Scottish Economy - Page 2 of 36 - Fraser of Allander Institute Blog

Home » Scottish Economy

VAT Assignment – A bridge too far for fiscal devolution?

Alongside this month’s Budget, the Scottish Fiscal Commission will set out forecasts for VAT revenues in Scotland.

2019-20 will mark the first year in which VAT assignment will be explicitly incorporated into the Budget (although, as with all the phased implementations of Scotland’s new tax powers it will be 2020-21 before it has a meaningful implication for spending).

In this blog we remind readers of the background to VAT assignment, discuss the approach that has been put forward for implementation and outline some implications for the Scottish Budget.

Working out how much VAT is raised in Scotland is exceptionally difficult. Unfortunately, a paper published recently by the UK Government on how it plans to do this suggests that little progress has been made in finding a robust way forward after over 3 years of trying.

Given the sums involved, the Scottish Parliament would be taking on a significant – and unreasonable – risk based upon current plans. It should, at the very least, press for a delay in the assignation of VAT to the Scottish Budget.Continue reading

Latest nowcasts of the Scottish economy!

Grant Allan & Stuart McIntyre
http://www.nowcastingscotland.com
Fraser of Allander Institute, University of Strathclyde

With the new Fraser Economic Commentary out next Tuesday, which will provide an in-depth assessment of the performance of the Scottish economy, in this blog we provide our latest nowcasts of GDP growth in Scotland.

Our nowcast for GVA growth in 2018 Q3 is 0.35% which, at an annual rate, is 1.42%
Our nowcast for GVA growth in 2018 Q4 is 0.39 which, at an annual rate, is 1.57%

These represent slight downward revisions to our estimates for 2018 Q3 and Q4 released last month.

We will learn the first official estimate of growth in Q3 of 2018 on the 19th of December 2018. Our current nowcast (0.35%) suggests we will see a reduction in the growth rate relative to Q2’s official measure of growth (0.5%).

Since our November nowcast we have had new data on a number of key indicators.

What’s next for taxpayers in Scotland?

We’ll soon find out what the Scottish Government has in store for income tax in Scotland in 2019/20 when the Scottish Budget is published next week.

Taxpayers in the rest of the UK already know what to expect after Chancellor Philip Hammond announced changes to income tax in the UK Budget at the end of October.

These were to:

increase the personal allowance from £11,850 in 2018/19 to £12,500 in 2019/20
to increase the Higher Rate Threshold in the rest of the UK from £46,350 to £50,000.

As it is entirely possible that readers might not have made it through our 160 page Budget report on the 8^th November, this blog will set out some tax options available to Mr Mackay for the forthcoming year.

Before we do so, here is a summary of the differences between Scottish and rUK taxpayers in the current financial year.

Scotland’s “Middling” Productivity – An International Perspective

Mark Mitchell and Robert Zymek

University of Edinburgh

It is now well understood that differences in labour productivity – the value of goods and services that can be produced in an average hour of work – explain many observable economic differences between countries. Evidence shows that that highly productive economies outperform their less productive counterparts in in terms of per-capita income, population health, subjective wellbeing, and state-capacity (Caselli, 2005; Jones, 2015; Sacks, et al., 2012). For this reason, it is a cause for concern that labour productivity in Scotland – just as in the UK as a whole – is fairly low compared with other advanced economies. It suggests that Scotland could do better, and improve the lives of its citizens by moving up the productivity tables.

In work published earlier this year by the David Hume Institute (Kelly, et al., 2018), we examined Scotland’s productivity performance in an international context. We found that relative to member countries of the OECD – a club of advanced economies – Scotland’s labour productivity is only middling: Scotland is more productivity than most poorer OECD countries; but it is less productivity than many of its EU neighbours, including countries such as Finland, Denmark, Belgium and Ireland.

Scotland and the latest Brexit modelling scenarios – a negative outcome all round

Over the course of this week, the UK Government, the Scottish Government and the Bank of England all published new Brexit analysis.

We have been asked by a number of people to give our take on these numbers.

So in this blog, we attempt to summarise what each model is telling us and the implications for Scotland.

In short, the numbers don’t look great. Far from it.

Even under the UK Government’s favoured deal, the UK economy is expected to be smaller in the long run by around 4%.

But it is the Bank of England’s scenario of a disorderly ‘no deal’ Brexit that is the most eye-watering. Here the UK economy could shrink by 8% in a year – double the size of Scotland’s recession during the financial crisis. Unemployment could rise to 7.5%. If that was replicated in Scotland this would be equivalent to around an additional 100,000 people out of work.Continue reading