Calls for radical, transformative changes to Scotland’s economy in order to ensure wellbeing for all within our environmental limits have been backed by almost 40 leading economists and climate change academics.
In advance of the publication by the Scottish Government of its new economic strategy on Tuesday 1 March, these experts have endorsed Ten Points for a Transformative Economic Strategy produced by the ‘Transform Our Economy’ alliance.
These ideas outline a new purpose at the heart of our economy: providing wellbeing for all within environmental limits. They will require the government to set the trajectory for the economy and present a credible plan for delivery using all the powers at their disposal.
The alliance, comprising Scottish Environment LINK, Friends of the Earth Scotland and Wellbeing Economy Alliance Scotland, is also calling for much more extensive public debate about the direction of our economy and believes that participation from workers, affected communities and those who are in greatest need of economic transformation has been lacking.
Matthew Crighton, Sustainable Economy Adviser at Friends of the Earth Scotland said: “”In the midst of climate and nature emergencies, with too many people trapped in poverty and businesses still reeling from the impact of the pandemic, there is no question that economic transformation is needed.
“In the face of these challenges, the Scottish Government must plot a new direction in building a truly sustainable and just economy that can meet people’s needs.
“Recent history has shown us there is a persistent gap between high-level aspirations and the actual performance of the government in effectively intervening the economy in Scotland. The fear is that the new economic strategy won’t redesign the economy, but will instead continue to deliver inequality and environmental destruction.
“New ideas are sorely needed for a transformative economic agenda which can provide sufficient investment to deliver a just transition to zero carbon, integrate the protection of nature into economic decision making and ensure social equity and participation by currently marginalised groups.”
Professor Tim Jackson, Professor of Sustainable Development, University of Surrey and acclaimed author of Prosperity Without Growth backing the plan said: “With the forthcoming 10-year Strategy for Economic Transformation the Scottish Government has a unique opportunity to make Scotland a global example of an economy that is fit to address the challenges of the 21st century, delivering wellbeing for all within environmental limits.
“To do that, the Strategy needs to put at its heart care for people and planet, it needs to build on meaningful participation of those at the sharp end of our economy, and it needs to put in place measures which will give priority to ensuring people’s wellbeing rather than the pursuit of GDP growth for its own sake.”
The ten points proposed by the ‘Transform our Economy’ group offer a robust framework for building such a strategy. The Scottish Government would be well advised to take note.”
Professor Jan Webb, Professor of Sociology of Organisations, University of Edinburgh, and one of the 38 signatories, said: ““Orthodox economic strategy aims to maximise GDP, and then to make some adjustments for fairness and environmental harms.
“A transformative strategy, fit for addressing climate emergency and major inequalities, has to direct all economic action to achieving a fair, and sustainable, society.
“This means all investment prioritises decent work, zero waste, biodiversity and climate protection. I hope the Scottish Government will respond promptly and constructively to the Transform Our Economy alliance.”
The headings of the Ten Key Points are: 1. The goal: wellbeing for all within environmental limits 2. Setting specific economic objectives to care for people and the planet 3. Using all the tools available to government to meet those objectives 4. Policies must show how the objectives can be achieved 5. Combat economic pressures which are helping cause the problems 6. Public priorities must lead the direction of development of the economy 7. Clear tests for all investment programmes 8. Measure performance through metrics which matter 9. An economic strategy for all sectors – economic transformation as a national mission 10. An inclusive and participatory process
The full text of the Key Points can be read below:
The next 10 years will be decisive in building a more resilient, entrepreneurial and fair economy, according to Economy Secretary Kate Forbes.
Speaking ahead of the expected publication of the National Strategy for Economic Transformation, Ms Forbes said the Scottish Government will work with businesses, trade unions, third sector and public bodies to seize Scotland’s economic potential.
The publication later this week follows the recent announcement of the updated Strategic Framework that sets out how Scotland can move forward whilst managing the risks of Coronavirus (COVID-19).
Ahead of the launch the Cabinet Secretary will tomorrow chair the Green Finance Taskforce to help transition Scotland in to a global leader for Green and Sustainable Financial Services.
Building on the legacy of COP26, the group will develop an action plan to cement Scotland’s position as a world leader in green and sustainable financial services, helping to build capability and create new greener jobs.
Ms Forbes said: “From the television to the telephone, penicillin to steam engines, Scotland has a rich history of innovation and invention. In the next decade, Scotland faces a choice to either lead or to lag behind other successful economies all whilst we recover from Covid, deliver net zero, tackle structural inequalities and grow our economy. We choose to lead.
“Over the next ten years, we aim to deliver economic growth that significantly outperforms the last decade, so that the Scottish economy is more prosperous, more productive and more internationally competitive.
“To do that, we must be a country in which the public, private and third sectors respect each other’s strengths, draw on each other’s talents and work together to create and sustain an economy that works for all.
“This strategy is about delivering the best economic performance possible for Scotland within the current constitutional constraints.
There is much more we would do with greater powers, however this strategy takes decisive steps towards the creation of new, well paid, green jobs and will drive an economic recovery that will meet our climate and nature targets while ensuring we maximise the benefits of a just transition.
“We want the Scotland of tomorrow to be a more resilient and more entrepreneurial economy – in which everybody can share in our success.
“As we look beyond the pandemic we must be ready to seize the economic opportunities that come with achieving net-zero and becoming a fairer country.”
