On Thursday, the Scottish Government announced the 2030 climate change target is “out of reach”. So, what went wrong (writes Fraser of Allander Institute’s JAMES ALLAN)?
In 2022, we undertook research commissioned by ClimateXChange for the Joint Budget Review between the Scottish Government and Scottish Parliament on matters related to climate change.
Our remit focused on how budgetary and policy decisions are made rather than individual policies themselves. This required us to piece together through many interviews how civil servants were developing policy in practice, how decisions were being made and challenged internally and what information was flowing to Ministers and Parliament.
The culmination was a number of recommendations, one of which was for a “Net Zero Assessment” of policies as they are being developed. The basic principle is simple – if your policy is likely to have significant positive or negative impacts on greenhouse gas emissions, you need to roughly estimate the emissions that policy is likely to create. In most cases, this isn’t hugely difficult and some parts of government were already applying fairly rigorous assessments. But for many areas, these were patchily applied at best or seemingly sidestepped at worst.
In the areas where civil servants seemed less likely to routinely produce emissions estimates, it became apparent that these were often not being asked for by those approving projects. Approval without challenge beyond the financial cost led into a cultural view that some processes were optional.
It was encouraging to see that the climate change action policy package announced alongside the 2030 target statement reinforced earlier commitments to introduce a Net Zero Assessment.
Dropping targets can be disappointing but the Scottish Government now has the opportunity to take stock and refocus efforts where immediate progress is critical. Setting targets is not enough to meet them. Nor is it enough to have genuine ambition to reduce emissions – which we regularly encountered in our interviews. Both of these cannot create change that outweighs a system of processes and practice that gravitate towards the status quo.
But this also means that it is not simply enough to add a process like a Net Zero Assessment and assume that policymaking in practice will suddenly start following expected processes. A Net Zero Assessment must be sufficiently embedded within practices so that incentives and norms within Government act as a support rather than a counterweight. This isn’t easy – governments are having to grapple with this challenge globally.
But first and foremost, this means ensuring that a challenge function is in place and that challenge function has sufficient clout. The results of net zero assessments must be asked for, they must have taken place early enough in a project before too much momentum has built up, and there must be a degree of centralisation in this challenge function so that lagging policy areas are identified and supported.
This is the “how” of policy, rather than the “what” of policy. Is it the only step the Scottish Government will need to take to hit 2045 targets?
No – not by a long shot. Many difficult decisions lie ahead. But you cannot make and deliver on effective decisions without good evidence and robust processes. Significant and immediate focus now on the “how” of policy must be seen as a non-negotiable requirement if the Government wishes to make substantial further progress on its 2045 climate targets.
The introduction of a Net Zero Assessment will be a big step forward for the Scottish Government and will demonstrate global leadership on climate change processes. But don’t forget that the challenge function is just as important as the process itself.
I want to end this article with the concluding remarks from our report to the Joint Budget Review, which refers to the methodology within a Net Zero Assessment as an “individual level carbon assessment”.
These parting comments seem as relevant now as they were when published in December 2022:
‘A key emissions reduction target looms in 2030. While eight years away, many of the decisions the Government makes today are deciding its level of emissions in 2030. Missing this target substantially raises the risk of missing Scotland’s 2045 net zero target and results in challenging economic headwinds in the 2030s.
‘Our recommendations therefore cannot be left for years down the road, when the outcome of Scotland’s progress, determined by decisions taken now, becomes inevitable.
‘It is critical that the Scottish Government creates an environment of continuous improvement in policymaking processes. This environment can develop the processes that will ultimately help deliver the required outcomes in the short, medium and long-term.
‘Therefore, we conclude this report with a clear message that the mistakes of the past cannot be repeated.
‘In 2008, a project to explore a methodology for a high-level carbon assessment was undertaken. This resulted in the Carbon Assessment published annually alongside the Scottish Government’s Draft Budget.
‘It was widely recognised at the time that this was a limited tool, and that the critical next step in achieving carbon reductions was the development of individual-level carbon assessments, running in a parallel project.
