Nowcasts of the Scottish Economy

Grant Allan & Stuart McIntyre 
Fraser of Allander Institute, University of Strathclyde

Labour Market data released later this morning will provide an update on how the Scottish labour market performed over the three months to the end of September.

In general the labour market has provided good news in recent years, with near record low unemployment and near record high employment. In contrast, economic growth has been weaker.

Recently it appears that growth may be beginning to pick up.

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November 13, 2018

Key points from our 2018 budget report

Today we publish our annual Budget report, “Scotland’s Budget 2018” which is available at the following link.

The aim of the report is to set out the opportunities, risks and choices facing the Scottish Government as it prepares it draft budget for 2019/20. The report covers the outlook for the Scottish economy and the Scottish budget.

Each year we also focus on a variety of longer term public finance questions. This year we focus on the options for reforming taxes and introducing new taxes, and discuss the differences in the funding of higher education between Scotland and England.Continue reading

November 8, 2018

The price of loyalty! (Differential Pricing – aka dual pricing – in Insurance and Other Markets)

Alex Dickson, Department of Economics, University of Strathclyde. Alex is a Senior Lecturer with research interests in Game Theory, Behavioural Economics and Industrial Economics

On Wednesday this week the Financial Conduct Authority (FCA) announced that it was launching a market study into the general insurance industry covering motor and home insurance, with a focus on insurance pricing practices. This follows its work focusing on pricing practices in the household insurance market. In addition, the Competition and Markets Authority (CMA) are in the early stages of an investigation into Loyalty Penalties following a super-complaint from Citizens Advice. What is going on here? Identifiable groups of consumers are being charged different prices for the same product or service for reasons that are not related to the cost to serve those consumers, leaving groups of consumers being exploited. A typical example is new vs existing customers, where existing customers pay substantially higher prices as their contracts are rolled over from year to year. The price of loyalty!Continue reading

November 2, 2018

An initial exploration of the economy, energy and emissions impact of successful, sectoral-specific export strategies

Grant Allan, Peter McGregor and Andrew Ross

Fraser of Allander Institute, Department of Economics, University of Strathclyde

Policymakers have been understandably active in identifying economic opportunities for the UK through new and expanded trading opportunities. The recent Industrial Strategy and Export Strategy lay out the UK Government’s ambitions for increasing exports, as well as seeking out specific sectors where the UK has comparative economic advantage. The Export Strategy talks of an aspiration to raise exports to the equivalent of 35% of Gross Domestic Product.

A successful export strategy, one which does lead to increases in the scale of exports, will bring economic benefits – this is unambiguous. What is unclear however is how such outcomes might interact with government objectives in other areas, such as the Clean Growth Strategy (2018), with its focus on moving to “cleaner economic growth”, though, for example the development of new technologies.

With colleagues we have explored this trade-off at the economy-wide level for the UK. Through our work, supported by the UK Energy Research Centre, we have focused on simulating a successful policy which raises the level of all exports. Our results from this – reported last month – found that, overall, an across-the-board export stimulus raises economic activity while simultaneously increasing energy use and emissions.

In our results, increases in energy use and emissions are greater than the economic boost (in percentage terms), so that energy- and emissions-intensity of GDP rises as a result. Employment increases in all sectors, but again by less than sectors’ energy use. This important finding also confirms that, absent any offsetting policy, there exist tradeoffs between a successful export strategy’s impact on economic activity, with effects on environmental and energy indicators.

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October 31, 2018

Comparing Scottish and rUK income tax liabilities – scenarios for 2019-20

Yesterday, the Chancellor of the Exchequer announced changes to income tax in the UK Budget, setting a new higher rate threshold (HRT) of £50,000 for taxpayers in the rest of the UK and a personal allowance of £12,500 for all taxpayers.

What does this mean for taxpayers in Scotland?

The real terms increase to the personal allowance will apply in Scotland. Compared to a scenario where the personal allowance had increased in line with inflation, the policy provides a tax cut of around £70 per year for most of Scotland’s 2.5 million income taxpayers in 2019/20.

The increase in the higher rate threshold – the threshold above which the higher 40% tax rate is charged – represents a tax cut to higher rate taxpayers in rUK*.

But the increase in the HRT will not apply in Scotland. Instead, it will be up to the Scottish Government to decide how to respond in its December budget.

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October 30, 2018