Tag: Economy

Chancellor agrees new support measures for mortgage holders

Chancellor Jeremy Hunt met the UK’s principal mortgage lenders and the Financial Conduct Authority (FCA) yesterday to agree support for people struggling with mortgage repayments.

The latest market indicators (FCA; UK Finance) show that mortgage arrears and defaults remain below pre-pandemic levels, which were themselves extremely low. The FCA reported 0.86% of total residential mortgage balances in arrears in the first quarter of 2023 which is significantly lower than the 3.32% rate in 2009.

The proportion of disposable income spent on mortgage payments is currently at 5.4%, compared to around 10% in the 1990s and prior to the financial crisis.

The average homeowner re-mortgaging over the last twelve months had around a 50% loan-to-value ratio. This indicates homeowners have considerable equity in their homes, which makes it easier to manage repayments.

Lenders have less than 10% ‘owner-occupier mortgages’ on their books with loan-to-value rates greater than 75%, compared to around 25% before the 2008 financial crisis. Taken together, this puts the market in a significantly stronger position than before.

The lenders – which cover over 75% of the market – agreed to a new mortgage charter providing support residential mortgage customers. These are:

  • Anyone worried about their mortgage repayments can call their lender for information and support, without any impact on their credit score and we would encourage you to contact your bank who are there to help.
  • Customers won’t be forced to have their homes repossessed within 12 months from their first missed payment.
  • Customers approaching the end of a fixed rate deal will be offered the chance to lock in a deal up to six months ahead. They will also be able to apply for a better deal right up until their new term starts, if one is available.
  • A new agreement between lenders, the FCA and the Government permitting customers to switch to an interest-only mortgage for six months, or extend their mortgage term to reduce their monthly payments and switch back to their original term within the first six months, if they choose to.
  • Both options can be taken without a new affordability check or affecting their credit score.
  • Support for customers who are up-to-date with payments to switch to a new mortgage deal at the end of their existing fixed rate deal without another affordability check.
  • Providing well-timed information to help customers plan ahead should their current rate be due to end.
  • Offer tailored support for anyone struggling and deploy highly trained staff to help customers. This could mean extending their term to reduce their payments, offering a switch to interest only payments, but also a range of other options like a temporary payment deferral or part interest-part repayment. The right option will depend on the customer’s circumstances.

The Chancellor of the Exchequer, Jeremy Hunt, said: ““There are two groups of people that we are particularly worried about. The first are people who are at real risk of losing their homes because they fall behind in their mortgage payments. And the second are people who are having to change their mortgage because their fixed rate comes to an end, and they’re worried about the impact on their family finances of higher mortgage rates.

“So today I agreed with the banks and the principal mortgage lenders and the Financial Conduct Authority three very important things.

“The first is that absolutely anyone can talk to their bank or their mortgage lender and it will have no impact whatsoever on their credit score.

“The second is that if you are anxious about the impact on your family finances and you change your mortgage to interest only or you extend the term of your mortgage and you want to go back to your original mortgage deal, within six months, you can do so, no questions asked and no impact on your credit score. That gives people a powerful new tool for managing their monthly budgets – and it will begin taking effect within the next two weeks.

“And finally for people who are at risk of losing their home in that extreme situation, the banks and mortgage lenders have a number of things in place. The last thing that they want to do to repossess a home, but in that extreme situation they have agreed there will be a minimum 12 month period before there’s a repossession without consent.

“These measures should offer comfort to those who are anxious about high interest rates and support for those who do get into difficulty.

“Tackling high inflation is the Prime Minister and my number one priority. We are absolutely committed to supporting the Bank of England to do what it takes. We know the pressure that families are feeling. That’s why we’ve introduced big support packages around £3,000 for the average household this year and last.

“But we will do what it takes, and we won’t flinch in our resolve because we know that getting rid of high inflation from our economy is the only way that we can ultimately relieve pressure on family finances and on businesses.”

Martin Lewis, founder of MoneySavingExpert.com said: “The unprecedented steep rise in mortgage rates is causing a nightmare for many with variable mortgages and those coming off fixes.

“Therefore, the most important thing we can focus on right now is appropriate, flexible forbearance measures. While the Bank of England’s aim is intended to squeeze people’s disposable incomes, no one wants people’s lives to be ruined by arrears and repossessions – and that is the urgent protection we need to focus on.

“I met the Chancellor on Wednesday and reiterated that the minimum we needed was to ensure that when people asked for help from lenders, they knew that if things changed, it wouldn’t be detrimental to their financial situation and their credit scores would be protected as much as possible.

“I’m pleased to see it looks like the Chancellor has listened and those measures are going to be put in practice by the banks. We need to make sure everybody knows their rights if they are in trouble with their mortgage, so they can feel comfortable speaking with their lender and understand the measures that they can request for help.”

