… and a look ahead to a big day in the Scottish statistical calendar
This week saw the publication of two pieces of key economic news: firstly on the labour market and secondly the latest inflation data (writes Fraser of Allander Director MAIRI SPOWAGE) . To some extent, the figures were not surprising and were broadly what we were expecting.
Labour Market
New labour market data from the Office for National Statistics were released on Tuesday covering the period until the end of June 2022.
These data show that the Scottish unemployment rate remained stable at 3.2%, with the employment rate dipping slightly (-0.1%-point) to 75.4%. The rate of economic inactivity rose slightly to 22.0% (+0.1%-point) compared to the previous 3 months.
UK-wide data on employees’ pay shows that average total pay (including bonuses) over the past year was 5.1%, while over the same period the growth in regular pay (excluding bonuses) was 4.7%.
Adjusted for inflation, this means that total pay fell by 2.5% and regular pay fell by 3.0% over the year.
So, the tight labour market conditions are continuing. Interestingly, the latest vacancy data shows a slight fall in the number of vacancies in the latest period, although there is still almost 1.3 million vacancies across the UK.
Inflation
The labour market data was followed on Wednesday by the July inflation data. This showed that Consumer Price Inflation had reached 10.1% in July, yet another 40-year high for the measure. It doesn’t have to go much higher to breach the high in 1982 of around 11%.
The main drivers of this, compared to last month, are increases in food and non-alcoholic beverage prices – with an annual inflation rate of 12.7% for this class of goods.
Energy and fuel prices are of course contributing significantly to the annual inflation rate. Despite us all noticing that petrol and diesel prices have fallen back in the latter part of July, the average price in July was still higher than the average price in June; the level of fuel price in July 2022 was 47% higher than July 2021.
We have consistently discussed that these price rises are likely to be experienced differently by different groups of the population. ONS produce consistent measures of inflation experienced by different household groups, including by income.
Chart: Annual Inflation to June 2022 by income quintile (CPIH consistent)
Source: ONS
As we might expect, the data shows that those on the lowest incomes are likely to be experiencing the highest levels of inflation. Look out for more analysis of this really interesting dataset in our next Economic Commentary: or, alternatively, go here if you want to analyse it yourself.
And finally… take a deep breath and get ready for GERS 2022!
Government Expenditure and Revenue Scotland (GERS) is coming!! In late August each year, the Scottish Government releases these statistics to much amassed excitement from political commentators and fans of economic statistics.
These statistics are released next Wednesday. They show estimates of tax revenues raised in Scotland compared to expenditure on behalf of the people of Scotland, and present the balance between these two figures as a net fiscal balance.
We have produced a detailed guide to GERS which goes through the background of the publication and all of the main issues around its production, including some of the odd theories that emerge around it. A couple of years ago, we also produced a podcast which you can enjoy at your leisure.
No doubt, as usual there will be plenty of different interpretations and arguments about what these statistics do, or don’t, mean for Scotland under different visions of its future, particularly given the stage the constitutional debate is currently at.
For the uninitiated, the GERS statistics seem to be pretty unique in terms of the fervour they generate and as with any fuss like that, it’s worth taking a step away to look at the facts for yourself.
We’ll be publishing analysis next week that breaks down some of the key figures to help with that, so stay tuned!
This year has not seen the return to normality that many businesses hoped for. Supply chain disruption, rising prices, hiring difficulties, interest rate increases, and lack of confidence are taking their toll (writes Fraser of Allander Fellow JAMES BLACK).
Many economic organisations are now forecasting potential slowdowns in the UK and globally, but significant uncertainty remains around forecast business conditions.
One of the challenges in predicting slowdowns is the timing. Robust data often takes months to collect, so we often do not know if the economy has started slowing until months after it begins.
It’s helpful to step back and look at the significant economic drivers in times of such uncertainty. Survey snapshots, such as our recently published Scottish Business Monitor sponsored by Addleshaw Goddard, can provide some hints. So, what are businesses saying about their current performance and expectations for the coming year?
Starting with the positives, more businesses reported an increase in sales volume in the year’s second quarter than a fall, resulting in a net balance of +15%. This net figure is reasonably high, and this level hasn’t been seen in our survey since 2014. Employment, new business, and capital investment indicators also remained positive for the second quarter.
On the face of it, businesses have been remarkably resilient. Few people predicted emerging from one of the greatest human health crises in over a century with unemployment rates near record lows. Scottish onshore GDP grew by 0.6% in May, now 1.1% above February 2020 levels of output.
But concerns are now starting to emerge in the data. The net balance of the sales volume is still positive but has weakened since the start of the year. Looking ahead to expectations over the next six months, the positive but weakening finding is consistent across many indicators such as business volume, new business, and employment.
This weakening is mirrored across several other surveys. The June RBS Purchasing Managers’ Index showed the weakest expansion in Scotland’s business activity since January. Only 13% of UK businesses in the ONS’ Business Insights and Conditions Survey reported an increase in turnover in June compared to 24% reporting a decrease, and expectations for August are negative.
The most commonly reported challenge impacting these turnover figures is the cost of materials. Our survey has been asking Scottish businesses to report on their business costs since 1998 and provides a useful reference for the scale of this challenge.
The past four quarters have shown cost increases across the board. Costs for energy, employees, inputs, imported goods and services, distribution, and credit are all increasing or already very high. Compared to the 23 years of surveyed total business costs between 1998 and 2020, each of the past four quarters is a record breaker.
The knock-on impact of these price rises continues to filter through to the economy. An ONS survey states that 44% of UK firms have reported absorbing costs, while 26% passed on price increases to consumers. Two in five Scottish firms we surveyed said they expect to reduce their operations due to energy prices.