During yesterday’s session of the Joint Executive Committee (JEC) with the Chief Secretary to the Treasury Simon Clarke, Finance Secretary Kate Forbes outlined some of the challenges needing to be addressed as part of the forthcoming joint review of the Scottish Fiscal Framework.
Chairing the meeting in London, Ms Forbes highlighted the need for further collaboration on fiscal flexibility, including consideration of further financial powers as part of the forthcoming Fiscal Framework review.
The meeting follows the UK Government’s Council Tax Energy Rebate announcement and the consequential funding for the Scottish Government.
The Spring Budget Revision has also been published showing that the Scottish Government has spent almost £15 billion on measures to respond to COVID-19 since the beginning of the pandemic. It represents the final decisions made in the Scottish Government budget allocations for this financial year despite the challenges due to late notification of consequentials.
Speaking following the JEC, Ms Forbes said: “I have had a constructive conversation with the Chief Secretary to the Treasury this afternoon, where there was a frank exchange of views on what is quickly required from the Fiscal Framework Review and the need for further fiscal flexibility for Scotland.
“Our experiences of dealing with both the health and economic impacts of the pandemic and supporting those struggling with the cost of living crisis clearly demonstrate how difficult it is to take actions we deem vital without sufficient fiscal powers and often with late notice or lack of engagement when further funding is coming.
“This has been proven once again today. Whilst I will always welcome funding, the net change to our budget isn’t clear yet – we are awaiting urgent clarity on this from the Treasury and how it will impact our final settlement for the current year.
“As the First Minister has said, we will pass on the full consequential funding to support people struggling with the current costs of living. Council Tax is already lower in Scotland and our current support such as the single Council Tax Reduction Scheme protects 470,000 lower income households.”
And the UK Government’s take on yesterday’s meeting:
Chief Secretary to the Treasury Simon Clarke held talks with the Scottish Government’s Cabinet Secretary for Finance and the Economy Kate Forbes yesterday to discuss the upcoming review of the Scottish Government’s Fiscal Framework.
The ministers agreed they were close to finalising arrangements for an independent report on the Scottish Government’s Block Grant Adjustment arrangements which will inform the review.
They shared the ambition to get this first stage launched as soon as possible.
The Chief Secretary and Cabinet Secretary also agreed that the Fiscal Framework review should be guided by principles set out in the Smith Commission agreement. They discussed the importance of several principles, including fairness and consistency, as well as the need to have a framework that is implementable, sustainable and operates effectively in practice.
Both ministers expressed a desire to avoid unnecessary delays to starting the Fiscal Framework review, and agreed to continue a dialogue and joint preparations for the review while the independent report is underway.
Ministers also discussed financial impacts relating to the income tax personal allowance.
Chief Secretary to the Treasury Simon Clarke said: “Today was an enjoyable and productive meeting. We are working closely with the Scottish Government and engaging in regular discussions on the Fiscal Framework review, making good progress on our approach to the Scottish Government’s future finances.”
“We know this rise will be extremely worrying for many people, especially those who are struggling to make ends meet”
Record increase in global gas prices sees energy price cap rise of 54%
Ofgem knows this rise will be extremely worrying for many people
Customers struggling to pay their energy bill should contact their supplier to access the help available
The energy price cap will increase from 1 April for approximately 22 million customers. Those on default tariffs paying by direct debit will see an increase of £693 from £1,277 to £1,971 per year (difference due to rounding). Prepayment customers will see an increase of £708 from £1,309 to £2,017.
The increase is driven by a record rise in global gas prices over the last 6 months, with wholesale prices quadrupling in the last year.
It will affect default tariff customers who haven’t switched to a fixed deal and those who remain with their new supplier after their previous supplier exited the market.
The price cap is updated twice a year and tracks wholesale energy and other costs.
It stops energy companies from making excessive profits, ensuring customers pay no more than a fair price for their energy.
The price cap allows energy companies to pass on all reasonable costs to customers, including increases in the cost of buying gas.
Since the price cap was last updated in August, the current level does not reflect the unprecedented record rise in gas prices which has since taken place.
Under the price cap mechanism, energy companies will be allowed to pass on these higher costs from April when the new level takes effect.
This is because energy companies cannot afford to supply electricity and gas to their customers for less than they have paid for it.
Over the last year, 29 energy companies have exited the market or been put in special administration in the wake of soaring global gas prices, affecting around 4.3 million domestic customers.
Jonathan Brearley, chief executive of Ofgem, said:“We know this rise will be extremely worrying for many people, especially those who are struggling to make ends meet, and Ofgem will ensure energy companies support their customers in any way they can.
“The energy market has faced a huge challenge due to the unprecedented increase in global gas prices, a once in a 30-year event, and Ofgem’s role as energy regulator is to ensure that, under the price cap, energy companies can only charge a fair price based on the true cost of supplying electricity and gas.
“Ofgem is working to stabilise the market and over the longer term to diversify our sources of energy which will help protect customers from similar price shocks in the future.”
Ofgem will tomorrow announce further measures to help the energy market weather future volatility by increasing financial resilience and have the flexibility to respond so that risks are not inappropriately passed on to consumers.
The further measures include enabling Ofgem to update the price cap more frequently than once every 6 months in exceptional circumstances to ensure that it still reflects the true cost of supplying energy.
Help available for customers:
If customers are struggling to pay for energy bills, they should contact their energy supplier as soon as possible. Depending on their circumstances, customers may be eligible for extra help with their energy bills or services, such as debt repayment plans, payment breaks, emergency credit for prepayment metered customers, priority support and schemes like the Winter Fuel Payment or Warm Home Discount rebate.