Nikhil Rathi, chief executive of the Financial Conduct Authority, said: “Today’s productive meeting builds on the work we’ve done over the last year to ensure those who get into difficulty receive the tailored support they need.

“We’ll move quickly to make any changes needed to support today’s commitments.”

Ian Stuart. Chief Executive Officer, said HSBC UK said: “We’re firmly focused on supporting our customers in this challenging economic environment, so we welcome the meeting with the Chancellor today, and with the support of the regulators, the concerted efforts across our industry to help customers through these measures.

“It’s important that customers feel comfortable contacting us if they feel they are getting into financial difficulty because whilst every customer’s situation is different we have a range of options that we can use to help them find their way through. We stand ready and remain committed to our customers.”

David Duffy, Chief Executive Officer, Virgin Money said: “Today’s commitments are an important next step in ensuring that customers feel supported as they navigate rising rates and high inflation.

“At Virgin Money, we are committed to supporting customers in the current economic environment and will continue to work with Government, regulators and industry to help those facing financial difficulty.”

Dame Alison Rose, Group Chief Executive, NatWest said: “Our priority is to help the people, families and businesses we serve to navigate this ongoing economic uncertainty.

“Today’s announcements, following very productive discussions between mortgage lenders, government and regulators, will provide further flexibility and reassurance to customers who may be anxious about their household finances.

“We stand ready to support those worried about the future, and encourage anyone experiencing financial difficulty to get in touch.”

City council’s commercial property strategy generates £15m for local services

Council sets sights on new business park

Commercial property investment by the City of Edinburgh Council has provided space for local businesses to thrive while raising over £15 million a year for vital public services, reveals a new report.

A revised version of the Council’s Commercial Property Strategy – which supports existing, new, and expanding enterprises across the Capital – has been approved by the Finance and Resources Committee.

It reveals that the Council is the biggest landlord of commercial property in all of Edinburgh, with a portfolio of 949 assets worth in the region of £245m. This has helped the Council generate income to reinvest towards frontline services and make profits from sales, which have helped with budget savings.

The strategy also supports a number of grassroots and community-based clubs and organisations with low-cost lease arrangements.

Under the refreshed plan, the Council will continue to maximise income growth from buildings in the year ahead while also prioritising support for start-ups and the Capital’s ambitious net zero by 2030 climate commitment.

A change to the strategy will also allow the opportunity for funds from property sales to be reinvested back into the portfolio, helping to streamline and make the most of the council’s assets.

This involves a vision for designing inhouse and building a new, sustainable, business park on Council-owned land at Peffermill – mirroring the successful business park launched in East Hermiston in early 2018. Five years on, the East Hermiston Park is providing 16 fully let units in a 1,600sqm modern industrial space yielding an annual income of £185k.

Councillor Mandy Watt, Finance and Resources Convener, said: “I’m pleased that the refreshed strategy has received Committee’s approval and that we’ll be able to improve on the £15m of income already raised from the council’s property portfolio.

“The opportunities available to support even more jobs at the new low carbon business park in Peffermill are exciting, and I’m looking forward to plans being brought forward later in the year.

“Over the last year, the council has used its properties to support the economic success of the city post-Covid and helped budding businesses to thrive, in ways that maximise income for delivering Council services. The results speak for themselves and we’ve seen first-hand the benefits business parks like the existing one at East Hermiston can bring.

“Against a backdrop of reduced government funding, we’ve had to think creatively to make the most of any income that we can raise for council services. This property strategy is a good example of that.”

Scottish business confidence fell in May

Bank of Scotland’s Business Barometer for May 2023 shows: 

  • Business confidence in Scotland fell nine points during May to 22% 
  • Companies in Scotland reported lower confidence in their own business prospects month-on-month, down two points at 30% 
  • Overall UK business confidence remains strong at 28%, down five points on last month

Business confidence in Scotland fell nine points during May to 22%, according to the latest Business Barometer from Bank of Scotland Commercial Banking.

Companies in Scotland reported lower confidence in their own business prospects month-on-month, down two points at 30%.  When taken alongside their optimism in the economy, down 20 points to 14%, this gives a headline confidence reading of 22%. 

Scottish businesses identified their top target areas for growth in the next six months as evolving their offer (45%), investing in their team (35%) and entering new markets (29%). 
 
The Business Barometer, which surveys 1,200 businesses monthly, provides early signals about UK economic trends both regionally and nationwide. 
 
A net balance of 29% of businesses in the region expect to increase staff levels over the next year, down three points on last month. 

Overall UK business confidence dropped five points to 28% in May. Despite the dip, every UK nation and region report a positive confidence reading. 