Concerns exist around how these supply-side issues could lead to significant demand-side impacts and contribute to a slowdown. So, what does the evidence show on how the major drivers of demand – consumer spending, export demand, government spending, and investment – have been affected?
Household spending accounts for almost two-thirds of Scotland’s GDP, but many people have seen their costs increase while their wages have failed to keep up. The likely impact is people dipping into savings, borrowing, buying fewer goods and services, or substituting for cheaper goods and services.
On savings, aggregate data up to May on net household deposits to UK banks has so far remained relatively stable over the year. If consumers, as an aggregate, start dipping into savings, this would be worrying not just for living standards but also for a potential reckoning down the road as these savings eventually run out. Credit card borrowing does appear to have increased, but total borrowing is still moderate compared to the past decade.
However, UK Retail Sales data up to June shows rising sales values and falling sales volumes. Inflation has driven what is now a significant wedge between these trends. Sales volumes have fallen close to levels seen in June 2019. Perhaps not yet concerningly low, but the trend is worrying both in terms of living standards and the consequential impact on businesses and their supply chains.
For now, the data primarily points to reductions in delayable purchases such as furniture. Mostly anecdotal evidence suggests that consumers are opting for cheaper options in supermarkets and switching to budget retailers.
If domestic demand appears to be showing initial signs of slowing, will exporting come to the rescue? Most Scottish businesses in our survey say no. Pessimism exists about export performance over the next six months, and a global slowdown in 2023 appears increasingly likely.
Government spending in Scotland was projected to barely increase in real terms between 2022/23 and 2025/26, and inflation expectations have since worsened. The cost-of-living payment and £400 energy rebate will likely partially offset but not reverse expected negative consumer trends. However, it remains to be seen how UK policy may change under new leadership.
According to the Bank of England, investment intentions are still positive, and firms are increasingly looking toward energy-saving investments. But some firms are reassessing investment plans as the economic outlook worsens.
The challenges this year result from a perfect storm of supply chain issues. This included several surprises on the downside. An optimist may hope for the possibility of surprises on the upside too. Any signs of improved energy supply and production levels in China deserve attention over the coming months.
For now, the message for businesses is don’t panic but do worry. But for many people, there is increasing evidence that we are leaving a health crisis only to enter a crisis of living standards.
HOUSEHOLDS ACROSS EDINBURGH TO BE SUPPORTED BY £23 BILLION
As communities across Edinburgh recover from the pandemic and face a Tory made cost of living crisis, yesterday the SNP Government’s spending review outlined record social security spending to help households facing increasing pressures. The Scottish Government allocated around £23 billion for social security over the course of the parliament.
The focus on supporting households under increasing pressure reflects the SNP’s commitment to create a fairer Scotland by tackling child poverty, reducing inequalities and supporting financial wellbeing in Edinburgh, and builds on current efforts to help families and mitigate Westminster welfare cuts.
The Resource Spending Review outlined over £23 billion worth of payments, with a total of almost £1.8 billion for the ‘game changing’ Scottish Child Payment alone. By 2026-27 the budget for Social Security Assistance will have increased by £6.3 billion.
This is despite the Scottish Budget for this year being cut in real terms by 5.2 per cent by the Tory UK government and the SNP government already spending almost £770 million on cost of living support, including several measures for families in Edinburgh not available elsewhere in the UK, such as:
Doubling the ‘game changing’ Scottish Child Payment to £20 per child per week with plans to increase it to £25 and extend it to under 16s by the end of the year – reaching a possible 450,00 young people.
Investing £86m to mitigate the Tory Government bedroom tax and benefit cap and support 90,00 people in their tenancies
Uprating eight Scottish social security payments by 6 per cent
A brand new Low-Income Winter Heating benefit that guarantees a £50 annual payment to over 400,000 low income households in winter 22/23
The Carers Allowance Supplement which will support around 90,000 carers with an additional £450 a year
Providing everyone in primaries one to five and over 140,000 eligible children and young people access to a free school lunch
Making free bus travel available for nearly half of Scotland’s population through concessionary travel
Additionally, the Scottish Government is making investment in areas like energy efficiency to bring down costs and the spending review set out how the SNP will build on these over the coming years.
SNP MSP for Edinburgh Pentlands, Gordon MacDonald, said: ““I am very glad to see this record investment in social security by the SNP Government, putting such a strong focus on tackling child poverty and helping households both across the Edinburgh Pentlands constituency and the wider city who are facing severe pressures right now which seems likely to only increase for the next while.
“Many families across Edinburgh are already benefitting from support like the Scottish Child payment, a £150 council tax reduction, the Scottish Welfare Fund and Discretionary Housing Payments which mitigate Westminster’s cruel bedroom tax.
“These are policies that build on the SNP’s current efforts. They will make a real difference to people’s lives and build on long standing measures that we benefit from every day – such as free prescriptions, free university tuition, free personal care, and 1,140 hours of free early learning and childcare which will continue to be maintained.
“When times are tough, Governments have to make tough decisions and I’m grateful the SNP government continue to focus on what matters most to people but, it is acting with one hand tied behind its back as Westminster continues to inflict its cruel austerity agenda at a time when people need support the most.
“Once again, it is clear that only with the full powers of independence, that we can stop spending a fixed budget on protecting households against Tory cuts and start to properly build a fairer, more equal Scotland.”
An ‘ambitious but realistic’ public spending framework has been published which outlines how more than £180 billion will be invested to deliver priorities for Scotland.
The Resource Spending Review, which is not a budget, outlines how the Scottish Government will focus public finances in the coming years to tackle child poverty, address the climate crisis, strengthen the public sector as Scotland recovers from Covid and grow a stronger, fairer and greener economy.