Breathing Space Scheme: This is a scheme to give households time to receive debt advice and find a solution to sort out their debt problems. Breathing space will last for 60 days as long as applicants remain eligible during which time all creditors who have been included will be informed and must stop any collection or enforcement activity. Once the breathing space ends, creditors will be able to collect the debt in the usual way. Call the National Debtline on Freephone 0808 808 4000 or visit www.nationaldebtline.org
The Citizens Advice consumer service can provide advice on how customers can resolve problems with their energy provider. You can contact Citizens Advice via webchat, or by calling 0808 223 1133. For complex or urgent cases, or if a person is in a vulnerable situation, they may then be referred onto the Extra Help Unit.
2. Ofgem will announce further measures tomorrow including:
Introducing an uplift in the wholesale cost allowance in the price cap: after reviewing the evidence, Ofgem has decided that the existing price cap methodology did not appropriately account for the additional wholesale energy costs energy companies have incurred during the current price cap period following the unprecedented scale of wholesale energy prices and volatility. This adjustment represents less than 10% of the overall price cap increase.
Changing licence conditions to give Ofgem the more flexibility to change the price cap level if needed in between the regular six-monthly cap updates: Ofgem has set ourselves five tests which mean we will only expect to use the power in exceptional circumstances.
Further reforms to the price cap from October: In December we set out three options to make the price cap more robust to high and volatile wholesale energy costs while preserving as far as possible the benefits of the price cap for consumers. The consultation published tomorrow will include all three options, with quarterly updates as our preferred option
Breakdown of costs in the energy price cap
Dual fuel customer paying by direct debit, typical energy use (GB £)
*Network costs: The main driver of this increase is the recovery of Supplier of Last Resort (SoLR) levy costs (£68). A supplier acting as a SoLR can make a claim for any reasonable additional, otherwise unrecoverable, costs they incur. These levy claims are paid to energy companies by the distribution network companies and recovered from consumers via their charges.
5. The charts below show the wholesale prices that are used to determine the wholesale cost allowance within the price cap from spring 2018 ahead of the introduction of the price cap in January 2019.
Wholesale costs make up the majority of a customer’s bill. An efficient supplier will purchase energy for their customers on the wholesale market in advance of when they need to supply that energy.
This purchasing strategy is reflected in how the wholesale allowance is calculated within the price cap. We observe the forward-looking energy contracts that energy companies typically purchase over time and combine these to determine the wholesale cost allowance within the price cap.
We do this twice a year when we update the price cap in August for the winter period (October – March) and in February for the summer period (April – September) based on the price of these forward-looking energy contracts over the previous six months.
The fixed horizontal line shows the average wholesale cost allowance for each 6 month price cap period based on the price of the relevant forward looking energy contracts (the jagged line).
The recent spike in the prices of relevant forward looking energy contracts over the last 6 months can be clearly seen. The scale and pace of wholesale price increases has resulted in a big increase in the wholesale cost allowance for the price cap level for summer 2022.
Wholesale gas price costs in the energy price cap
Pence per therm
Wholesale electricity price costs in the energy price cap
Pounds per megawatt hour
Data sets behind these graphs are proprietary and can be sourced from ICIS.
Chancellor’s statement – Energy Price Cap
Statement, as delivered by Chancellor Rishi Sunak, on 3 February 2022:
Mr Speaker,
The UK’s economic recovery has been quicker and stronger than forecast.
In the depths of the pandemic, our economy was expected to return to its pre-crisis level at the end of 2022.
Instead, it got there in November 2021 – a full year earlier.
Unemployment was expected to peak at nearly 12%.
Instead, it peaked at 5.2% and has now fallen to just over 4% – saving more than 2 million jobs.
And with the fastest growing economy in the G7 this year…
Over 400,000 more people on payrolls than before the pandemic…
And business investment rising…it’s no wonder Mr Speaker, that borrowing is set to fall from £320bn last year …
… the highest ever peacetime level …
… to £46bn by the end of this Parliament.
As we emerge from the depths of the worst recession in 300 years, we should be proud of our economic record.
The economy is stronger because of the plan we put in place; because of the actions we took to protect families and businesses.
And that plan is working.
But for all the progress we are making – the job is not yet done.
Right now, I know the number one issue on people’s minds is the rising cost of living.
It is the independent Bank of England’s role to deliver low and stable inflation – and the Governor will set out their latest judgements at midday today.
And just as the government stood behind the British people through the pandemic…
… so we will help people deal with one of the biggest costs they now face – energy.
The energy regulator, OFGEM, announced this morning that the energy price cap will rise in April to £1,971 – an increase of £693 for the average household. Without government action, this would be incredibly tough for millions of hardworking families. So the government is going to step in to directly help people manage those extra costs.
Mr Speaker,
Before I set out the steps we are taking, let me explain what’s happening to energy prices, and why.
People’s energy bills are rising because it is more expensive for the companies who supply our energy to buy oil, coal, and gas.
Of the £693 increase in the April price cap, around 80% comes from wholesale energy prices.
Over the last year, the price of gas alone has quadrupled.
And because over 85% of homes in Britain are heated with a gas boiler, and around 40% of our electricity comes from gas, this is hitting households hard.
The reasons gas prices are soaring are global.
Across Europe and Asia, a long, cold winter last year depleted gas stores.
Disruption to other energy sources like nuclear and wind left us relying more than usual on gas during the summer months.
Surging demand in the world’s manufacturing centres in Asia…
… at the same time as countries like China are moving away from coal…
… is further increasing demand for gas.
