Today’s Scottish GDP growth figures – the calm before the storm?

Today’s Scottish GDP figures – for the 3-month period to September 2018 – showed a further pick-up in economic activity in Scotland. The Scottish economy expanded by 0.3% over the 3-months to September (Q3). This followed growth of 0.5% in quarter 2 and 0.4% in quarter 1.

The economy has been growing on a continual basis for five consecutive quarters, the most sustained period of growth in a long-time. However, growth remains below trend, with output lower than UK growth of 0.6 this quarter.

In this blog we provide a quick summary of the key trends.

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December 19, 2018

Funding higher education tuition and maintenance support in Scotland – recent changes and ongoing debates

In addition to providing an overview of key issues facing the upcoming Scottish budget, each year our annual Scottish Budget report includes an in-depth analysis of specific fiscal policy issues. In this year’s report, one of the topics we looked at was higher education.

Our analysis did not make any recommendations, contrary to some media reports, but instead sought to:

• Consider the implications for Scottish graduates of recent changes to the terms of maintenance loans in Scotland;

• Understand what constraints the Scottish Government faces in determining how much loan it can offer to Scottish students, and on what terms; and

• Quantify the opportunity costs of the government’s current approach to funding higher education tuition. Continue reading

November 21, 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

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

September 21, 2018

Trends in Scottish housing and the challenges facing young people

Stuart Balfour is a third year undergraduate economics student at the University of Strathclyde and is participating in a summer internship in the Fraser of Allander Institute supported by the Carnegie Trust. This blog summarises some of Stuart’s research into trends in Scottish housing over the last two decades, using data from the Family Resource Survey (FRS) – a detailed annual survey of UK households published by the Department of Work and Pensions.

Renters in Scotland have seen housing costs increase by around 21% over the last decade in real terms. Meanwhile, housing costs for households owning with a mortgage have fallen sharply in just a decade, although this is primarily attributable to a spike in 2007/08 (Chart 1). Overall, homeowners with mortgages have seen their real costs decrease to levels seen twenty years ago.

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August 17, 2018