As the country celebrated the Coronation, London reported the highest levels of business confidence at 43% (down four points on last month), followed by the North East at 35% (down six points month-on-month). The West Midlands, South East and South West, also reported high readings in May, all at 30%.  

Firms remain optimistic about their own trading prospects, with a net balance of 34% expecting business activity to increase over the next 12 months, down just five points on last month.  

Chris Lawrie, area director for Scotland at Bank of Scotland Commercial Banking, said: “Despite a slight drop, business confidence figures remain positive and it’s great to see so many firms planning to invest in their teams.  

“On the ground we’re hearing that more and more companies are setting their sights on new goals in the coming twelve months.  Whether going after new markets, or making new hires to help during busier periods, it’s important that businesses ensure their working capital is in rude health.

“Having a keen eye on forecasting and finances can help firms to move swiftly when new opportunities arise. We’ll remain by the side of Scottish businesses to support them and help them to capitalise on growth opportunities this summer.”  

Confidence among manufacturers increased to a one-year high of 40% (up from 29%), while retail registered a more modest two point rise to 26%, and construction remained robust at 34% despite its monthly nine point decline.

Services confidence, however, fell back to 26% from 36%, almost erasing last month’s rise. Overall, confidence across the broad sectors remains above levels at the start of the year. 

Paul Gordon, Managing Director for Relationship Management, Lloyds Bank Business & Commercial Banking, said: “Although we’ve seen a slight slowdown in hiring activity this month, there is still an overall upward trend in hiring intentions this year, with improvements in labour availability as well.

“While businesses may be feeling less optimistic, it’s still encouraging to see confidence is still in line with the Barometer’s long-term average, consistent with positive growth. 

“Wage pressures continue to be at higher levels than before the pandemic, which management teams will be closely monitoring. And with inflationary pressures persisting, businesses need to remain agile to the changing economic environment, while keeping a tight watch on costs and the structure of their finances.” 

Hann-Ju Ho, Senior Economist Lloyds Bank Commercial Banking, said:  “As the economic environment remains challenging, compounded by stubborn inflation and higher wage pressures, business confidence has dipped slightly this month as firms feel cautious about the wider economy and their own trading prospects. 

“However, while firms’ trading prospects and economic optimism both eased back, they still remain in positive territory as the UK has avoided an outright contraction in GDP – indicating a certain amount of underlying resilience in the economy.” 

What did we learn from the Scottish Government’s Medium Term Financial Strategy?

THIS week the Deputy First Minister and Cabinet Secretary for Finance Shona Robison presented her first major fiscal statement to parliament (writes Fraser of Allander Institute’s MAIRI SPOWAGE).

For the uninitiated, the Scottish Government’s Medium Term Financial Strategy (MTFS) is a document that outlines its financial plans and priorities over the next five years. The strategy aims to provide a framework for fiscal decisions, resource allocation, and economic management in Scotland. It takes into account various factors such as economic forecasts, revenue projections, spending priorities, and the government’s policy objectives.

The MTFS was introduced following the Budget Process Review Group’s final report, which recommended a number of changes to the budgetary process at Holyrood so the parliament could move to year-round budgeting. The idea is that this sets out the context at this time of year, to allow Committees to plan their pre-budget scrutiny in the Autumn, feeding into the Budget which comes towards the end of the year.

It’s fair to say that this hasn’t always looked like a particularly strategic document: perhaps in the past setting out possible challenges, without engaging with what might need to be in response. It is clear from what the DFM said yesterday that she is trying to highlight and engage with the challenges to outlook presents, which is to be welcomed.

A chunky document at 117 pages – we’ve read it so you don’t have to!

Funding Commitments are outstripping the funds available

The big headline from the MTFS is that public spending in Scotland is currently projected to outstrip the funds available by significant amounts of money from the next fiscal year (2024-25). The document says:

Our modelling indicates that our resource spending requirements could exceed our central funding projections by 2% (£1 billion) in 2024- 25 rising to 4% (£1.9 billion) in 2027-28.

The funding gap has been presented in the media this morning using that dreaded phrase “black hole”. Of course, this gap cannot be allowed to manifest itself in reality. For context, this £1 billion gap is bigger than the whole of the Rural Affairs and Islands budget; or about the same as we spend on prisons and courts combined.

Given the Scottish Government has to present a balanced budget, and if the funding coming from both Westminster and devolved taxes is as expected, what this means in practice is that difficult decisions are going to have to be made about spending. Of course, there are also options to raise taxes  – but let’s come back to that.

Opposition politicians were quick to criticise the Government for saying that they were prepared to take tough decisions to deal with this challenge – but not setting out what these tough decisions were, i.e. where the axe might fall if it needs to.