And concerns about a possible Russian incursion into Ukraine are putting further pressure on wholesale gas markets.
And so prices are rising.
Mr Speaker,
The price cap has meant that the impact of soaring gas prices has so far fallen mainly on energy companies.
So much so, that some suppliers who couldn’t afford to meet those extra costs have gone out of business as a result.
It is not sustainable to keep holding the price of energy artificially low.
For me to stand here and pretend we don’t have to adjust to paying higher prices would be wrong and dishonest. But what we can do is take the sting out of a significant price shock for millions of families … by making sure the increase in prices is smaller initially and spread over a longer period.
Mr Speaker,
Without government intervention, the increase in the price cap would leave the average household having to find an extra £693.
The actions I’m announcing today will provide, to the vast majority of households, just over half that amount – £350.
In total, the government is going to help around 28 million households this year.
Taken together, this is a plan to help with the cost of living worth around £9bn.
We’re delivering that support in three different ways.
First, we will spread the worst of the extra costs of this year’s energy price shock over time.
This year, all domestic electricity customers will receive an upfront discount on their bills worth £200.
Energy suppliers will apply the discount on people’s bills from October.
With the government meeting the cost in full.
That discount will be automatically repaid from people’s bills in equal £40 instalments over the next five years.
This is the right way to support people while staying on track with our plans to repair the public finances.
And because we are taking a fiscally responsible approach, we can also provide more help, faster, to those who need it most – the second part of our plan.
We’re going to give people a £150 Council Tax rebate to help with the cost of energy, in April – and this discount won’t need to be repaid.
And I do want to be clear with the House that we are deliberately not just giving support to people on benefits.
Lots of people on middle incomes are struggling right now, too – so I’ve decided to provide the council tax rebate to households in Bands A to D.
This means around 80% of all homes in England will benefit.
And the third part of our plan will provide local authorities with a discretionary fund of nearly £150m…
… to help those lower income households who happen to live in higher Council Tax properties…
… and households in bands A-D who are exempt from Council Tax.
We’re also confirming today that we’ll go ahead with existing plans to expand eligibility for the Warm Home Discount by almost a third…
… so that 3m vulnerable households will now benefit from that scheme.
And that’s not all we’re doing to help vulnerable households.
We’re providing £3bn over this Parliament to help more than half a million lower income homes become more energy efficient, saving them on average £290 per year.
Increasing the National Living Wage to £9.50 an hour in April, a pay rise of over £1,000 for 2 million low paid workers.
And providing an effective tax cut for those on Universal Credit, allowing almost 2 million households to keep an average of £1,000 per year.
The payment through energy suppliers will apply across England, Wales and Scotland.
Energy policy is devolved in Northern Ireland, with a different regulator, and the government does not have the legal powers to intervene.
So we will make sure the Executive is funded to do something similar, with around £150m for Northern Ireland through the Barnett formula next year.
And because the Council Tax system is England only, total Barnett consequentials of around £565m will be provided to the devolved administrations in the usual way.
Mr Speaker,
I know that some in this House have argued for a VAT cut on energy.
However, that policy would disproportionately benefit wealthier households.
There would also be no guarantee that suppliers would pass on the discounts to all customers.
And we should be honest with ourselves: this would become a permanent Government subsidy on everyone’s bills.
A permanent subsidy worth £2.5 billion every year – at a time when we are trying to rebuild the public finances.
Instead, our plan allows us to provide more generous support, faster, to those who need it most, providing 28m households with at least £200, and the vast majority receiving £350.
It is fair, it is targeted, it is proportionate – it is the right way to help people with the spike in energy costs.
Mr Speaker,
Today’s announcements are just one part of the government’s plan to tackle this country’s most pressing economic challenges.
A plan for growth – with record investments in infrastructure, innovation and skills.
A plan to restore the public finances – with debt falling by the end of this Parliament.
A plan to cut waiting lists and back the NHS with £29bn over three years and a permanent new source of funding.
And, with the measures I’ve announced today – a plan to help with the rising cost of energy with £350 more in the pockets of tens of millions of hard working families.
That’s our plan to build a stronger economy – not just today but for the long term.
And I commend it to this House.
Commenting on the energy cap rise, interest rate rise and the Chancellor’s measures to address the cost of living crisis, TUC General Secretary Frances O’Grady said: “The Chancellor’s announcement is hopelessly inadequate. For most families it’s just £7 a week and more than half must be paid back.
“It’s too little, it’s poorly targeted, and it’s stop gap measures instead of fixing the big problems.
“Britain needs a pay rise. The best way to help families is to get wages growing again. But this government has no plan to end pay misery.
“Ministers should be getting urgent help to families that need it most through raising universal credit. And we need a windfall tax on the excessive profits from North Sea gas to cut bills and boost investment in affordable energy.”
Responding to today’s announcements on energy costs and the cost of living, Katie Schmuecker, Deputy Director of Policy and Partnerships for the independent Joseph Rowntree Foundation said: “The Chancellor has offered cold comfort to families in poverty, who are already rationing what they can spend on essentials such as heating and food.
“These families are now expected to find at least half of the eye watering increases in energy bills, when many are already getting into debt to keep their houses warm and food on the table.
“Three quarters of those who can claim the enhanced support are not in poverty. Meanwhile inflation is set to rise at more than double the rate of benefits. This support will not get people through the next few months and it will not protect those most at risk of hardship.
