few years, the "productivity puzzle" has loomed large over Scotland's economy.

On the one hand, Scotland retains many of the structural advantages that should underpin strong, modern growth: a well-educated workforce, improving infrastructure, and rising business investment. On the other, key dimensions such as innovation, export-oriented growth, firm creation and research-driven business development continue to lag behind the UK average — raising important questions about whether potential is being converted into real economic performance. The CBI Scottish Productivity Index paints a mixed picture.

Scotland's Strengths

A number of Scotland's core assets remain impressive — and, in important respects, stronger than the UK average.

Highly educated workforce: Nearly 54 % of working-age adults in Scotland hold higher-level qualifications, compared to around 47 % in England.

Business investment rising

The share of business investment relative to Scottish GDP surpassed 10 %, marking the first time in two decades that Scotland has exceeded its long-term trend. This stands in contrast to a period of decline across the UK as a whole.

Digital & infrastructure improvements
Scotland has seen steady progress in connectivity and infrastructure — a foundation which many economists view as essential for long-term productivity gains.

In terms of human capital, willingness to invest, and improving infrastructure, Scotland appears well-positioned for modern economic growth.

Where Scotland Lags Behind the UK

However, beneath these strengths lie persistent structural weaknesses - in innovation, business dynamism, exports and research-driven growth.

Innovation & R&D

According to the latest data from the UK Innovation Survey, only 32.4% of Scottish firms were "innovation-active" in 2020-22, compared to 36.3% across the UK as a whole.

Business R&D in Scotland remains modest
recent figures put business R&D at around 1.45-1.8% of GDP, below the UK average (around 1.96-2.1%).

Scotland underutilises its strong higher-education base. While universities in Scotland conduct much research, relatively little of that "spills over" into private-sector R&D.

Compared with the UK overall, Scotland is weaker on innovation intensity which is a critical engine of long-term productivity growth.

Exports and International Orientation

Export intensity is lower: exports account for around 20-22% of Scottish GDP, whereas the UK average is roughly 31-33%.

Lower export orientation means fewer firms are scaling internationally, reducing exposure to global competition, limiting economies of scale, and potentially hampering productivity gains that come from trade-driven growth.

Entrepreneurship and Business Dynamism

Early-stage entrepreneurship in Scotland remains relatively low — around 8.8-9.5%, below the UK average (≈ 11%).

New firm creation
A vital source of economic renewal and productivity is lower than in many other parts of the UK.

This matters because economies that renew and refresh their business base through startups and growing firms — tend to be more dynamic, innovative, and productive over time.

Why This Gap Matters

What emerges is a familiar but troubling pattern: Scotland has the raw materials for productivity — strong education, rising investment, improving infrastructure — yet repeatedly fails to translate these into the outcomes that matter most - innovation-driven output, export growth, high-value job creation, and business dynamism.

In effect, Scotland risks remaining a "sleeping giant": capable on paper, but underperforming in practice. Meanwhile, other parts of the UK leverage innovation, R&D investment and entrepreneurial activity to drive competitiveness and growth.

What Should and Could Be Done — Policy Recommendations

Based on the findings of the Scottish Productivity Index, here are some of the key steps that could help Scotland close the gap with the UK average and unlock its latent potential.

Strengthen the innovation ecosystem. Encourage more private-sector R&D, offer incentives for SMEs to innovate, and foster collaboration between universities and businesses.

Reform skills and workforce development. Introduce flexible retraining, modular upskilling, and funding linked to labour-market needs particularly in digital and green sectors.

Support entrepreneurship and business creation. Lower the barriers to startup formation, expand access to early-stage finance, and encourage under-represented groups (e.g. women, regional entrepreneurs) to found businesses.

Promote exports and internationalisation. Offer export-support programmes, trade missions, and incentives for firms to grow internationally — reducing reliance on the domestic market.

Sustain infrastructure and regulatory stability. Maintain investment in digital infrastructure, improve planning and regulatory certainty, and ensure long-term continuity for firms to invest and innovate.

If carried out coherently, these steps could help Scotland better convert its considerable structural strengths into stronger, innovation-driven productivity — more on a par with, or even ahead of, many parts of the UK.

Scotland sits at a crossroads. On paper, it has much of what a modern economy needs: an educated population, business investment, improving infrastructure. But realising that potential in the form of innovation, high-value jobs, global trade and dynamic businesses — requires addressing deep structural issues: weak business R&D, low export orientation, limited entrepreneurship, and under-utilised human capital.

If policymakers and business leaders seize the moment investing intelligently in R&D, removing barriers to business creation, supporting skills and exports Scotland could reposition itself not just as a grateful follower of UK-wide trends, but as a driving force of productivity and growth. Done right, the challenge could become the country's next big opportunity.

[url=https://cdn.prgloo.com/media/87084e618cb54215b30e22fa560dc6c0]Read the full Productivity Index report HERE
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