This week has seen a new economic data, an update on the Deposit Return Scheme the release of a new ‘policy prospectus’ by the First Minister. Whilst we were expecting an announcement on the DRS, we weren’t expecting the FM to be unveiling his priorities for the next 3 years quite so soon. Although a lot of the detail is missing (particularly around the fiscal implications), it is nevertheless useful to see what is on the incoming ‘to-do’ list.
Labour market data continues to paint a picture of an extremely tight labour market
The latest data for the Scottish Labour Market shows that the unemployment rate is the lowest ever recorded in the series. The data for December 2022 to February 2023 shows that the rate is at 3.0%, contrasting with the (still very low) UK rate of 3.8%.
The employment rate in the latest data is 75.7%, also a fall on the previous period from 76.5% (and compared to a UK rate of 75.8%.
So how can both employment and unemployment fall in the same period? This is due to a rise in economic inactivity, which has increased from 21.0% to 22.0% in the latest period. The UK indicator is sitting at 21.1%.
Digging into the reasons for inactivity, the biggest increases in terms of numbers of workers are those who are inactive due to looking after the home or family, those who are temporarily sick, and those who have a long-term health condition or disability.
Alongside these data on the Scottish Labour market, every month we also get data at the UK level on wages and vacancies in the labour market.
Growth in regular pay (excluding bonuses) was 6.6% among employees in December 2022 to February 2023. Average regular pay growth for the private sector was 6.9% compared to 5.3% for the public sector – the difference between the private and public sector growth rates has narrowed in recent months.
These are growth rates in wages which seem high compared to wage rises in recent history. However, 6.6% is obviously a lot lower than the current inflation rate, and in real terms regular pay fell by 2.3% in this period, underlining the impact on living standards of price rises.
Vacancies fell for the ninth period in a row, reflecting to a certain extent the uncertain economic environment. However, despite this, they remain very high in historic terms compared to the supply of unemployed people to fill roles.
Inflation remains in double-digit territory
ONS published the latest inflation data for March this week, which showed – against the predictions of many – that Consumer Price Inflation was 10.1% for March.
The most eye-catching figure in these statistics was the continued increases in food and soft drink price inflation. These prices rose by 19.2% in the year to March 2023, up from 18.2% in February, and the highest rate since 1977. Across the classes, the biggest contribution to the increasing rate is from the bread and cereal class – specifically a range of biscuit and cake products.
The continued increases in food price inflation underlines a number of concerns about the impact of the increases on households at the bottom of the income distribution, who typically spend a much larger proportion of their household income on energy and food. It is important to remember that while the UKG have extended the current level of the Energy Price Guarantee to the end of June, the subsidy payment of £66 per month that was paid to all households from October to March has not been continued, so in practical terms it will feel like our bills continue to rise.
Despite this – and we know all economists have been expecting this for a while – it is still likely that inflation will fall quickly and significantly as we move through 2023. Remember though – with the possible exception of energy costs – this does not mean that prices are going to start to fall, just that prices will start to rise less quickly.
The continuation of inflation above 10% is likely to increase the chances that the Bank of England will raise rates further in early May. Before this data was published, it seemed likely that the Bank would pause its rate raising activity for this meeting: but it seems now like the balance of probability suggests a 0.25 percentage point rise.
Deposit Return Scheme delayed again
This was trailed on Tuesday, with a further more detailed announcement on Thursday. The launch data has been moved from August 2023 to September 2024 and some amendments made to the scheme.
All drinks containers under 100ml (i.e. miniatures) will be excluded from the recycling programme as well as product lines of which fewer than 5,000 units a year are sold. As we discussed in the podcast last week, removing products from the scheme does have trade-offs in terms of environmental objectives, but the Minister Lorna Slater’s numbers state that these changes only affect 0.5% of ‘articles’, yet will remove around 44% of businesses from being part of the scheme.
There were some limited changes for hospitality with the removal of the requirement for the venue to act as a return point (for any/all containers) if only a small part of their trade is for offsite consumption. The businesses will still have to return all containers that are part of onsite trade (these containers need to be stored by the business and returned). So these changes, whilst welcome, will not ease the concerns of hospitality – see our previous article on this. (https://fraserofallander.org/the-deposit-return-scheme-a-window-into-whats-to-come/)
Changing economic priorities?
In our podcast last week, we talked about the DRS potentially being a test of whether the FM’s priorities when it comes to supporting businesses.
What does the ‘Policy Prospectus’ tell us about his approach. Economic policy falls under the ‘opportunity’ mission with the promise of ‘a fair, green and growing economy’. What can be frustrating in statements like these is that it over simplifies the fact that there are trade-offs here. It’s very rare for there to be situations where all those three aims are optimised at the same time – normally, at least one has to be de-prioritised, as the Deposit Return Scheme exemplifies. A bit more realism in these mission statements would be helpful.
As a further signal of business-friendly intent, there will be a process of engagement to develop and agree a ’New Deal’ with the private sector. That could be a useful process, but businesses will need to be convinced that it’s worth their time and effort to engage with constructively.
Mairi is the Director of the Fraser of Allander Institute. Previously, she was the Deputy Chief Executive of the Scottish Fiscal Commission and the Head of National Accounts at the Scottish Government and has over a decade of experience working in different areas of statistics and analysis.