“People in poverty are hit hardest by all these pressures because our social security system is simply not offering adequate support, and until that changes they will continue to be exposed to every economic shock.
“The Chancellor has made his choice, the harder choices will now be coming for those who still can’t afford essentials for themselves and their families.”
University of Birmingham’s Harriet Thomson on the rise of energy price caps: “This news comes at a time when families across Great Britain have already been facing years of rapidly increasing energy prices, as well as chaotic energy market conditions with the collapse of around 20 energy supplies since January 2021 alone.
“Just last month, ONS data found that 2 in 3 adults said their costs of living had gone up in the past month, with 79% of those attributing blame to gas and electricity prices.
“We know from the extensive body of existing evidence on this topic that lower income households will be disproportionately hit by the price cap increase, risking pushing millions more into a situation fuel poverty.
“This will have serious consequences for physical and mental health, social isolation, and educational attainment, with households forced to make difficult everyday decisions over whether to ‘heat or eat’.
“Moreover, these price increases are likely to push more people into using risky and/or polluting alternative energy sources, such as DIY candle heaters that have been linked to house fires, burning scrap wood and other flammable materials, and digging up peat. As well as the obvious risks to human life, these approaches will also exacerbate climate change.
“It’s clear that energy companies are reeling from the potent combination of cash flow reductions due to pandemic-related economic pressures on families who are building up more energy debt, and the global gas crisis.
“But the answer is not to burden households with yet more costs. The energy market is broken and needs radical reform – now is the time for the UK government to show ambition and commitment to the nation by investing in deep retrofits of our old and leaky housing stock, and to rollout decentralised renewable energy systems at scale.”
58% of firms expect their prices to increase in the next three months, the highest on record. 66% of businesses cited inflation as a concern, also a record high
1 in 4 (27%) firms were worried about rising interest rates, as concerns over rate hikes among manufacturers reach record high
Just under half of firms (45%) reported increased domestic sales in Q4, compared to 47% in Q3
The BCC’s Quarterly Economic Survey (QES) – the UK’s largest independent survey of business sentiment and a leading indicator of UK GDP growth – has shown the recovery stalled in the fourth quarter, with firms facing unprecedented inflationary pressures.
The survey of almost 5,500 firms showed that some indicators also revealed a continued stagnation in the proportion of firms reporting improved cashflow and increased investment. Inflation is the top issue for firms, while a rise in the interest rate was also a cause for concern for many.
Business activity
45% of respondents overall reported increased domestic sales in Q4, down from 47% in Q3. 16% reported a decrease, unchanged from Q3.
In the services sector, the balance of firms reporting increased domestic sales dropped to +26% in Q4, from +31% in Q3.
In the manufacturing sector, the balance of firms reporting increased domestic sales was +22% in Q4, down from +28 in Q3.
Prior to the surge in Omicron infections, hotels and catering had been most likely to report increased domestic sales (55%). This represented the beginning of a potential recovery as the sector was also the most likely to report decreased sales throughout the rest of the pandemic.
94% reported decreased sales and cash flow at the start of the pandemic in Q2 2020. Worryingly, a similar decline is now possible in the face of the Omicron variant and the implementation of Plan B which led to new restrictions for some.
Unprecedented Inflationary Pressures
58% of firms expect their prices to increase in the next three months, the highest on record. Only 1% expected a decrease.
The percentage expecting an increase rises dramatically to 77% for production and manufacturing firms, 74% for retailers and wholesalers, 72% for construction firms, and 69% for transport and distribution firms. These are the highest on record.
When asked whether firms were facing pressures to raise prices from the following factors, 94% of manufacturers cited raw materials, 49% cited other overheads, 30% cited pay settlements, and 13% cited finance costs.
When asked what was more of a concern to their business than three months ago, 66% of firms overall cited inflation (compared to 52% in Q3 and 25% in Q4 2020), the highest on record. For production and manufacturing firms, this rises to 75%.
Concerns over higher interest rates rise sharply
The percentage citing interest rates as a concern rose in the quarter. 1 in 4 firms (27%) reported interest rates as a concern, up from 19% in Q3.
The percentage mentioning interest rates as worry among manufacturers stood at 28% in Q4, the highest seen since the metric was first collected in Q4 2009 and up from 21% in Q3.
The percentage citing interest rates a concern among service sector firms stood at 29% in Q4, the highest seen since Q3 2014 and up from 22% in Q3.
Little recovery to Cash Flow
For firms overall, 31% reported an increase to cash flow, while 46% reported no change and 23% reported a decrease.
Given these figures were reported before the full impact of Omicron and the introduction of Plan B, this metric is a cause for concern, as some firms are still struggling to recover from large scale losses incurred since the start of the pandemic.
Most firms still not investing
Investment in plant, machinery, or equipment also continued to flatline in Q4, with 29% overall reporting an increase, while 60% reported no change, and 11% a decline. This was largely unchanged from Q3 and Q2.
Suren Thiru, Head of Economics at the British Chambers of Commerce (BCC), said:“Our latest survey suggests that UK’s economic recovery slowed in the final quarter of 2021 as mounting headwinds increasingly limited the key indicators of activity.
“The persistent weakness in cash flow is troubling because it leaves businesses more exposed to the economic impact of Omicron, rising inflation and potential further restrictions.
“The record rise in price pressures suggests that a substantial inflationary surge is likely in the coming months. Rising raw material costs, higher energy prices and the reversal of the VAT reduction for hospitality are likely to push inflation above 6% by April.