A targeted capital spending review has also been published to address a reduction in capital investment by the UK Government. As well as supporting the NHS and affordable housing, the capital spending review will invest around £18 billion up to 31 March 2026, with over half a billion of additional funding directed to net zero programmes compared to previous plans.
Finance Secretary Kate Forbes said: “We are of course still recovering from the Coronavirus pandemic. There is still acute pressure on the NHS, on business and the wider economy. The illegal Russian invasion of Ukraine is a humanitarian crisis, which is affecting the global economy. Rising energy prices and constrained supply chains have affected countries worldwide. While inflation is also impacting other countries, it is not impacting them equally.
“The UK currently has the highest inflation of any G7 country– almost twice the rate of France. Brexit has made this problem worse, with increases in food prices, hitting the poorest hardest. We are experiencing an unprecedented cost of living crisis. Inflation is at a 40-year high of 9 per cent with households facing considerable hardship.
“Today’s Resource Spending Review is not a Budget. However, it is essential to share high-level financial parameters with public bodies, local government and the third sector, so we can plan ahead together.
“Today I set out an ambitious but realistic public spending framework for the years ahead. It does not ignore the realities of our financial position, but neither does it roll back on our ambitions for change.”
Further changes to Scotland’s fiscal position and to tax and social security forecasts are expected to change the funding picture ahead of annual budgets.
The spending review however does prioritise sending in key policy areas.
These are:
Tackling child poverty and supporting households and businesses with the cost of living
£22.9 billion for social security assistance
increasing the Scottish Child Payment from £10 to £25 and expanding eligibility by the end of this year
providing universal free school meals to primary school children in P1-5 and expanding provision beyond that
uprating devolved benefits
Securing stronger public services
investing £73.1 billion in health and social care including developing a National Care Service
increasing investment in frontline health services by 20 per cent over this Parliament
spending more on primary and community care to ensure people get the right treatment in the right place
funding of £42.5 billion for local government for the delivery of services
investing £11.6 billion in the justice system
Achieving net zero and tackling the climate crisis
up to £75 million per year to deliver the Heat in Building Strategy, enabling £1.8 billion investment towards decarbonisation
up to £95 million towards meeting woodland creation targets
£46 million to introduce the community bus fund and an increase in funding for concessionary travel schemes
investment of over £12 million in peatland restoration
£4 million of resource spending alongside £150 million capital and financial investment for the North East and Moray Just Transition Fund
Building a stronger, fairer and greener economy
capital investment of £581 million to support the economy, including our enterprise agencies and the Scottish National Investment Bank
continuing through the Inward Investment Plan to attract high quality inward investment in areas such as energy transition and the space sector
pushing forward with the export growth plan A Trading Nation to scale up Scotland’s international reach
embedding entrepreneurship in education, to give young people opportunities to start and grow businesses
The spending review provides a platform for engagement ahead of the next budget on how best to reform Scotland’s high performing public sector to become more efficient, to deliver ambitious outcomes. That means rapidly digitalising the public sector, maximising revenue through public sector innovation, reforming the public sector estate and the public body landscape, and improving public procurement.
The annual Medium Term Financial Strategy has also been published to provide the economic and fiscal context for the Resource Spending Review and Capital Spending Review, including the fiscal challenges that lie ahead.
COSLA has stated that the implications of the Scottish Government’s spending plans for the rest of the parliament are deeply concerning for communities across Scotland and fail to recognise the fundamental role Local Government has in addressing the Government’s own priorities of child poverty, climate change and a stronger economy.
The ‘Resource Spending Review’, published on 31 May, shows no prospect of an increase to Local Government’s core funding for the next 3 years, which is especially concerning in the current context of soaring inflation and energy costs.
This “flat-cash” scenario gives extremely limited scope for recognising the essential work of our staff, whose expectations around pay continue to be, quite rightly, influenced by Scottish Government’s decisions in relation to other parts of public sector. Put simply, the plans as they stand will mean fewer jobs and cuts to services. COSLA is seeking an urgent meeting with the First Minister and Cabinet Secretary for Finance to discuss this further.
COSLA’s Resources Spokesperson Gail Macgregor said “Every year at Budget time, COSLA argues for fair funding for Local Government to maintain the essential services our communities rely on.
“No increase in our core funding damages these services and yesterday’s announcement will see this continue for at least the next three years. Our communities are starting to see and feel the difference”
Yesterday, the Fraser of Allander Institute also immediately recognised the impact on councils – “The local government budget will decline by 7% in real terms between 2022/23 and 2026/27…….the real terms erosion of the funding allocations of local authorities represents the continuation of a longer trend”
Commenting on the resource spending review, a spokesperson for the Scottish Children’s Services Coalition commented: “The Scottish Government’s resource review, which highlights a spending gap of around £3.5 billion by 2026/27, points to highly challenging times ahead for our public services (1st June 2022).
“The Fraser of Allander Institute noted that, within this, councils will see real term cuts of 7 per cent between 2022/23 and 2026/27, the implications of which are highly disturbing for those with additional support needs (ASN) who we support.
“Those with ASN make up around a third of our children and young people, including autism, dyslexia and mental health problems, many of whom were already facing considerable barriers to support and not receiving the care they need when they need it.
“While we have witnessed a more than doubling in the number of these individuals over the last decade, putting an immense strain on services, there has been a cut in spending on additional support for learning and a slashing in specialist educational support.
“Covid-19 has had a further major impact, denying care to many, and with these latest swingeing public service cuts we are potentially facing a ‘lost generation’ of vulnerable children and young people.