To be fair, this is not the first one of these documents to highlight a potential funding gap if things continue as they have been. The difference was that DFM was very upfront about the fact that this was going to mean tough decisions were necessary. The financial statement yesterday was not a budget, and we should not have expected detailed allocation announcements.

So while we can see the uncertainty that this causes for service providers in terms of what is coming in December, to a certain extent the MTFS has done what it is supposed to do: to set the context for the start of the year-round budgeting process in Holyrood.

However, having said that, there are a number of commitments the Government has already made that are not included in this – such as the expansion of childcare provision, or further investment in the National Care Service. Therefore Ministers will have to be clear over the Summer and in the Programme for Government that they are acknowledging the tough decision environment when policy announcements are being made.

The DFM was fond of saying to opposition parties that they need to set out where cuts should happen if they are asking for more to be spent on particular areas – therefore the Government needs to hold themselves to the same standard.

A large income tax reconciliation still looks likely – but won’t be confirmed until the Summer

One of the issues that is contributing to the difficult outlook for the next financial year is a large income tax reconciliation.

To explain what this means, I’ll hand over to the Scottish Fiscal Commission (our boldening)…

When the Scottish Budget is set, funding from Scottish income tax for the financial year is based on forecasts and does not change during the year. Only when outturn information on income tax revenues becomes available is funding brought in line with outturn and a reconciliation applied to the following Scottish Budget. We can derive indicative estimates of future income tax reconciliations by comparing our latest forecasts and the latest forecast Block Grant Adjustments (BGAs) to those used in the Budget setting forecasts.

As we have highlighted in recent publications, we continue to expect a large and negative income tax reconciliation for the Budget year 2021-22. Comparing our and the OBR’s latest forecasts indicates a large negative reconciliation for 2021-22 of -£712 million. Final outturn data should be available in July 2023, with the resulting reconciliation being applied to the Scottish Budget for 2024-25.

So, we will know in July to what extent this reconciliation emerges in practice. This feature of the operation of the fiscal framework highlights the complexity of the arrangements that now determine the Scottish Budget.

Some of the coverage of this reconciliation have been characterised (by the IFS on socials for example) as a result of “over-optimism on tax receipts”. Let’s break down what is causing the reconciliation.

The forecasts for which the 21-22 budgets were set were still in the middle of the pandemic (Jan 2021), and the reconciliations are a function of both the view of the OBR of the rest of UK tax receipts and the SFC’s view on Scottish Income tax. Both of these figures were quite far out (the OBR’s more than the SFC’s) but it is absolutely to be expected given the uncertainty.

So, the current view of Scottish Income Tax is that it will be 9% higher than was forecast at the time of the 21-22 budget; but the current view of the Block Grant Adjustment is that it will be 15% higher than was forecast at the time of the 21-22 budget, hence the negative reconciliation.

To characterise this situation as “over-optimism” doesn’t seem very fair.

The outlook for the public sector workforce is assumed to be quite different in the document compared to the Resource Spending Review last year

When the Resource Spending Review was presented in May 2022, one of the main things that stood out was the analysis of the public sector workforce. The suggestion was in aggregate that the public sector workforce had increased significantly over the period of the pandemic, and that one of the ways that the tight fiscal environment could be dealt with was to manage down the public sector to its pre-pandemic size.

What wasn’t set out last year, or indeed anytime since, was how this would be achieved and in which areas the workforce would be managed down.

The MTFS does present different scenarios for the evolution of public sector pay settlements and the size of workforce. However, none of these assume that the public sector is to reduce overall. The scenarios the government examines in the document are:

  • Low Scenario – 2% pay award in 2023-24, and 1% pay award from 2024-25 onwards, 0.3% workforce growth
  • Central scenario – 3.5% pay award in 2023-24, and 2% pay award from 2024-25 onwards, 1.1% workforce growth
  • High Scenario – 5% pay award in 2023-24, and 3% pay award from 2024-25 onwards, 2.2% workforce growth

The document still indicates that reductions may be required in some areas of the public service, but it seems clear that this will be driven by the budget allocations that will be dished out:

Where a reduction in workforce is required for a public body to remain sustainable, we would expect this to be through natural turnover wherever possible and we restated our commitment to no compulsory redundancies in this year’s Public Sector Pay Strategy.

Let’s talk about talking about tax

The Deputy First Minister has announced that an external tax stakeholder group will be established this Summer. The document says:

This group will build on the Government’s inclusive approach to tax policymaking and will consider how best to engage with the public and other stakeholders on the future direction of tax policy, including whether a “national conversation” on tax is required.

It is hard not to be cynical about this announcement: those of us in the tax policy field have been invited to many conversations and round tables about tax over the years, but engagement is only meaningful if feedback and suggestions are taken on board. This sounds a little like a group to talk about how to talk to the public about tax. Not bad in itself, but it’s not clear how this is going to feed not many of the announcements that have already been made about taxation by this refreshed administration.

