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Scottish Economy

Weekly Update – New year, new numbers

We returned to work on Monday after a restful break, as we all recovered from the pre-Christmas Budget excitement. And don’t worry; we’re still digging through the details of the Budget and will be including more analysis in our Economic Commentary at the end of January.

Monday lunchtime got us back to work with a bang, with the FM giving a speech at Glasgow University focussed on industrial strategy in an independent Scotland. One number in particular got considerable coverage both before and after the FM’s speech.

Is £10,200 the “huge prize of independence” for the typical household?

The Scottish Government have “replicated” some analysis produced by the Resolution Foundation as part of their recent report – “Ending Stagnation – A New Economic Strategy for Britain”. This set out the results of the Economy 2030 Enquiry, and RF recommended a number of policy changes and approaches which would, in their view, make the UK economy more productive and less unequal.

In order to illustrate the “catch-up potential” that Britain has, RF looked at a group of countries that the UK would consider peers (Australia, Canada, France, Germany, and the Netherlands) and modelled what would happen if the UK closed the average household income and inequality gaps with these countries.  They concluded that closing these gaps would lead to the typical household being 25%, or £8,300 better off.

They conclude by saying:

“A better future for the UK does not need global growth to suddenly accelerate, or Britain to match American levels of productivity or Scandinavian levels of inequality. It just requires us to have the resolve to do what is necessary to converge with similar countries who, in the scheme of things, are not so very different to us.”

The FM described the £10,200 in his speech as “the same analysis for countries that are similar to Scotland”. It wasn’t clear at the time of the speech, but later that day, the SG released more information, which set out that “countries similar to Scotland” were the group of countries that were picked for the first paper in the Building a New Scotland Series, which was published in June 2022.

This compared the UK to a group of ten smaller European countries, and was titled “Independence in the Modern World. Wealthier, Happier, Fairer: Why Not Scotland?” We said at the time:

The purpose of the analysis was to demonstrate that, as part of the UK, Scotland is not fulfilling its potential.

It would not be difficult to pick holes in the paper. There is a significant element of cherry-picking, both in relation to the countries chosen and the selection of indicators…

…Its role, at least in the government’s eyes, is to set out the motivation for independence, to provide a positive case as to why the pursuit of independence is worthwhile, and to give examples of some of the ways that an independent Scotland could do things differently…

The question now is how the government follows up what we might call its motivating document in its subsequent analysis. We understand there may be as many as 20 or more papers planned for publication, covering more specific issues from the state pension to currency.

These papers will need to build on this week’s motivating document to get into the nitty gritty – how can an independent Scotland emulate the success of comparator countries, and what are the costs, risks, challenges and trade-offs involved? If instead the subsequent papers adopt a similar level of analysis as this week’s paper, and simply set out how great things could be, that will fall a long way short of what is required.

The SG analysis this week replaced the group of countries used by RF with these 10 countries – Austria, Belgium, Denmark, Finland, Iceland, Ireland, the Netherlands, Norway, Sweden and Switzerland. They also use the relative income of Scotland compared to the UK (that is, equivalised disposable household income) to produce an equivalent figure for Scotland which can be used in the analysis.

The characterisation of this analysis as objective and independent because it broadly follows RF’s approach is not correct– choosing the group of comparator countries could be seen as cherry-picking, and it can’t be said to follow the logic of the RF approach to choosing comparators.

More broadly though, the question is – what does this tell us? Eighteen months on from the first paper in the “Building a New Scotland” series, we still seem to be in the realm of talking about how great everything will be.

UK Economy returns to growth in November

It’s good to start off the new year with some cheery economic news, and the ONS obliged with the publication of November’s GDP data this morning. The economy grew by 0.3% in November, offsetting the fall we saw in the economy in October.

The large services sector showed healthy growth on the month, buoyed up by strong performances in information and communications (particularly computer games publishing and telecommunications) and retail. Manufacturing also showed growth after a large contraction during October.

However, looking over a longer time period basically shows that there has been very little growth over the year as a whole. Here’s hoping there will be some further good news to finish off the economic year for 2023.

Authors

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.