“The notable uptick in concerns over higher interest rates underscores the need for the Bank of England to proceed with caution on further rate rises to avoid undermining confidence and an already fragile recovery.
“The UK economy is starting 2022 facing some key challenges. The renewed reluctance among consumers to spend and staff shortages triggered by Omicron and Plan B may mean that the UK economy contracts in the near term, particularly if more restrictions are needed.
“Rising inflation is likely to limit the UK’s growth prospects this year by eroding consumers’ spending power and squeezing firms’ profit margins and their ability to invest.”
Responding to the findings, Director General of the British Chambers of Commerce, Shevaun Haviland, said: “Our latest survey paints a challenging picture for the UK economy as we start 2022.
“Many businesses were facing a struggle to improve their cashflow and raise investment even before the Omicron variant surged and Plan B was imposed.
“Supply chain disruption is continuing to persist, inflation is soaring, and rising energy costs are presenting firms with a huge headache.
“With companies now having to grapple with the impact of Omicron and further changes to the rules on imports and exports of goods to the EU, there are significant hurdles for businesses in the months ahead.
“The Government has listened to our previous calls for support, and it must do all it can to steady the ship and steer the economy through these uncertain times. If the current restrictions persist or are tightened further then a more comprehensive support package that matches the scale of any new measures, will need to be put in place.
“The focus must be on creating the best possible environment for businesses to grow and thrive. By supporting firms, they can begin to generate wealth, create jobs and support communities.
“That is by far the best way to sustainably deliver the tax revenue the government needs to support public services and the wider economy.”
2022 is set to the ‘year of the squeeze’, with real wages set to be no higher next Christmas than today, and families face a typical income hit of around £1,200 a year from April as a result of tax rises and soaring energy bills, according to new Resolution Foundation research published today.
The Foundation’s latest quarterly Labour Market Outlook looks ahead to how workers and families will be affected by the big economic shifts in 2022.
It notes that while Omicron is rightly at the forefront of people’s minds at present, it is unlikely to be the defining economic feature of next year as the wave is expected to be relatively short-lived.
Instead, 2022 will be defined as the ‘year of the squeeze’ for family budgets, with inflation set to peak at 6 per cent in Spring 2022 (its highest level since 1992) and pay packets stagnating as a result.
The report notes that real wage growth was flat in October, almost certainly started falling last month, and is unlikely to start growing again until the final quarter of 2022. As a result, real wages are on course to be just 0.1 per cent higher at the end of 2022 than at the start.
By the end of 2024, real wages are set to be £740 a year lower than had the UK’s (already sluggish) pre-pandemic pay growth continued. This shows just how much the Covid-19 crisis has scarred pay packets across Britain, says the Foundation.
The peak of the squeeze will come in April, says the report, which risks being a cost of living catastrophe as energy bills and taxes rise steeply overnight.
The cap on energy bills is expected to rise by around £500 a year. Coupled with a further £100 rise to recoup the costs associated with energy firm failures, this could mean a typical energy bill rising by around £600 a year.
This rise will fall disproportionately on low-income families as they spend far more of their income on energy. The share of income spent on energy bills among the poorest households is set to rise from 8.5 to 12 per cent – three times as high as the share spent by the richest households.
Higher-income families will instead by disproportionately affected by rising tax bills in April. The average combined impact of the freeze to income tax thresholds and the 1.25 per cent increase in personal National Insurance contributions is £600 per household. For families in the top half of the income distribution, the NI rise alone will raise tax bills by £750 on average.
The Foundation says the scale of this April cost of living catastrophe, at a time of falling real wages, means the government is likely to have to act.
While there is little the Chancellor can do in the short-term to tame inflation or boost wage growth, the welcome 6.6 per cent rise in the National Living Wage next April should protect the lowest earners from shrinking pay packets.
The top priority for further action should be tackling rising energy bills, says the Foundation. Options for doing so include:
Reducing the size of the energy cap rise directly. Compensating energy suppliers for a six month, £200 reduction would cost around £2.7 billion, or £450 million if focused on lower-income households on Universal Credit.
Extending the time period over which the costs of supplier failures are recouped, with the £100 bill rise reflecting a policy of recouping costs over a single year.
Moving environmental and social levies currently added to electricity bills into general taxation, saving households £160 per year and costing up £4.5 billion per year.
Extending and increasing the Warm Homes Discount.
Torsten Bell, Chief Executive of the Resolution Foundation, said:“2022 will begin with Omicron at the forefront of everyone’s minds. But while the economic impact of this new wave is uncertain, it should at least be short-lived. Instead, 2022 will be defined as the ‘year of the squeeze’.
“The overall picture is likely to be one of prices surging and pay packets stagnating. In fact, real wages have already started falling, and are set to go into next Christmas barely higher than they are now.
“The peak of the squeeze will be in April, as families face a £1,200 income hit from soaring energy bills and tax rises. So large is this overnight cost of living catastrophe that it’s hard to see how the Government avoids stepping in.
“Top of the Government’s New Year resolutions should be addressing April’s energy bills hike, particularly for the poorest households who will be hardest hit by rising gas and electricity bills.”
Average house price in Scotland up by 11.4% over last 12 months
Monthly growth rates starting to soften
31 of 32 Local Authorities have rising average prices over year to end October
Scotland again outperforming England, Wales & NI
£750k+ house sales double that of Jan – Oct 2020
Alan Penman, Business Development Manager at Walker Fraser Steele, comments:“The continued story of Scotland’s successful year for higher priced properties continues.
