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FAI Economic Commentary: Tackling regional economic inequalities

Tackling regional economic disparities has been a priority of successive governments in both the UK and Scotland.

The UK Government’s Industrial Strategy is their latest attempt, with regional growth 1 of 5 ‘foundations of success’. Here in Scotland, ‘cohesion’ – or its new term ‘regional inclusive growth’ – has been a feature of the Scottish Government’s Economic Strategy since 2007.

It is hard to disagree that a country will be economically stronger if every region has the opportunity to fulfil its potential.

However, Scottish and UK policy history is littered with well-intentioned – but ultimately ill-fated – attempts to narrow the gap in economic performance between regions. Many of the challenges are deep-rooted and structural, whilst attempts to tackle them throw-up challenging trade-offs and political risks.

Today’s Fraser of Allander Economic Commentary in 10 bullet points

Today we published our latest Economic Commentary.

Alongside our analysis of the Scottish, UK and global economies, we include the following articles:

Reappraising Scotland’s exports and their geographies: Brexit and beyond, Ronald V. Kalafsky (University of Tennessee) and Ross Brown (University of Strathclyde)
Monetary and fiscal policy in a newly independent Scotland: lessons from the dissolution of Czechoslovakia?, Frantisek Brocek (University of Strathclyde)
Highlighting the need for policy coordination: the economic impacts of UK trade-enhancing industrial policies and their spill-over effects on the energy system, Andrew Ross et al. (University of Strathclyde)

Today’s Commentary also includes an examination of the hot topic of regional inclusive growth.

In this blog, we summarise some of the key points from our latest outlook.

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.