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.

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September 10, 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

September 5, 2018

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.

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August 23, 2018

Government Expenditure and Revenue Scotland: 2017-18

As we flagged in our blog last week, today sees the publication of the latest Government Expenditure and Revenue (GERS) report.

This blog summarises some of the key headline results.

Some background

GERS estimates the contribution of public sector revenue raised in Scotland toward the public sector goods and services provided for the benefit of Scotland. The estimates typically cause significant controversy, and our blog highlighted some of the usual areas of debate.

These arguments are not going to go away, but the GERS figures present the most reasonable approximation to help us understand the nature and extent of public spending and revenue in Scotland in the latest financial year.Continue reading

August 22, 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