“We would urge the Scottish Government and newly elected councils to work together to ensure that those children and young people with ASN are made a priority, able to access the necessary support to allow them to reach their full potential.”
The STUC have yet to comment on the Spending Review.
Tomorrow (Tuesday 31 May) the Scottish government will publish a Spending Review and a Medium Term Financial Strategy. At the same time, the Scottish Fiscal Commission will publish updated economic and fiscal forecasts for the period to 2027.
This article by DAVID EISER at the FRASER of ALLANDER iNSTITUTE considers six key things to look out for:
How much detail will the government provide about its spending plans?
The government has said that its resource spending review will ‘outline resource spending plans to the end of this Parliament in 2026-27’. This will, it says, ‘give our public bodies and delivery partners greater financial certainty to help them rebuild from the pandemic and refocus their resources on our long-term priorities’.
What has remained unclear is the level of granularity at which the government intends to set its spending plans.
A spending review is not a multi-year budget, and we shouldn’t expect it to look like one. But we have no idea whether the government is going to set out spending plans at portfolio level, or in more detail than this. Portfolio-level plans would be useful, but some organisations would, justifiably, point out that Portfolio level plans provide them with little if any certainty about their own allocations.
There is a possibility too that the government does not in fact set-out portfolio level spending plans, but instead provides information about its spending plans for only a selective list of its policy ‘priorities’. This sort of approach would certainly represent a missed opportunity.
How will the government address uncertainty?
The UK government’s Spending Review in October set out spending allocations for the Scottish government for each year until 2024/25. These allocations aren’t necessarily set in stone, but whilst they might well increase a bit, they almost certainly won’t be reduced.
The Scottish government does not have confirmed allocations for 2025/26 and 2026/27 and there is significant uncertainty around what the government’s allocations will be in these years.
It will be interesting to see how the Scottish government addresses this uncertainty in the spending review. Will it set out plans for a single scenario only? Will it set out a central scenario, together with spending plans under alternative scenarios? Or will it provide broad ranges over which it expects spending on different public services to fall?
There is a reasonable case for the government to adopt a different approach for 2023/24 and 2024/25 than it does for 2025/26 and 2026/27. But it shouldn’t use the uncertainty in the last two years of the parliament as justification for providing less detailed information in the next two years.
What insights will we get into the government’s policy commitments… and the implications for non-prioritised areas of spending?
The Spending Review should give us some further clues about the government’s emerging plans in various areas. For example, the timescales for, and financial implications of, plans to establish a national care service may emerge more clearly.
What is less clear is how much the spending review will tell us – explicitly – about levels of spending for non priority areas.
The Scottish government’s MTFS in December pointed out that the difference between its spending aspirations and its likely budget was over £2bn in 2024/25 (see Figure 6). This is a substantial funding gap (although it is not clear what assumptions lie behind it).
The spending review framework notes that ‘With limited resources, increased investment in the Scottish Government’s priorities will require efficiencies and reductions in spending elsewhere: we need to review long-standing decisions and encourage reform to ensure that our available funding is delivering effectively for the people of Scotland.’
It will be interesting to see whether the spending review document itself is as candid about where spending reductions are taking place as the framework document implied it might be.
How significantly will the economic outlook deteriorate?
The last set of SFC forecasts were published in December 2021. A huge amount has changed in the five months since then.
The December 2021 forecasts described an economy that had recovered from the pandemic more strongly and smoothly than had been anticipated earlier that year. The economy was forecast to grow 2.2% this financial year and 1.2% next.
Unemployment was forecast to peak at 4.9% in 2022, down from an expected peak of over 7% in its previous forecast. Inflation was expected to increase in 2022 to around 4.4% – enough at the time to cause the SFC to forecast a fall in real earnings.
We live in a different world now. By March 2022, inflation was 7%, and by May the Bank of England was expecting inflation to peak at 10% this year. The rise in inflation, together with tax increases, leads the Bank to forecast that 2022 will see the second largest annual fall in disposable household incomes since the 1960s.
The SFC’s forecasts will inevitably paint a similarly gloomy picture for real household incomes in Scotland, which in turn will result in a contraction of its forecasts for economic growth, and probably a deterioration in its medium term outlook for the labour market. Exactly how the SFC sees the cost of living crisis play out will be interesting to see.
In May the Bank of England’s forecast implied prolonged stagnation in UK economic activity, although it did not (quite) forecast a recession in a technical sense. If the SFC does forecast a recession in Scotland, this will no doubt dominate headlines, but it will be important to look closely at how different the UK and Scottish economic forecasts are in a tangible sense.
What will be the implications of the fiscal forecasts for income tax and the Scottish budget?
The SFC’s economic forecasts will have implications for the Scottish budget, via the income tax forecasts in particular. These implications are not as immediate as you might think – Tuesday’s forecasts do not themselves have major significance for Scottish government spending this year, since the forecasts made at the time of the budget are what really matters until tax outturn data is available.
But Tuesday’s forecasts will give an indication of whether the outlook for the contribution of income tax to the budget has improved or deteriorated since the budget forecasts in December.
Its very difficult to predict the outcome. Its quite conceivable that the forecasts for Scottish income tax revenue will be revised up, if the SFC believes that higher inflation and recent further falls in unemployment will drive up earnings growth. But what ultimately matters is how the SFC’s judgements play out alongside the OBR’s equivalent judgements for the UK (since these are what determine value of the income tax block grant adjustment).
The December forecasts painted a gloomy picture. Scottish income tax in 2022/23 was forecast to raise £190m less than what was taken out of the block grant to account for tax devolution, and £257m less in 2023/24.
