Fraser of Allander Institute Blog

Should anyone care about the Fiscal Framework Outturn Report?

As most people who read this blog will know, the increasing dependence of the Scottish budget on tax revenues means that Scottish budgets are increasingly determined by forecasts of tax revenues.

There will almost always be a degree of error associated with these forecasts. Following the end of a financial year, once revenue outturn data is available, we will know whether the Scottish Government actually had more resources at its disposal than had been forecast, or fewer.

A complication in this analysis is that the Scottish budget is not only dependent on forecasts of Scottish tax revenues. It is also dependent on forecasts of the ‘block grant adjustments’ (BGAs) – these BGAs are effectively estimates of the revenues that the UK Government has foregone as a result of transferring each tax to Scotland. The BGAs are deducted from Scotland’s block grant.

The BGAs contained in each Scottish budget are determined by forecasts of the growth of equivalent taxes in the rest of the UK. In the same way that there is likely to be forecast error associated with Scottish revenues, there is likely to be forecast error associated with the BGAs.

How these two sets of forecast error – for Scottish revenues and for the BGAs – effect the resources available to the Scottish budget is the subject of the Fiscal Framework Outturn Report which was published by the Scottish Government yesterday. As far as government reports go it is relatively short, although given the complex nature of the fiscal framework it nonetheless provides a stern test of the reader’s concentration.Continue reading

Yesterday’s GDP figures – an upturn in Scottish growth

Yesterday’s Scottish GDP growth figures – for the period up to June 2018 – showed a further pick-up in economic growth in Scotland. The Scottish economy expanded by 0.5% over the 3-months to June. This followed revised growth of 0.4% in the first 3-months of the year.

In this blog we provide a quick summary of the key trends. We’ll have a more in-depth discussion in our Economic Commentary – in partnership with Deloitte – to be published on Wednesday 26^th September.

The Fiscal Commission’s forecast evaluation

Last week, the Scottish Fiscal Commission (SFC) published its Forecast Evaluation Report.

As with all SFC publications, there was a significant degree of interest in its content.

In particular, it showed that Scottish income tax revenues were some £550m lower than expected. It also addressed the gap between the SFC’s pessimistic forecasts for growth and recent economic indicators.

This blog summarises some of the key issues from the report – with a focus on GDP and income tax. A more in depth discussion (including for the other devolved taxes) will appear in November’s Scotland’s Budget Report 2018.

How serious is Scotland’s demographic challenge?

Frantisek Brocek is an undergraduate economics student at the University of Strathclyde. This post summarises some of his recent research on demographic trends, and the implications for fiscal sustainability.

It is widely understood that Scotland, like the rest of the UK, faces a challenging demographic outlook. Rising life expectancy combined with declining fertility rates mean that the ratio of Scotland’s population of pension age relative to its working age population is increasing.

One of the big challenges that this creates is in terms of the outlook for the public finances. People above the state pension age tend to have lower incomes and expenditure than those of working age, and hence pay less tax per person. But at the same time, levels of public spending on this group are substantially higher than for the population of working age. Chart 1 shows the profile of public spending and tax receipt over the lifetime for a typical individual. (The profile is based on UK data but is not substantially different for Scotland).

But how does the demographic pressure facing Scotland in the coming decades compare to the effects of population in the recent past? How does Scotland’s demographic challenge compare to the outlook for the UK as whole, or other European countries? And what can or should the Scottish Government do?Continue reading

Variation in electricity transmission tariffs…

Jamie Cox is an undergraduate economics student at the University of Strathclyde, about to start his fourth year, and has a summer internship in the Fraser of Allander Institute supported by the Research Interns@Strathclyde scheme. This blog summarises some of Jamie’s research into how electricity charges vary geographically. Following on from his earlier blog last week on transmission charges in the UK (TNUoS), in this blog he explores variation between tariffs for different generator types, with a focus on intermittent generators.

Transmission Tariff Model

To analyse transmission charges, we built a model that approximates the charges levied by National Grid: both on methodology, and in monetary amounts. Using sub-national electricity consumption statistics and generation statistics (from the Department for Business, Energy & Industrial Strategy) we approximate electricity flows, and thereby estimate TNUoS tariffs. An example of the output of our model and how it matches up with actual charges levied by National Grid can be seen in the second figure of previous blog.

In this blog, we discuss how tariffs depend on generator type, in particular: whether the generator is conventional or intermittent.