The idea is that this engagement will shape a refreshed tax strategy from the Scottish Government. A couple of things that we would say (if we are asked of course!) –

  • Discussions about wealth taxes look very difficult in a devolved context. However, completely within the gift of the Scottish Government is the reform Council Tax, something the SNP have said they wanted to do since coming to power in 2007. Given the number of commissions and groups that have discussed this over the years, another one is not required to set out the issues with CT, or indeed to set out options for replacement. Meaningful discussions about replacements and the political bravery to recognise there will be losers, as well as winners, will be required.
  • Further additions to the higher and top rates of income tax are unlikely to be able to yield large amounts of revenue. For example, there is the suggestion from the new FM (which had been put forward by the STUC) to introduce a new band at 75,000 and up the rate by 2p. The new ready reckoners published by the Scottish Government yesterday show that even if the whole of the Higher Rate Tax band is upped by 2p, this will raise £176m – not an insignificant amount of money, but not enough to deal with the funding gap outlined in the MTFS.
  • Tax rises are not cost-free. If engagement is to be meaningful, it is important that the SG engage with those who can see some of the costs as well as the benefits to either (i) more complexity in the tax system (ii) more divergence from the rest of the UK and (iii) higher tax burden overall.

Multi-year Funding envelopes will be set out with the 2024-25 budget (so probably in December)

The Government have committed to publish refreshed multi-year spending envelopes alongside the Budget for 2024-25. Given everything that has changed since the Resource Spending Review was published in May 2022, this is to be welcomed – although given the difficulties overall it is unlikely to be good news for many areas.

Hello? Is it MSPs you’re looking for?

Given the importance of the statement yesterday, we were quite surprised at both the time the was given in the chamber but mostly by the lack of MSPs who were in the chamber to hear the statement.

This is basically the equivalent of the Autumn Statement at Westminster – not the budget, no, but it gives clear signals of the context for the budget to come. This sets off the Budget process, and highlights that really difficult decisions are going to have to be made in the 2024-25 budget.

Engagement from across the chamber will no doubt increase as we get to the sharp end of the budget process – let’s hope it’s more meaningful than it was yesterday.

Coronation weekend boosts spending for Scottish businesses

Bank of Scotland data from customer spending habits in the food and drink sector during the week of the King’s Coronation 2nd – 8th May shows: 

·         A 10% increase in spending in Scottish firms including pubs, bars, cafés and restaurants compared with the previous week 

·         The Coronation generated bigger consumer spending levels in Scotland than the Queen’s Platinum Jubilee in 2022 (10% vs 3% respectively) despite the Coronation only being a three-day compared to the four-day Jubilee  

·         Across the UK biggest increase in business activity was seen by restaurants (12% increase) followed by supermarkets and grocery retailers (nine percent increase)  

The Coronation Bank Holiday weekend led to a flurry of consumer spending in Scotland, helping to boost business activity.  

Consumers in Scotland increased their spending more than any other UK nation or region as business reported a 10% rise in trading activity over the bank holiday compared to the previous week. 

Data scientists at Bank of Scotland found the additional Bank Holiday for the King’s Coronation increased Scottish spending by a greater amount than the Queen’s Platinum Jubilee four-day-weekend last year which drove a 3% increase in purchases across firms.  

Restaurants in the UK received the biggest boost in business activity, with customers spending 12% more than in previous weeks, followed by supermarkets and grocery retailers who saw a nine per cent increase. 

Day by day analysis of the UK shows that the biggest increase in spending was restaurants on Sunday and Monday by 37% and 51% percent respectively.  

Chris Lawrie, area director for Scotland at Bank of Scotland Commercial Banking: “It’s fantastic to see the boost the extra day’s bank holiday has given to businesses, many of which will be hoping for a similar surge in demand for the next bank holiday and into the summer.  

“Managing cash flow and juggling busy periods can be challenging for firms, and for larger businesses leveraging tools such as invoice or asset-based lending can be useful to unlock capital when needed, enabling them to seize the opportunities that come their way.

“As well as wisely investing their hard-earned additional revenue into training and overall efficiency gains which will benefit the business in the long term.” 

Another rate rise and what is going on with the fiscal framework review?

FRASER OF ALLANDER WEEKLY UPDATE

The big economic news this week was undoubtedly the 12th consecutive rate rise from the Bank of England (writes Fraser of Allander Institute’s MAIRI SPOWAGE). The Bank have done this to continue to bear down on stubbornly high inflation, which is still in double figures at 10.1% (latest data for March).

The Bank’s outlook for the UK economy has improved considerably since their last set of forecasts were published in February. Broadly in line with the Office for Budget Responsibility, they now think that the UK economy will overall be flat in the first half of 2023 before returning to growth in the second half of the year.