“The average house price in Scotland has increased by some £21,800 over the last 12 months but our data shows there have been 872 sales over £750k (the point at which the highest rate of Land and Buildings Transaction Tax (LBTT) is applied) during the first ten months of 2021.
“We expect up to 30 additional sales in October 2021, not yet recorded by the Registers of Scotland and so not included in the above total. This would mean sales of these higher-value properties to the end of October 2021 would likely be double in number to those of the first ten months of 2020.
“What we are seeing is the impact of the cut in LBTT earlier in the year, the continuation of low interest rates and cheaper mortgage finance, and the desire of many purchasers during the pandemic to buy bigger properties in the race for space. These factors have meant higher-end properties have played a significant part in the overall growth figure.
“Sales volumes from May to October 2021 are only slightly ahead of previous years, and suggest that the market has now returned to pre-pandemic transaction levels. Nevertheless, the continuing strong performance in October means Scotland had the highest annual rate of house price growth of the four home nations with annual growth at 11.4%, followed by Northern Ireland at 10% (Ulster University Index), Wales at 9.6% and England, without Wales, at 3.9%.”
Commentary: John Tindale, Acadata Senior Housing Analyst
The October housing market:
Scotland’s October housing market is starting to show some signs of slowing in terms of price growth, but it’s necessary to look quite hard for the evidence. We provide four possible indicators:-
Firstly, we can point to an actual reduction in the average house price in October, with the value now standing at £212,551 – but this is only £70 lower than the previous month. However, it does bring to an end a three-month run from July to September 2021, in which average prices rose by an overall £11,000.
Secondly, we can show that in October only some 90 homes in Scotland were sold at a price in excess of £750k, compared to 120 in September. Nevertheless, we could point out that – if we looked at the monthly totals prior to October 2020, ie one year earlier – then 90 sales in a single month having a value over £750k would have set a new record at that time.
Thirdly, the average house price in both Edinburgh and Glasgow fell in October, with the two cities collectively accounting for approximately 25% of all property sales in Scotland. But we could also point out that the same happened in both October 2017 and October 2019, with Scotland’s average house price for those two years showing continued positive growth.
Lastly, and perhaps the most compelling argument is that England and Wales have seen their house price growth start to fall. Figure 1 below compares Scotland’s annual rate of growth, which was at 11.4% in October, with that of England and Wales combined, where rates have fallen to 4.1%. In fact, eight of the nine regions in England saw their annual rates of growth fall in October. (For a comparative Table go to Figure 4 and follow the link.)
In October, Scotland had the highest annual rate of house price growth of the four United Kingdom countries, at 11.4%, with Northern Ireland in second place at 10% (Ulster University Index), followed by Wales at 9.6% and England, without Wales, at 3.9%. England has started to see a reduction in the number of high-value detached properties being sold – perhaps due to a shortage in the level of available stock – resulting in average prices beginning to fall.
Treasury figures published today show breakdown of the record £41 billion per year settlement for the Scottish Government
Scottish Government receives £126 per person of Barnett-based funding for every £100 per person of equivalent UK Government spending in England and Wales
Figures reaffirm UK Government’s commitment to levelling up across the whole of the UK
Figures released today by the Treasury set out how the UK Government will provide a record level of funding to the Scottish Government over the next three years – worth £41 billion a year.
The Block Grant Transparency publication provides a detailed breakdown of the funding settlements announced for Scotland, Wales and Northern Ireland at Spending Review 2021.
The £41 billion annual funding settlement is the largest, in real terms, since devolution more than 20 years ago. It ensures that the Scottish Government are well-funded to improve public services such as education, housing, health and social care, and will support the UK Government’s mission to level up the UK and build back better and greener from the pandemic.
In addition to Block Grant funding, the UK Government is also making direct investments in Scotland, such as committing more than £170 million through the Levelling Up Fund and the Community Ownership Fund, which will help to improve local infrastructure, regenerate town centres, and could even help to buy your local pub or community sports club.
Scotland will also benefit from cuts to Air Passenger Duty to improve connectivity and support jobs at Scottish airports.
UK Chief Secretary to the Treasury, Simon Clarke said:“We’re committed to ensuring Scotland receives its fair share, and the latest Spending Review has provided a record £41 billion a year to the Scottish Government.
“This is funding substantial additional spending on key public services – as set out in last week’s Scottish Budget.
“We’ve also ensured people in Scotland have been supported throughout the pandemic, and the UK Government’s schemes have supported around one in three Scottish jobs. Now we’ll continue to work with the Scottish Government as we progress our recovery.”
Scottish Secretary Alister Jack said:“Funding for the Scottish Government is the highest it has ever been, at a record £41 billion a year.
“The block grant settlement comes on top of significant direct UK Government investment in Scotland. We are committed to levelling up right across the UK, and are working with the Scottish Government and local councils to improve communities the length and breadth of Scotland.
“We recently announced a £191 million boost for Scottish community projects, on top of the £1.5 billion we are investing in City Deals in Scotland.
“For almost two years, the UK Government has been focused on protecting people’s lives, livelihoods and jobs. We will continue to tackle the pandemic while building a brighter future with a strong economy for people in every part of the UK.”
At Budget 2017, the Treasury committed to publish an annual Block Grant Transparency publication after each UK Government Budget to show a breakdown of changes to the devolved administrations’ block grant funding.
This report is intended to support greater transparency and accessibility to the people of Scotland as to how the UK Government provides funding to the Scottish Government
Families on low incomes are facing a worrying winter ahead as today’s figures show inflation has hit 5.1%. The rising cost of utilities are especially challenging given they take up such a large share of low-income families’ budgets.
