Fiscal Policy - Fraser of Allander Institute Blog

Medium Term Financial Strategy: where’s the medium-term focus or strategy?

Last week, the Scottish Government published its 2^nd Medium Term Financial Strategy (MTFS).

The purpose of the MTFS, as set out by the Parliament’s Budget Process Review Group, was to ‘provide a means of focussing on the longer term sustainability of Scotland’s public finances’.

This is clearly a positive and the government should be commended for publishing the MTFS.

However, those that had been hoping that this year’s MTFS would build upon last year’s publication and provide a robust overview of the government’s fiscal strategy will be disappointed.

To fair, there are a lot of new helpful elements of information like the policies and principles on borrowing and reserves and the new detail on infrastructure investment funding.

But to be fully effective, whatever administration is in office, future MTFSs will need much more detail on future plans as well as appropriate assessments of risks & opportunities.

Scottish Fiscal Commission: Latest Forecasts

Today the Scottish Fiscal Commission (SFCs) released their latest set of economic and fiscal forecasts.

You can read the full document here.

In this blog we give a quick tour of the latest forecasts and some of the additional insights.

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VAT assignment: paused for now, but will it be pulled for good?

The Scottish Government announced last week that the assignment of Scottish VAT revenues to the Scottish budget is likely to be delayed – possibly until after the fiscal framework review in 2022. Giving evidence to the Finance and Constitution Committee last week, Derek MacKay said: ‘I am becoming increasingly minded to postpone VAT assignment until VAT powers can be further discussed at the time of the fiscal framework review’.Continue reading

Is the Scottish budget for 2019/20 disadvantaged by UK Government policy decisions on income tax?

Is the Scottish budget for 2019/20 disadvantaged by UK Government policy decisions on income tax? The Scottish Government argues that it is. The government’s case is reasonable – but potentially undermined by its own stated policy commitments.

The Smith Commission identified two ‘no detriment’ principles which it said should apply to Scotland’s new fiscal framework.

The first was that there should be ‘no detriment’ simply as the result of the initial transfer of a particular power.

The second – and the one relevant to this blog – was that neither government should face detriment as a result of a policy decision taken by the other. Specifically, ‘where either government makes a policy decision which effects the revenues or expenditure of the other, the decision-making government should reimburse the other where there is an additional cost, or receive a transfer if there is a saving’.Continue reading

Scottish child poverty targets

Tomorrow, new statistics on poverty and income inequality will be published. All indications are that levels of poverty and inequality are on the rise in the UK over the longer term, and Scotland is no different.

These statistics matter for a variety of reasons, not least because back in 2017, Holyrood voted to put into law a target to reduce relative child poverty in Scotland.

Publication will no doubt be overshadowed by the ongoing Brexit debate. But it’s important not to lose sight of the domestic policy agenda.

Too often the debate over poverty collapses down to a simple discussion about the level of re-distribution in the tax and benefit system.

But in reality, if Scotland is to meet its poverty targets then it’ll require a much more fundamental look at the Scottish economy and how it functions. For instance, we have record people in employment in Scotland, but rising poverty.

Ultimately, tackling poverty isn’t just a moral or societal problem, but also an economic problem that requires a system-wide look at how jobs are created, levels of investment in the economy, productivity growth and wage growth.