The Bank are forecasting 0.7% growth in 2023, followed by 0.8% growth in 2024. It is worth highlighting though that this figure for 2024 is pretty anaemic, and below the current forecast from the OBR for the same period.

The Bank’s expectations are still for inflation to fall sharply from April, in part as the high price levels from a year ago come into the comparison. The next data are out on 24th May: let’s see if the economists are correct this time, as to be fair we’ve all been expecting the rate to fall below 10% for some months now.UK

Economy grows in Q1

Today, we got data from the ONS that confirms that the UK economy grew during the first quarter of the year, albeit by only 0.1%. That is balanced out with the news from the monthly data that there was a contraction during March, with wholesale and retail contributing the most to this contraction. This could suggest that the wider economic conditions are starting to bite on consumers, so it will be interesting to see how this is reflected in next month’s data.

Reports about talks about talks

Officials from the Scottish Government and HMRC were at the Public Audit Committee this week to give evidence about the administration of Scottish Income Tax. This session, as one may expect from the Public Audit Committee, was on the technical details of the collection of the tax (which, while partially devolved, is collected by HMRC rather than Revenue Scotland) and also the audit arrangements for the tax collection.

There were some interesting nuggets in there from a tax policy perspective. There was the view of the Scottish Government on the reasons for Scottish Income tax lagging behind the rest of the UK: mainly laid at the feet of the decline in oil and gas jobs: but there didn’t seem to be much clarity on whether we would ever be able to analyse whether this was actually the case.

We also heard that the fiscal framework review has moved “back into an active space”. For those who are after a recap of what on earth this is all about, see our blog in late 2021.

Slightly depressingly, as the PAC Convener Richard Leonard characterised it, this review is currently in the status of “talks about talks”. It is still very unclear when this may be concluded (or even start). Hopefully, we’ll see some news about this from both Governments soon.

Fraser of Allander Weekly Update – Bitter pill to swallow?

This week, the Chief Economist of the Bank of England, Huw Pill, generated many headlines when he said that “we’re all worse off” due to the stubbornly high inflation the economy is experiencing – and bluntly, that we all just need to accept that (write MARI SPOWAGE and EMMA CONGREVE) .

Given this follows on from Governor Andrew Bailey’s comments that people shouldn’t ask for pay rises, it adds a bit to the narrative that the Bank of England is a bit tin-eared to the way workers and households feel right now.

However, Pill’s comments are a reflection of the current outlook. Even with the more optimistic forecasts that we had from the OBR recently, meaning that a recession may be avoided, living standards are still projected to fall significantly over the course of 2023.

It is important though that we have a debate about who in society should bear the brunt of the costs we are experiencing, and whether indeed it is ever going to be possible to protect much of our society from these external shocks.

No sign of a recession… yet

On a more optimistic note, data published this week showed that the Scottish economy grew by 0.2% in February 2023, which follows on from growth of 0.5% in January. Services grew by 0.4%, and particularly encouraging was that consumer-facing services grew by 1.3%.

This means it looks like Q1 2023 is going to show some growth, rather than a contraction as many (including us) had feared.

It will be interesting to see how the economy evolves as we move past the end of March, when we know government support for energy bills started to wind down, particularly for businesses.

How does Scotland compare to other regions of the UK?

ONS have published their latest data on regional economic activity – which you can get split up by all sorts of levels of geography, including local authority and city region, and by industry.

This data allows us to compare the level and type of economic activity across the UK, for the year 1997-2021. Looking across the 12 regions of the UK, known as International Territorial Level (ITL) 1 Regions, we can see that economic activity in London far outstrips that of the other region of the UK. Scotland usually performs pretty well on these metrics, generally 3rd or 4th in the UK depending on the year.

Chart: GVA per head, ITL 1 Regions

Source: ONS

[As statto aside, this is “onshore” Scotland only. Aficionados of economic statistics in the UK will be aware that activity associated with the whole UK Continental Shelf is put into a 13th region called “extra-regio”, which also includes activities in embassies abroad.]

There are also significant differences between different local authorities within Scotland, with the main cities outperforming many other areas of the country. We have to remember of course that the economic activity data reflects where activity takes place – i.e. the location of the place of employment – rather than where people live, so there is a significant commuting effect associated with this data.

Chart: GVA per head, local authority

Source: ONS

Despite another instalment in the long running NCS saga, we still have no certainty over what, when or how much

Last week, it became clear that the National Care Service legislation (and by extension its delivery) will be pushed back (again). In a letter to the Health, Social Care and Sport Committee on the 17th April, the Minister stated that the Scottish Government would be seeking parliamentary approval to extend Stage 1 of the Bill till after the summer recess.