The Government recently announced that benefits will be uprated by 3.1% in April which will close some of the growing gap between people’s incomes and their costs. However, this does not address the immediate hardship families are experiencing this winter.
In October, the Office for Budget Responsibility projected inflation to peak at 4.4% by April but today’s 5.1% exceeds that level.
New JRF analysis based on OBR forecasts shows that should inflation be 4.4% by next April:
Around 100,000 individuals are at risk of falling into deep poverty (below 50% of median income after housing costs) due to benefit uprating being less than inflation in April
Around 7 in 10 of whom live in households that contain children
Around half live in working households
Given today’s high inflation figures, this could be an underestimate and even more individuals may be at risk of deep poverty.
The outlook is especially stark for people who are out of work and reliant on social security to make ends meet. These families have already experienced a £20-a-week cut to Universal Credit. This also comes after a decade of cuts and freezes to social security which has left the system wholly unable to provide the support millions of people need.
Katie Schmuecker, Deputy Director of Policy & Partnerships at the Joseph Rowntree Foundation, said:“It is deeply concerning that families on low incomes, who are already struggling to make their budgets stretch, are at risk of being pulled deeper into poverty. Prices are rising sharply and support available to people is inadequate.
“Everyone in our country should be able to afford the basics yet there is no sign of any respite on the horizon for families struggling to keep their heads above water. Too many people who are being hit by rising energy bills and increasing food prices are forced to ask themselves what essentials they will go without this winter.
“In a country like ours, social security should, at a bare minimum, enable people to meet their needs with dignity. Unless the Government urgently strengthens support, we will see more and more people being pulled deeper into poverty and debt in the months ahead. This is not only harmful but also completely avoidable.”
The City of Edinburgh Council has set out its plans for a Stronger, Greener, and Fairer economy.
After months of consultation with the city’s businesses, citizens, key partners and stakeholders, the refreshed Edinburgh Economic Strategy sets out the actions the Council will take to support the economy, and a clear direction for the priorities on which it will collaborate with partners across the city.
Agreed at yesterday’s (30 November 2021) Policy & Sustainability committee, the strategy sets a vision for the Edinburgh’s economy to be:
1. Stronger: so that Edinburgh businesses recover from the pandemic and create an economy that is more resilient, flourishing, and innovative than ever before.
2. Greener: so that Edinburgh’s transition to net zero brings local jobs and high skilled opportunities which people from all backgrounds can access though education and retraining.
3. Fairer: so that everyone in Edinburgh has the opportunity to access fair work that provides dignity and security of income.
Key highlights for delivery by the Council during the first year of implementation of this strategy in 2022 include (full list included in the full strategy report):
Increasing the number of people helped into work, learning or training through Edinburgh Guarantee For All and our funded employability programmes
Encouraging 100 businesses per year to become accredited Real Living Wage employers, through our work with the Edinburgh Living Wage City Action Group
Supporting the launch of new programmes to help businesses thrive in a net zero economy, including proposals for a new Green Innovation Challenge Fund
Establishing a business led Just Transition Economic Forum to convene the city’s business community to provide leadership on the just economic transition to a net zero city.
A new ‘Edinburgh Means Business’ annual conference programme will also be launched by the Council. This will bring together existing business networks and everyone with a stake in the development of Edinburgh’s economy. Convened by the Council Leader, the conference will share latest evidence on the progress of the city economy and delivery of this strategy, celebrate successes and identify challenges for city wide action, and build the networks and relationships needed for a Stronger, Greener, Fairer economy.
Council Leader, Adam McVey said: “There has been a lot of work and collaboration over the past months as we have listened to the valuable insights and data from businesses to deliver a robust plan of actions to support businesses, protect and create jobs. Despite the extreme challenges, this plan continues to progress to ensure a just transition to a net-zero economy and a fairer economy at its heart.
“Through our new business conference programme we’ll be engaging in real and meaningful discussions to help tackle our key challenges as a city while driving practical solutions.
“We hope that through these regular opportunities to come together we can make sure that we work in partnership with business across our Capital to recover and grow our economy in a sustainable, stronger and fairer way for everyone.”
Council Depute Leader, Cammy Day said: “Our refreshed Edinburgh Economic Strategy falls quickly on the back of our city gaining Living Wage City accreditation and stating our ambition to get over 40,000 people out of in-work poverty.
“This was one of the key recommendations of the Edinburgh Poverty Commission, which I co-chaired, and through this strategy we hope to build on existing commitments, tackle the fall out of how the pandemic has changed our business landscapes, while setting out actions to support and collaborate with businesses to radically increase the number of workers who can rely on fair work and real living wages.”
Christine McCaig, Living Wage Projects Coordinator at the Poverty Alliance said:“It’s fantastic that employers from a range of sectors and industries, including the City of Edinburgh Council are working together on Making Edinburgh a Living Wage City, and it is further encouraging to see efforts to increase the number of workers earning at least the real Living Wage embedded in to new economic strategy for Edinburgh.
“The real Living Wage is an important benchmark for decent pay and fair work, which are central to inclusive and thriving local economies.”
Liz McAreavey, Edinburgh Chamber of Commerce Chief Executive, said: “This is a strong and fair vision for the city and establishing an effective public/private collaborative partnership will give us the best chance of delivering a successful economic future for Edinburgh.
“Business engagement and knowledge sharing is critical to making this vision a reality.”
