What might happen to Scotland’s economy in the event of ‘no deal’?

The prospects for ‘no deal’ to be agreed between the UK and the EU have increased in recent weeks.

A lot has been written about the potential long-term economic implications from Brexit. All else remaining equal, the larger the economic barriers between Scotland and its main international trading partner, the greater the potential hit to the country’s growth potential.

But very little has been written about what the implications might be in the short-run from ‘no deal’….beyond “bad” or “very bad”.

In this blog we try to unpick some of the key issues surrounding what a ‘no-deal’ might mean for the economy and just why it is so difficult to forecast.

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November 23, 2018

Key points from our 2018 budget report

Today we publish our annual Budget report, “Scotland’s Budget 2018” which is available at the following link.

The aim of the report is to set out the opportunities, risks and choices facing the Scottish Government as it prepares it draft budget for 2019/20. The report covers the outlook for the Scottish economy and the Scottish budget.

Each year we also focus on a variety of longer term public finance questions. This year we focus on the options for reforming taxes and introducing new taxes, and discuss the differences in the funding of higher education between Scotland and England.Continue reading

November 8, 2018

The price of loyalty! (Differential Pricing – aka dual pricing – in Insurance and Other Markets)

Alex Dickson, Department of Economics, University of Strathclyde. Alex is a Senior Lecturer with research interests in Game Theory, Behavioural Economics and Industrial Economics

On Wednesday this week the Financial Conduct Authority (FCA) announced that it was launching a market study into the general insurance industry covering motor and home insurance, with a focus on insurance pricing practices. This follows its work focusing on pricing practices in the household insurance market. In addition, the Competition and Markets Authority (CMA) are in the early stages of an investigation into Loyalty Penalties following a super-complaint from Citizens Advice. What is going on here? Identifiable groups of consumers are being charged different prices for the same product or service for reasons that are not related to the cost to serve those consumers, leaving groups of consumers being exploited. A typical example is new vs existing customers, where existing customers pay substantially higher prices as their contracts are rolled over from year to year. The price of loyalty!Continue reading

November 2, 2018

Comparing Scottish and rUK income tax liabilities – scenarios for 2019-20

Yesterday, the Chancellor of the Exchequer announced changes to income tax in the UK Budget, setting a new higher rate threshold (HRT) of £50,000 for taxpayers in the rest of the UK and a personal allowance of £12,500 for all taxpayers.

What does this mean for taxpayers in Scotland?

The real terms increase to the personal allowance will apply in Scotland. Compared to a scenario where the personal allowance had increased in line with inflation, the policy provides a tax cut of around £70 per year for most of Scotland’s 2.5 million income taxpayers in 2019/20.

The increase in the higher rate threshold – the threshold above which the higher 40% tax rate is charged – represents a tax cut to higher rate taxpayers in rUK*.

But the increase in the HRT will not apply in Scotland. Instead, it will be up to the Scottish Government to decide how to respond in its December budget.

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October 30, 2018

UK Budget 2018: Additional spending but tax dilemmas for the Scottish Government

The 2018 budget was yet again underpinned by some fairly underwhelming projections for economic growth over the next few years – the outlook for which has not changed materially since spring.

But Mr. Hammond’s budget was boosted by the fact that economic growth has proved relatively more ‘tax rich’ recently than had been forecast.

The Chancellor has spent all of this spending windfall, whilst achieving early his ‘fiscal mandate’ – that the cyclically adjusted deficit should remain below 2% of GDP from 2021, and his ‘supplementary target’ (that debt should fall as a percentage of GDP 2020/21).

From the perspective of the upcoming Scottish budget, which will be presented by Derek Mackay on 12 December, the UK Budget contained two major announcements.Continue reading

October 29, 2018