Kate Forbes will be hoping for any signs of an improvement in the outlook. But whatever the implication of Tuesday’s income tax forecasts, they will in reality need to be taken with a pinch of salt, given the differences in timing between the OBR and SFC forecasts.
The other really important element of the fiscal forecasts will be what they say about the outlook for devolved Scottish social security spending, relative to the related uplift in the block grant.
Spending will inevitably be substantially higher than the level of additional resources flowing through the block grant, as a result of policy divergence in Scotland (in relation to disability benefits, carer’s allowance, and the new Scottish Child Payment). But the extent of the gap will have implications for the resources available to the Scottish government in other areas of devolved spending.
What will the MTFS tell us about the government’s wider strategic ambitions?
The Medium Term Financial Strategy sets out risks to the devolved budget over a five year period. We can expect the MTFS to analyse issues including uncertainties relating to inflation and the implications for public sector pay.
But past MTFS documents have also given a steer about some of the government’s wider strategic fiscal objectives and asks. It will be worth looking at what this year’s MTFS says about these issues – which potentially include positioning statements in relation to further tax devolution, or extension of borrowing and budget management tools – particularly in the context of the upcoming review of the fiscal framework.
David Eiser is Senior Knowledge Exchange Fellow at the Fraser of Allander Institute
MORE SUPPORT NEEDED, SAYS SCOTTISH FINANCE SECRETARY
The most vulnerable households across Scotland will receive support of over £1,000 this year, including a new one-off £650 cost of living payment
Universal support increases to £400 across Great Britain, as the October discount on energy bills is doubled and the requirement to repay it over 5 years scrapped
This new £15 billion support package is targeted towards millions of low-income households and brings the total cost of living support to £37 billion.
New temporary Energy Profits Levy on oil and gas firms will raise around £5 billion over the next year to help with cost of living, with a new investment allowance to encourage firms to invest in oil and gas extraction in the UK.
Millions of households across the UK will benefit from a new £15 billion package of targeted UK government support to help with the rising cost of living, the Chancellor announced yesterday.
The significant intervention includes a new, one-off £650 payment to more than 8 million low-income households on Universal Credit, Tax Credits and legacy benefits to be made in two tranches starting in the summer, with separate one-off payments of £300 to pensioner households and £150 to individuals receiving disability benefits – groups who are most vulnerable to rising prices.
Rishi Sunak also announced that the energy bills discount due to come in from October is being doubled from £200 to £400, while the requirement to pay it back will be scrapped. This means the vast majority of households will receive a £400 discount on their energy bills from October.
The new Cost of Living Support package will mean that the most vulnerable households in Scotland will receive over £1,000 of extra support this year.
To ensure there is support for everyone who needs it, Mr Sunak also announced a £500 million increase for the Household Support Fund. This brings the total Household Support Fund to £1.5 billion.
To help pay for the extra support – which takes the total direct government cost of living support to £37 billion – Mr Sunak said a new temporary 25% Energy Profits Levy would be introduced for oil and gas companies, reflecting their extraordinary profits. At the same time, in order to increase the incentive to invest the new levy will include a generous new 80% investment allowance. This balanced approach allows the government to deliver support to families, while encouraging investment and growth.
The Chancellor of the Exchequer Rishi Sunak said: ““I know that people in Scotland are anxious about keeping up with rising energy bills, which is why today we have introduced measures which will take the support for millions of the lowest income households over £1,000.
“As a nation we have a responsibility to help the most vulnerable, which is why this support is mostly targeted at people on low incomes, pensioners and disabled people. But we understand that all households in Scotland will be concerned about the rise in energy costs this Autumn, so every household is set to get £400 off their energy bills from October, with no repayments necessary.
“It is right that companies making extraordinary windfall profits from rising energy prices should contribute, and I’m introducing a temporary energy profits levy to help pay for this support, while still encouraging the investment that generates jobs in Scotland.”
Scottish Secretary Alister Jack said: “Global issues are causing real pressures in the cost of living for UK families. We understand how tough it is at the moment for many households, which is why the Chancellor has today announced a further £15 billion support package.
“A total of £400 per household towards fuel bills will help protect families from rising energy costs. Cash payments of £650 for low-income households on means tested benefits will target support at the most vulnerable in our society at this difficult time. This comes on top of our existing £22bn support package.
“Some of these measures will be paid for by a temporary levy on oil and gas companies – one which incentivises investment in the UK’s energy security.”
There is now more certainty that households will need further support, with inflation having risen faster than forecast and Ofgem expecting a further rise in the energy price cap in October.
So as part of the UK government’s targeted support, the Chancellor announced that around eight million of the lowest income households on Universal Credit, Tax Credits, and legacy benefits will receive an automatic £650 cost of living payment in two instalments via the welfare system this year.
Yesterday’s announcement is on top of the government’s existing £22 billion cost of living support which includes February’s energy bills intervention and action taken at this year’s Spring Statement including a £330 tax cut for millions of workers through the NICs threshold increase in July and 5p cut to fuel duty.
Energy Profits Levy
Surging commodity prices, driven in part by Russia’s war on Ukraine, has meant that the oil and gas sector have been making extraordinary profits. Ministers have been clear that they want to see the sector reinvest these profits in oil and gas extraction in the UK.
In order both to fairly tax the extraordinary profits and encourage investment, the Chancellor announced a temporary new Energy Profits Levy with a generous investment allowance built in. This nearly doubles the tax relief available and means the more investment a firm makes, the less tax it will pay.
The new Levy will be charged on oil and gas company profits at a rate of 25% and is expected to raise around £5 billion in its first 12 months, which will go towards easing the burden on families. It will be temporary, and if oil and gas prices return to historically more normal levels, will be phased out.
