Some early thoughts on the Sustainable Growth Commission report

The Sustainable Growth Commission has published its report into the economic options open to an independent Scotland.

In 2014, all sides agreed that Scotland ‘could’ be an independent country. Of course, where opinion differed – and continues to diverge – is over the costs and benefits of independence.

The economy was seen as a key area of challenge for the ‘yes’ side in 2014.  To counter this, the Scottish Government sought to strengthen its position by offering a vision of relative economic continuity post-independence.

Today’s report offers a different proposition.

In this – slightly longer than usual – blog we provide an overview and offer some thoughts on where the debate should go next.

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May 25, 2018

Should the Scottish Government borrow to fund higher levels of capital investment?

David Eiser, FAI

The Scottish Government’s capital borrowing powers

Under its fiscal framework, the Scottish Government can borrow up to £450 million annually to fund capital investment, as long as it remains within a total borrowing envelope of £3bn.

The catch with borrowing of course is that you have to pay back what you have borrowed, with interest. If it chose to use its borrowing powers, the government would be able to borrow via the UK Government through the National Loans Fund (NLF). (It could also borrow by issuing its own bonds, but it is unlikely to face lower interest rates through this channel than through the NLF).

At the moment, the government could borrow for a 25-year period at an interest rate of about 1.9%. On a £450m loan, this would imply total repayments of around £570m, or around £23m per annum. Alternatively, it could borrow for a 10-year term at an interest rate of around 1.5%. Total repayments would be lower (£490m) but the annual repayment would be higher, at around £49m.Continue reading

May 18, 2018

Spring Statement 2018

Today’s Spring Statement was expressly not a ‘budget’; it contained no new spending or tax policy announcements. Instead, it was an opportunity for the Chancellor to update parliament on the latest UK economic and fiscal forecasts.

It is only three and a half months since the Autumn Statement in November. The big statements then were about the major downward revisions to the forecasts for UK economic growth.

Today there was a smidgeon of relatively better news on the economy. GDP growth in 2017 turned out to be slightly higher than the OBR had expected, and it has also revised up its forecasts for 2018. But these upward revisions in the early years of the forecast are mirrored by slight declines in later years (the OBR has effectively reassessed its view of where we are in the ‘economic cycle’).

Moreover, the upward revisions are nowhere near sufficient to offset the downward adjustments in November (see Chart). UK growth of 1.5% in 2018 is still forecast to lag EU and US growth (forecast at 2.3 and 2.9% respectively by the OECD).Continue reading

March 13, 2018

How should we pay for water and sewerage services in Scotland?

The design and structure of both income tax and council tax have  been extensively debated in recent years. But the design of charging structures for water and sewerage services, which represent a lesser but nonetheless significant expense for many households, have received less attention.

The average household bill for combined water and sewerage services in Scotland was £360 in 2017/18. However, there is significant variation in the charge paid by different households. What are the principles on which the water and sewerage charges are based? And is the distribution of charges across households fair?Continue reading

February 22, 2018