Peter Thorpe, a 4th year economics student at The University of Strathclyde, carried out independent research on the Scottish Humankind Index over last summer. This blog summarises his research.
The Humankind Index was developed in 2011 as a means of measuring wellbeing in Scotland beyond using standard economic measures like GDP. The Index consisted of 18 sub-domains encompassing a wide variety of factors such as health, access to good facilities, employment and job satisfaction etc.
This research constructs an updated index using modern data. Changes in data availability since 2011 have necessitated the selection of many new measures for the sub-domains.
Today’s release of annual earnings data shows that average annual earnings grew slightly more quickly in Scotland than in the UK between April 2018 and 2019… (2.9% in Scotland v. 2.7% in UK; or in real terms, 0.8% v. 0.6%).
More strikingly, earnings in the top half of the distribution grew more quickly in Scotland than they did in the UK, whilst earnings in the bottom half of the distribution grew less quickly in Scotland than in the UK.
This is potentially good news for Scotland’s budget, given the importance of growth in Scotland’s income tax base relative to the growth in the rUK’s equivalent tax base in determining the resources available to the Scottish Government.
Perhaps that forecast income tax reconciliation of £600m in respect of 2018/19 will turn out to be not so large?
Before we get carried away however, there are a couple of caveats.
First, there are other sources of earnings data, and they don’t all pay such a positive picture. HMRC data on the pay of PAYE taxpayers shows that Scottish pay grew slightly slower on average than UK pay between 17/18 and 18/19.
Second, as well as employee earnings there are other important determinants of the tax base, like employment rates and income from pensions and self employment.
And whilst the trends observed this year might be good news for the Scottish budget, it does mean that earnings inequality – measured by the ratio of earnings at the 90th percentile to the 10th percentile – increased more quickly in Scotland than in the UK last year (but remains lower than in the UK).
The trends observed in 2019 are the exact opposite of what was observed between 2017 and 2018, when average earnings grew slightly more quickly in UK than Scotland, and when inequality declined more in Scotland than in the UK.
This is a reminder not to place too much attention on annual fluctuations.
The Scottish Gov has argued that its budget in 17/18 was disadvantaged by faster growing inequality in rUK, which drove relatively faster rUK income tax growth. It will be harder to make that argument in respect of revenues in 2018/19.
On average in recent years, Scottish annual earnings have generally performed in line with the UK. Trends in earnings inequality have also mirrored the UK.
The exception was in 2017, which is the main reason why Scottish tax revenues ending up being less than the BGA in 17/18. We won’t know the final position on Scottish income tax revenues until July 2020.
The shifting balance of economic activity from west to east is leading to fundamental structural shifts in our economy.
The growth in population, investment and job opportunities is displacing once traditional engines of growth with new ones. But these changes are bringing their own pressures, on public services and infrastructure.
You might think we’re talking about the global economy. We’re not, instead we’re talking about the Scottish economy.
Today we published our latest Economic Commentary – for a quick summary of its findings please see this quick video. The full Commentary can be found here.
Uncertainty continues to act as a drag on Scotland’s economic performance
Scotland’s annual growth rate has slipped once again to just 0.7%. UK growth – whilst faster than in Scotland – is also well below trend at 1.2%
Consumer confidence and risk appetite amongst businesses remains weak.
Business investment in the UK has now been negative in 5 of the past 6 quarters.
Shortly before our June Commentary, figures for Scotland showed economic activity in Q1 of 2019 rising at its fastest rate in almost five years.
At that time, we cautioned that such figures were likely to be impacted by firms stockpiling in the run-up to the first Brexit deadline of 31st March.
Consistent with this, the latest figures now show that the economy contracted by 0.3% in Q2.
One of the frustrations with the ongoing Brexit burach is that important debates about the future of our economy have been crowded out.
As we have highlighted in previous Commentaries, Scotland faces a number of significant structural challenges. Our population will age significantly, whilst – for many – the world of work will change radically as existing tasks are increasingly automated.
But there are also opportunities, with new markets opening up and technology helping to support improvements in living standards.
One area that has captured the public attention has been climate change. Across the world, we have seen a renewed desire from governments to step up their response to the environmental challenge.Continue reading