The new Investment Allowance, similar in style to the super-deduction, incentivises companies to invest through saving them 91p for every £1 they invest. This nearly doubles the tax relief available and means the more a company invests, the less tax they will pay.
The government expects the combination of the Levy and the new investment allowance to lead to an overall increase in investment, and the OBR will take account of this policy in their next forecast.
The Levy does not apply to the electricity generation sector – where extraordinary profits are also being made due to the impact that rising gas prices have on the price paid for electricity in the UK market, which has also been making extraordinary profits partly due to record gas prices but also due to how the market works.
As set out in the Energy Security Strategy the government is consulting with the power generation sector and investors to drive forward energy market reforms and ensure that the price paid for electricity is more reflective of the costs of production.
The Chancellor announced yesterday that the Treasury will urgently evaluate the scale of these extraordinary profits and the appropriate steps to take.
During the announcement, the Chancellor also set out the government’s strategy to control inflation through independent monetary policy, fiscal responsibility, and supply side activism – a plan he said that should see inflation come down and returning to its target over time.
Finance Secretary Kate Forbes has welcomed the short term action announced by the Chancellor of the Exchequer, but warned more support is needed for households and businesses as the cost of living crisis worsens.
Following calls from the Scottish Government, the UK Government has taken steps to ensure that cash grants, rather than loans, are provided to those on lowest incomes. Ms Forbes has also cautiously welcomed the decision to introduce a Windfall Tax on energy companies benefiting from significant profits but commented that it means Scottish industry is disproportionately funding interventions across the UK.
Responding to the Chancellor’s statement, Ms Forbes has said UK Ministers should have acted earlier and gone further to provide more support that would make a real long term impact, including following the Scottish Government’s lead by doubling the Scottish Child Payment to £20 per week – which is due to increase to £25 from late 2022 helping lift an estimated 50,000 children out of poverty in 2023-24.
Ms Forbes said: “Many households will be relieved to see the support belatedly announced today, but we still need a long term solution to the cost of living crisis and reassurance that the UK Government is going to tackle long term inequalities rather than provide one-off bursts of crisis support.
“Rather than listen to our plea for a comprehensive funding package that fully addresses the unprecedented rise in the cost of living and uses the full £30 billion of fiscal headroom, this piecemeal approach makes it highly likely that more support will be needed later when energy prices rise significantly in the autumn.
“There is also a severe lack of support for businesses – many of them are still struggling to recover from the pandemic and now face crippling increases in energy costs and the damaging impacts of Brexit on supply chains and the labour market. Without urgent economic support there is a real risk that the UK economy is heading for a recession.
“Inflation is at its highest levels in 40 years and the UK Government’s failure to fully invest in increasing incomes, tackling inequality and boosting economic competitiveness will only risk pushing households into further debt and poverty
“The UK Government has almost £30 billion of fiscal headroom, spending only half of this during a cost of living crisis does not go far enough, especially when a further £5 billion from the Windfall Tax will be raised.
“The introduction of a windfall tax is a start, but as a stand-alone measure this means Scottish industry is carrying the weight of UK-wide interventions.
“The removal of the £20 Universal Credit uplift last year was a hammer blow to hard pressed families and the Chancellor’s failure to restore it and increase it to £25 only places a disproportionate burden on the shoulders of those who need help most. The statement was also worryingly silent on public-sector pay with no related consequential funding, when the lowest paid need urgent assurance in the face of rising inflation.
“The refusal to reverse the National Insurance increase implemented in April and temporarily suspend VAT on household energy bills will also cost families hundreds of pounds annually at a time when their budgets have never been more squeezed.
“The Scottish Government has already taken action to support people, communities and businesses as much as possible, with almost £770 million per year invested in cost of living support. We have increased eight Scottish benefits by 6%, closer to the rate of inflation, and introduced a range of family benefits not available elsewhere in the UK.”
Commenting on the government’s cost of living support package announced today (Thursday), TUC General Secretary Frances O’Grady said: “Unions have repeatedly called for an Emergency Budget to help families, and a windfall tax on energy companies.
“The Chancellor should have acted far sooner after his inadequate Spring Statement. His dither and delay has caused unnecessary hardship and worry for millions.
“While today’s intervention is badly needed, we should have never been here in the first place.
“Years of attacks on wages and universal credit have left many households on the brink.
“The government still doesn’t have a plan for giving families long-term financial security.
“With energy bills rising 23 times faster than wages we urgently need to get pay packets rising and to pay universal credit at a permanently higher rate – not just a one-off boost.
“That’s the best way to protect livelihoods and to support the economy.”
A new Centre of Expertise in Equality and Human Rights to put human rights and equality at the heart of economic policy development is being established.
The Centre, an action from Scotland’s National Strategy for Economic Transformation, will see government working with leading experts to build knowledge and skills among policy officials to address injustice and economic inequality.
Economy Secretary Kate Forbes said: “Our vision for Scotland is to create a wellbeing economy where our society is thriving economically, socially and environmentally, and in which we deliver prosperity for all Scotland’s people and places.
“By focusing on wellbeing and fair work, we can deliver higher rates of employment and wage growth, to reduce poverty – particularly child poverty – and improve health and quality of life for disadvantaged families and communities.
“The Centre of Expertise in Equality and Human Rights will advance our understanding of how equality and human rights should influence the economic policy-making process.
“This includes work in areas to remove barriers to employment for disabled people, women, those with care experience and minority ethnic groups while also tackling poverty through fair pay and conditions.
“Scotland’s National Strategy for Economic Transformation identified challenges to overcoming inequality across the economy, but also opportunities to build a fairer and more equal society with opportunities for all to succeed.”