‘It appears, from what we have seen, that this project was never taken forward. Fourteen years have now passed. This work cannot wait any longer to be seriously implemented.
‘Some of these recommendations will be challenging to implement – Government-wide change is never simple. But nor are these recommendations untested on an international stage.
‘The Scottish Government will need ambition, it will need the courage to embrace change, and it will need to treat a declared global climate emergency as just that – an emergency.‘
We are less than a week away from the Budget – a special day for the House of Commons, and one of incredible significance for the UK as a whole (writes Fraser of Allander Institute’s João Sousa).
In a speech expected to last around 60 minutes, the Chancellor of the Exchequer, Jeremy Hunt, will lay out plans for taxation and spending over the coming years, introduce some immediate tax measures and provide an update on the economic and fiscal forecasts he received from the Office for Budget Responsibility (OBR).
But what we can do is demystify it and provide some historical context. So join us on this tour through the weird history of how it has come to be the way it is.
A statement to the House of Commons – but it wasn’t always like that
The Budget Statement – or historically called the Financial Statement – was originally made to the Committee of Ways and Means, a committee similar to the Committee of the Whole House (which still exists) concerned with financial matters, and in which all members could sit. This is why the Budget was originally chaired by the Chairman of Ways and Means, one of the most senior Deputy Speakers, rather than the Speaker of the House.
In 1967, the Committee of Ways and Means was abolished as part of a series of reforms to modernise the operation of the House under the Commons’ Leadership of Richard Crossman. Unfortunately, the modernisation didn’t extend to the existing the inherently sexist name of Chairman of Ways and Means – Dame Eleanor Laing (the current post holder) continues to be referred to as Chairman in official proceedings. Maybe it’s time we finally ditched it.
The Chairman of Ways and Means continues to chair the Budget debate to this day, which can look odd to the casual observer. The reply is also not by the corresponding shadow cabinet member, as one would expect, but by the Leader of the Opposition – a custom dating back to the 1938 Budget, which seems to have arisen from the fact that the Ministers of the Crown Act 1937 defined the role and duties of the Leader of the Opposition, as well as granting them a cabinet minister-equivalent salary.
The development of specific roles in the shadow cabinet happened significantly later (during the 1950s with the advent of television), by which point the convention had already been established.
The Budget has become more powerful and concentrated over time
The Committee on Ways and Means formally allowed for any member to raise proposals for taxation and spending, which would not be the case in a sitting of the House – during which the Government has control of the agenda, or “business” in the jargon.
In practice, however, this almost never happened. As party discipline grew over time and stronger governments backed by a Commons majority became the norm, the Government’s majority served to eliminate that possibility.
When the Committee was abolished in 1967, all responsibilities for fiscal policy decisions were transferred wholesale to the Chancellor of the Exchequer – but in practice that had already happened.
The Budget is now a three-part statement: it encompasses economic forecasts, taxation proposals and spending plans. It wasn’t always like that. The financial statement itself was originally concerned principally with tax powers.
Spending plans were a consideration of course, as they determined the balance that the Chancellor wanted to strike, but they were (and still are formally) voted separately as part of the Estimates process.
It was only in 1993 that Ken Clarke formally merged the presentation of plans for tax and spend as part of the move to an Autumn Budget – although really the Government had been using the Budget for many decades to pre-announce and revise spending plans when presenting the Budget.
Economic forecasting has contributed to fiscal events being more frequent – which is not necessarily great
What about economic forecasts? They are a more recent addition to the Government’s business, certainly in the level of detail that they exist today, and are to some extent a by-product of the need to more accurately forecast the public finances of a more complex economy.
But it was the 1970s inflationary shocks that really caused economic forecasting to become front and centre of the Chancellor’s statements to the Commons. It was also felt that an annual update was too infrequent given the rapidly evolving situation, and therefore that it would be appropriate for the Treasury to publish forecasts twice a year from a macroeconomic model that it was to build in order to project economic conditions.
