The solutions for Scotland’s productivity puzzle are clear
We need tax breaks and a focus on training to turn Scotland into a global tech leader, writes Andrew McDonald
Scotland’s tech sector is like an iceberg. What’s visible above the surface only hints at the scale of what lies beneath – resilience, ambition and full of potential.
Home to the UK’s first National Supercomputing Centre and the birthplace of AI research in Europe, the country has the credentials to lead. But too many of its businesses remain unseen, constrained by one stubborn problem: productivity.
Scotland's productivity rate still lags behind the UK average. Start-ups starved of growth funding, firms struggling to hire and retain skilled staff and a lack of hands-on training are holding back the nation’s ambitions. To unlock Scotland’s potential, we need to ease the financial burden on organisations and give investors a reason to back them. If we don’t, we risk watching our brightest companies grow elsewhere.
Pension and tax reform could help tip the balance
The past few years haven’t been kind to businesses. Between last year’s Labour Budget, the lingering effects of high tariffs, geopolitical conflict and ongoing inflation, uncertainty has only grown.
While the sector remains generally optimistic, funding has dried up, leaving many start-ups struggling to move beyond their initial growth phase. At the same time, long-standing investment patterns, particularly in pension funds, continue to limit capital flows into high-growth industries. Take defined benefit (DB) schemes as an example, they prioritise stability and low-risk returns, which can make early-stage or innovative projects appear less attractive.
Don’t get me wrong, there are some pension reform schemes out there, like Mansion House initiatives, to encourage more investment in productive assets and scaling businesses. But while it’s a welcome start, it’s not enough on its own.
Many are still nervous about risk, costs and how to make these investments work in practice. And even when they do invest, they tend to prefer safer, later-stage companies rather than young start-ups that need the most help.
Put simply, we need targeted tax reliefs and flexible pension rules to make investment in innovation genuinely attractive. Tax incentives would encourage investors, and less rigid pension frameworks would remove barriers to backing high-potential firms. Together, they could attract long-term investment, translating Scotland’s ambition into growth.
With coordinated action from both Scottish and UK governments – combining pension reform with targeted tax relief – Scotland could punch well above its weight in fields like data science, cyber, engineering and AI.
Renewed focus on apprenticeships
Beyond financials though, another major obstacle is skills. Training provision, particularly hands-on apprenticeships, haven’t kept pace. And a lack of in-person, work-based learning opportunities is leaving too many graduates underprepared for industry needs.
Taking individual responsibility to invest in skills, apprenticeships and training programmes will help us get there sooner. At Kick Academy, for example, two students spent four days a week working with us and one day studying. Both are now in full-time employment – a drop in the ocean maybe, but proof that ripple effects can spark wider change.
Government also has a role to play. It must make it more attractive for companies to offer training opportunities and apprenticeships through incentives like grants, subsidies or tax relief. Without that support, we risk losing the next generation of our workforce to other countries.
Scotland has the talent, ambition and sector strengths to be a global leader in tech. Cash is paramount in a high inflation economy, so unless government and industry act in tandem – removing funding and pension roadblocks and making training opportunities more attractive – the nation risks falling behind at the very moment it could surge ahead.
Andrew McDonald, Chief Financial Officer at Kick ICT
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