The Scottish Government will develop the centre in partnership with stakeholders such as Inclusion Scotland.
Senior policy advisor at Inclusion Scotland Bill Scott said: “This new centre is an exciting development which we believe will ensure that equalities and human rights are at the heart of future economic policy development and implementation.
“Its work will be crucial in first identifying and then tackling the inequalities that currently condemn far too many of Scotland’s disabled people to poverty and low pay.”
International Trade Secretary welcomes US counterpart Ambassador Tai to Aberdeen to discuss how transatlantic trade is delivering for the people of Scotland and the rest of the UK.
Talks focus on key sectors for Scottish economy and bring together iconic Scottish businesses including Walker’s Shortbread and innovative energy SME, Enpro-Subsea.
Figures show US investment is supporting over 100,000 jobs and generating nearly £50 billion for the Scottish economy.
The UK will today host the second transatlantic trade dialogue in Aberdeen aimed at boosting our £200 billion trade partnership with the US.
Against a backdrop of Aberdeen’s flourishing tech scene and world-leading energy sector, the dialogue will focus on agreed priority areas including digital and innovation, green trade, supporting SMEs and supply chain resilience.
Latest figures show the importance of transatlantic trade to Scottish workers, businesses and industry:
Nearly a quarter of the nation’s services exports are to the US
Scotch whisky exports continues to play a vital role in wider UK-US trade, with almost two thirds of beverages exported to the US coming from Scotland
The US is Scotland’s number one foreign investor, according to EY
US-owned businesses support over 100,000 jobs, generating nearly £50 billion for the economy
The Secretary of State for International Trade Anne-Marie Trevelyan will discuss the importance of trade for creating jobs and spreading economic opportunities throughout the UK – a key part of our levelling up agenda.
The dialogue will convene leaders from across Scottish, central and local government, a wide range of businesses as well as trade unions and civil society groups such as Trades Union Congress.
International Trade Secretary, Anne-Marie Trevelyan, said:“This dialogue gives us a platform to explore more modern, digital ways of trading. It will identify and resolve barriers to trade to make it cheaper and easier for businesses in Scotland and throughout the UK to do business with our US friends.
“As two leaders in green innovation, it also gives us the opportunity to harness trade to tackle shared challenges such as climate change.
The Trade Secretary met with leaders from Scotland’s food and drink industry including Walker’s shortbread and Clootie McToot last night.
Attendees also included US spirits company Brown-Forman which owns three of Scotland’s top distilleries GlenDronach, Benriach and Glenglassaugh and employs hundreds of people in the UK. The firm hailed the lifting of tariffs on US whiskey thanks to the recent resolution of the S232 steel and aluminium tariffs dispute, and revealed it is now planning a multi-million pound investment in its Scottish facilities.
Ahead of the dialogue, Trevelyan and Tai will visit offshore energy SME, Enpro-Subsea in Aberdeen where Trevelyan will highlight the UK’s energy strategy aimed at securing energy security and independence, while we support the transition from fossil fuels to new technologies. The company demonstrates that achieving our environmental goals must go hand-in-hand with an evolving North Sea industry.
Discussions at the dialogue will provide a solid foundation for further engagement with the US. This includes ongoing work at a state-level such as mutual recognition of qualifications as well as continuing to remove barriers to trade.
The Government has already helped lift the ban on UK exports of lamb and beef and resolved the Large Civil Aircraft dispute, which removed 25 percent tariffs on Scotch whisky, resulting in huge wins for Scottish producers and exporters.
UK Government Minister for Scotland Iain Stewart said: “We’re delighted to host today’s talks in Aberdeen, marking a positive development in our already strong trade relationship with the US. Improving our partnership will create new high-quality opportunities for businesses in Scotland, including from our thriving food and drink, tech and energy sectors.
“At a time when we face immense global challenges, joining with our friends in the US to lift barriers, improve communication and encourage new and innovative ways of working together will support jobs across Scotland and beyond, benefiting businesses of all sizes.”
Shevaun Haviland, Director-General of the British Chambers of Commerce, said: “The UK and US are natural trading partners. These dialogues are an opportunity to build on that relationship and set new ambitious standards on sustainable trade. In a shifting and uncertain world, we must also take this opportunity to reinforce the resilience of our supply chains and stabilise prices.
“Smaller businesses make up the majority of our membership, and the UK economy, so it’s vital they are given a voice in these talks and that they get to reap the benefits on both sides of the Atlantic.
“Supply chain disruption and soaring inflation have reduced the operating margins of many small firms to almost nothing, so reducing the costs of trade with the US would be a huge boost for them. This would then help communities right across the UK to see the benefits that improved trade with the US could bring.”
Allan Hogarth, Executive Director of the Scottish North American Business Council (SNABC) said:“The SNABC is very much looking forward to participating in the Aberdeen session of the Transatlantic Dialogue, building on the success of the Baltimore session last month.
“These discussions will cover vital areas to the Scottish, UK and US economies – it is a great opportunity to make sure Scottish voices are heard on this, our single biggest export market, and to try and make it simpler for us all to continue to prosper and strengthen the transatlantic relationship for our mutual benefit.”
According to EY’s Attractiveness Survey Scotland, June 2021 , the US was the largest contributor of Scottish FDI projects in 2020. The 38 investment projects originating from the US accounted for 35.5 percent of all projects recorded in Scotland in 2020.
Investment can help create more high quality start-ups
Work to create the best opportunities for entrepreneurs is helping transform Scotland into one of Europe’s leading economies to start or grow a technology business.
Building on the entrepreneurial ambitions set out in the National Strategy for Economic Transformation, Economy Secretary Kate Forbes said work is underway – backed by £45 million of investment – to help transform Scotland’s tech sector.