We have written before on some of the questions that remained following the introduction of the Bill and the accompanying Financial Memorandum. The Finance and Public Administration Committee shared many of our concerns (and had others) about the lack of detail in the Financial Memorandum and asked the Scottish Government for an updated version. The Convenor of that Committee, Kenny Gibson, wrote to the Minister this week noting that the Committee are becoming:

“increasingly concerned at the lack of information available on the financial implications of the Bill and frustrated that we have still not received the updated FM we requested back in December last year”

They have asked for a new Financial Memorandum no later than Friday 12 May along with a breakdown of spend to date on the NCS.

The importance of the NCS to those who work and draw on social care, and to wider society, is huge. Although there remains a difference of opinion on how reform should happen, all agree that reform is needed. The delays that we have seen with the programme to date have been concerning. Understanding the financial implications of what this all means has been nigh on impossible. This call for clarity is welcome.

Shona Robison: A fair economy supporting Scotland’s people

Deputy First Minister outlines priorities for sustainable growth

Fair work and more efficient public services will be at the heart of Scotland’s economy, Deputy First Minister Shona Robison pledged today.

Plans to deliver real benefits to the people of Scotland through a strong, green economy, underpinned by the most progressive tax system in the UK, are outlined in the Scottish Government’s Portfolio Prospectus which pledges firm actions to be achieved by 2026.

These include:

  • creating the UK’s most progressive tax system to deliver public services, tackle poverty and grow the wellbeing economy
  • increasing the number of workers earning at least the real living wage, while narrowing the gender pay gap
  • making Scotland a leading European start-up nation, in which more businesses are created and grow to scale
  • growing international exports while diversifying into new markets
  • laying foundations to produce 5 Gigawatts (GW) of hydrogen production by 2030, as part of a Scottish hydrogen supply chain
  • implementing a New Deal for Local Government, including a fiscal framework, to tackle collective challenges and improve outcomes

The Deputy First Minister was joined by Wellbeing Economy Secretary Neil Gray on a visit to Dear Green Coffee Roasters in Glasgow – a company based on fair work principles and sustainability which embodies the vision for a wellbeing economy.

Ms Robison said: “The Scottish Government’s Policy Prospectus lays out the practical measures we will take to transform the economy, deepen our relationship with business and maximise the value of our public spending.

“Developing a wellbeing economy is not just good social practice, it makes sound economic sense. By focusing on strong public services, we can help disabled people, the long-term sick and those with caring responsibilities to get back into work. While paying a fair wage, and reducing the gender pay gap, can produce a committed workforce which in turn will help increase productivity and improve staff retention.

“We will work in partnership with local government to update the way it is financed and improve collaboration. Underpinning this will be stable, sustainable public finances delivering people-focused public services and supporting Scotland’s net-zero goals.

“Our resources will be focused where they can have the maximum impact, such as laying the foundations of a hydrogen supply chain and supporting internationally competitive green technologies, health and life sciences and advanced manufacturing.”

The Scottish Government’s Policy Prospectus is based on three missions: equality, opportunity and community.

Royal Bank of Scotland Report on Jobs

Hiring activity across Scotland falls again in March

  • Permanent placements fall for second month running
  • Further marked drop in supply of permanent labour
  • Pay pressures moderate but remain strong overall

The latest data from the Royal Bank of Scotland Report on Jobs survey signalled a fall in permanent staff placements across Scotland for the second consecutive month in March.

The reduction was fuelled by ongoing economic uncertainty, which resulted in increased hesitancy among companies to commit to new hires. Additionally, temp billings fell for the sixth month running.

In terms of labour supply, there was a further sharp fall in the number of candidates for permanent vacancies, while temp staff availability fell at the weakest pace in the current 25-month period of contraction. At the same time, growth of demand for permanent staff moderated in March, with vacancies rising at the slowest pace in just over two years.

Furthermore, demand for temp workers contracted for the third consecutive month. In terms of pay, pressures on starting salaries and wages remained marked, partly due to the cost-of-living crisis, but also competition for workers amid ongoing labour shortages.

Downturn in permanent staff hires softens from February

Permanent placements across Scotland fell for the fifth time in the past six months in March. According to recruiters, the latest downturn was largely driven by economic uncertainty and hesitancy to commit to new hires.

While the rate of contraction across Scotland moderated notably from February, it was stronger than that recorded for the UK as a whole.

A sixth straight monthly decline in temp billings was reported across Scotland in March. That said, the respective seasonally adjusted index picked up from February’s 32-month low, indicating the softest decrease in billings since December last year.

However, at the UK level, temp billings continued to increase and at the quickest pace since September 2022.