During a parliamentary statement Ms Forbes highlighted progress made to date to implement the Logan Review. Actions include:
finalising arrangements for five new Tech Scaler hubs, with the potential to create more than 300 high quality start-ups, that will offer mentorship support to budding entrepreneurs. These new hubs, located around the country, will help to ensure new and existing tech innovators have access to high quality commercial education
establishing a £1 million Scottish Tech Ecosystem Fund providing support for organisations to deliver meet ups and events which create the best environment for entrepreneurs to succeed
investing more than £1 million in new devices and equipment to support teaching of computing science
appointing teachers who will drive improvements in equipment and training while sharing best practice
allocating £1.5 million for reskilling – including support for those on low incomes to gain digital skills
A Chief Entrepreneur Officer will also soon be appointed in the Scottish Government to help ensure entrepreneurship ambitions are embedded in policy development.
Ms Forbes said: “The Scottish Government is committed to the most radical reforms of the Scottish entrepreneurial system since devolution. Our ambition is to establish Scotland as one of Europe’s leading start-up economies.
“These game changing tech scalers will deliver one of the most sophisticated and comprehensive state-funded environments in Europe for the creation and growth of start-ups.
“Tech scalers will put Scotland on the global start-up map and we will promote their services relentlessly to attract the world’s best talent to scale up their businesses in Scotland.
“A key ambition in our strategy to transform the economy is to help establish Scotland as a world-class entrepreneurial country, founded on a culture that encourages, promotes and celebrates entrepreneurial activity.”
Mark Logan said: “These coordinated initiatives are part of the most significant strategic investment in Scotland’s high-technology industry ever seen in Scotland.
“Together, they create the perfect environment for starting and scaling technology-based businesses, with the many opportunities for our people that will result from that. It’s a very exciting time for the sector.”
Tax cut worth up to £1,000 for eligible businesses announced by the Chancellor at the Spring Statement takes effect today
Increase in Employment Allowance from £4,000 to £5,000 benefits around 495,000 businesses – 30% of all UK firms
Takes the total number of firms not paying the Health and Social Care Levy to 670,000
Nearly half a million UK businesses will benefit from a tax cut worth up to £1,000 from today (6 April 2022).
The Employment Allowance has risen from £4,000 to £5,000 – meaning smaller firms will be able to claim up to £5,000 off their employer National Insurance Contributions (NICs) bills.
Announced by the Chancellor at last month’s Spring Statement to reduce employment costs, the change takes an extra 50,000 firms out of paying NICs and the Health and Social Care Levy. This increases the total number of businesses not paying NICs and the Levy to 670,000.
Chancellor Rishi Sunak said: “This tax cut for half a million businesses will help them thrive and grow to help drive our economic recovery.
“It comes on top of a suite of wider tax cuts available to firms, including 50% business rates relief, a record fuel duty cut and the super-deduction, the largest two-year business tax cut in our history.”
This is the third time the government has increased the Employment Allowance since its introduction in 2014, demonstrating an enduring commitment to supporting smaller businesses. Firms will be able to employ four full-time workers on the National Living Wage without paying employer NICs at all.
94% of businesses benefitting from the £1,000 increase are small and micro businesses, and the sectors that will see the highest numbers of employers benefitting are the wholesale and retail sector (87,000); the professional, scientific and technical activities industry (63,000); and the construction sector (52,000).
Today’s Employment Allowance change is one of a number of measures on offer to spur business growth, including that:
Last week eligible high street businesses saw the start of a new 50% business rates relief worth almost £1.7 billion, subject to a £110,000 cash cap per business.
Businesses across the board are also benefitting from a freeze to the business rates multiplier, putting the brakes on bill increases and worth £4.6 billion over the next five years.
Businesses are already benefitting from our temporary twelve-month-long 5p cut to fuel duty.
Companies have one year left to make investments that benefit from the super-deduction, the largest two-year business tax cut in modern British history.
Our landmark Help to Grow programmes are supporting SMEs to adopt productivity enhancing software and to get mini-MBAs.
We will ensure that our tax regime for innovation is globally competitive and properly incentivises higher business investment in R&D, with further plans to be set out in the Autumn.
Michelle Ovens CBE, founder, Small Business Britain, said: “The Chancellor’s move to increase the employment allowance is welcome, and will certainty play a role in helping those businesses with employees deal with the huge cost-of-living challenges they are currently facing.
“In particular, it is good to see the immediacy of this rise in employment allowance, which will go towards helping businesses asap.”
Martin McTague, National Chair of the Federation of Small Businesses, said: ““The increase in the Employment Allowance helps small firms do what they do best, creating and sustaining jobs.
“This was FSB’s ‘hero ask’ at the Spring Statement, and we have hugely valued the time taken by Treasury officials to work with us on the positive impact this will have not just on work opportunities, but also training and investment.
“The Chancellor has now raised the Allowance twice since his appointment, stepping up for small businesses.”
Lee Harris-Hamer, from White Horse cleaning services based in Thirsk, North Yorkshire, said: “As a growing company, we appreciate the opportunity to reduce our annual NI liability because this helps us to invest the savings in other areas like staff training and further growth.
“Staff are our key asset and we want to be able to continue recruiting and offering more employment opportunities locally. Government has supported us with the change and we are proud to be members of FSB who championed the increase.”
Jo Bevilacqua, owner of Serenity Loves hair and beauty salon, Peterborough: “This rise in the employment allowance offers welcome breathing space for my small business and others like us across the country.
“In an age where we are all facing increasing costs from all angles and every penny counts, this will help ease some pressure, allowing us to invest more in staff – whether it is increasing salaries or offering training.”