Marked contraction in permanent staff supply

A further drop in permanent labour supply was recorded across Scotland in March, thereby stretching the current run of contraction to 26 months. The pace of decrease was broadly similar to that seen in February and stronger than the series average. According to anecdotal evidence, fewer permanent candidates were available partly due to economic uncertainty and the subsequent reduction in active job seekers.

In contrast, the UK as a whole recorded the first rise in permanent labour availability in over two years, albeit one that was mild overall.

March data revealed a fractional drop in temp staff availability across Scotland. Notably, the pace of contraction moderated further from December last year and was the weakest seen in the current 25-month sequence of reduction. A preference for permanent positions and hesitancy to switch roles reportedly weighed on availability. However, fewer work opportunities and the completion of projects helped to improve short-term labour supply in some areas.

Meanwhile, the availability of candidates for temporary vacancies at the UK level increased for the first time in 25 months.

Growth in starting salaries moderates, but remains rapid

Salaries for new permanent hires rose rapidly across Scotland in March. Competition for skilled staff, the cost-of-living crisis and labour shortages were said to have driven up salaries. While the rate of inflation was stronger than the historical and UK-wide averages, the pace of growth was the softest seen in 23 months.

March data pointed to a sharp rise in hourly wages for temporary workers across Scotland, thereby extending the current run of growth to 28 months. While the pace of temp wage inflation intensified from February, the upturn was among the weakest in the aforementioned sequence, and broadly in line with the historical average.

The pace of wage growth across the UK as a whole was quicker than that seen for Scotland.

Softer upturn in demand for permanent staff

Permanent job openings grew solidly across Scotland in March. However, the latest upturn was the softest seen for just over two years and weaker than that at the UK-wide level.

Of the eight monitored sectors, Nursing/Medical/Care saw the strongest upturn in permanent staff demand, with IT & Computing ranking second.

Demand for temporary workers across Scotland fell for the third month running in March. The rate of contraction was marked overall, and contrasted with a modest increase in temp vacancies across the UK as a whole. 

The steepest drop in temp staff demand was seen for Blue Collar roles, followed by Executive & Professional.

Sebastian Burnside, Chief Economist at Royal Bank of Scotland, commented: “March data revealed a further decline in hiring activity across Scotland, as ongoing economic uncertainty weighed on firms’ appetite for new staff.

“Moreover, with growth in permanent vacancies weakening further, and temp vacancies falling for the third month running, it appears unlikely that recruitment trends will improve much in the coming months. Nevertheless, despite the slowdown in hiring, pay pressures remained acute.

“This was in part fuelled by the cost-of-living crisis, but also increased competition for scarce candidates.”

Supporting Scotland’s women entrepreneurs

Report identifies 31 ways to reduce gender gap and boost economy

The Scottish Government will carefully consider proposals to support more women into entrepreneurship, First Minister Nicola Sturgeon has said following publication of a wide-ranging independent review.

Pathways: A New Approach for Women in Entrepreneurship was commissioned by the Scottish Government to identify ways to unlock untapped potential, close the gender gap and boost Scotland’s economy.

The review – led by Ana Stewart, an entrepreneur and investor, and co-authored with Mark Logan, chief entrepreneur to the Scottish Government – makes 31 recommendations. The steps include:

  • providing start-up training and support in a range of pop-up locations to help more women, and other primary care givers, access services
  • integrating entrepreneurial education into schools and further education
  • clarifying existing access pathways into entrepreneurship
  • improving access to start-up and growth finance
  • tracking and measuring progress towards full representation in entrepreneurship

Commenting on the report,  First Minister Nicola Sturgeon said: “I welcome Ana Stewart and Mark Logan’s work in delivering a powerful review of the barriers facing women in entrepreneurship in Scotland and presenting a compelling set of recommendations aimed at removing them.

“The review’s findings are challenging but underline the need to tackle the root-causes, as well as the immediate barriers, of this inequality.

“Fully realising the entrepreneurial potential of women in Scotland will not only promote greater equality in our society, it will also deliver significant benefits for the economy. 

“The Scottish Government will respond quickly to the review as a whole, and its recommendations.”

Review chair Ana Stewart said: “This review has, through a combination of extensive stakeholder engagement and robust data analysis, revealed that women face many significant barriers to entrepreneurship.

“Only one in five businesses in Scotland are female-led, while start-ups founded by women received only 2% of overall investment capital in the last five years. By taking a root cause and effect approach, our recommendations focus on dramatically increasing female participation rates to drive a vibrant and fairer entrepreneurial economy.”

The First Minister welcomed the publication of the review on a visit to Roslin Innovation Centre, where she met Ishani Malhotra, Chief Executive of Carcinotech, and Dr Kate Cameron, who founded Cytochroma.

Read the review report, Pathways: A New Approach for Women in Entrepreneurship.

pathways-new-approach-women-entrepreneurshipDownload