Many of the provisions contained in Schedule 5 of the Industry Act 1975 would strike a current observer as peculiar or even downright ridiculous – for example, the need to require explicitly that “[t]he model shall be maintained on a computer” – but the twice yearly publication specified in that has subsequently been enshrined into the Budget Responsibility and National Audit Act 2011, which governs the operations of the OBR and its relationship with the Treasury.
For many years, the Budget was by far and away the largest fiscal event of the year, and for all intents and purposes, the only one worthy of that name. The Autumn/Summer/Spring Statement (timings have fluctuated over the years) was merely a statement of updated economic and fiscal forecasts – the only recent example of which was Philip Hammond’s 2019 Spring Statement, which did not even have a command paper alongside it.
The bloat in the “secondary” fiscal event started in 1998, with the introduction of the Pre-Budget Report. It was billed as setting out “the direction of Government policy and further measures that are under consideration in the run up to the 1999 Budget”, but it became another decision-making point in its own right. This approach has continued ever since, even if the name has changed, save for that singular 2019 Spring Statement.
This development evolved as a series of historical accidents – the need for more frequent forecasts, and an attempt to lay out the direction of travel for government policy – but has been seized by successive Chancellors as an opportunity to “make the weather” and generate headlines. But many experts – and we agree with them – would argue that having than one budget-like event a year is not a great thing, encouraging tinkering and zig-zagging policy rather than the stability that is often needed.
It is often argued as a reason for having more of these events that economic conditions can and do require at times rapid response – take the Covid-19 pandemic for example. That was such a rapidly evolving situation that it necessitated what the OBR called “twelve ‘mini-Budgets’ through the course of the year” during 2020-21. But emergency situations have always called for emergency statements to the House – something that already happened before the requirement for multiple events a year (take 1961 or 1966, for example). It’s the insistence on having them when it isn’t required that creates unwelcome uncertain.
Why do we even need a Budget every year?
In its current state, the operation of the UK’s public finances requires a number of resolutions to be passed in each financial year. The main reason is to allow the collection of income tax, which is brought into place by statutory instrument each year and must be renewed.
The Finance Bill also generally takes forward changes announced at the Budget, but that can take a while to pass through Parliament. In the meantime, the Government can collect taxes at newly announced rates by using the Provisional Collection of Taxes Act 1968.
This is why you’ll hear the Deputy Speaker mention this rather obscure act of parliament and the Budget resolutions just before calling the Chancellor to make their statement.
Could we have a Budget less than once a year? It would be possible, though some changes would have to be made. In practical terms, however, a year is quite a natural length for planning and monitoring expenditure and tax receipts – and there is often enough movement in the economy for it to be worthwhile and convenient to make decisions at such an interval.
How does the forecasting process work, and when are decisions made?
As per the Memorandum of Understanding between the OBR, Treasury and other government departments, the Chancellor has to give the OBR 10 weeks’ notice to produce a forecast in normal circumstances. The letter of the requirement was fulfilled in this case – though arguably not the spirit, as notice was given on 27 December. So the effective notice period was more like 8 and half to 9 weeks.
In a welcome move, the OBR has in recent times published the timetable for the forecast process. This has increased transparency, though it still requires some interpretation. The forecast timetable can broadly be divided into two periods: pre- and post-measures.
Pre-measures rounds (in this case, 1 and 2) refer to the incorporation of underlying data, both economic and administrative. For example, the OBR will have taken on new GDP figures and inflation data, as well as tax receipts and spending figures from government departments.
The last pre-measures round closed on 14 February, and so market determinants – including, importantly, interest rates and market expectations about the Bank of England’s behaviour in the coming months – will have been closed around a week before (6 or 7 February). They are now fixed and will not have been updated since then, despite the fact that there will have inevitably been movements.
This is a normal process in the OBR’s forecast, for two reasons. One is that the fiscal forecast needs to be conducted by departments and scrutinised by the OBR, and that takes around a week in early rounds.
But there is also a significant amount of time for the Chancellor to make decisions about policy measures on a stable base. Jeremy Hunt has been keen to extend the length of the decision-making period, and that has meant the OBR is now closing the forecast period about a week earlier.
Rounds 3 and 4 will have given the Chancellor the opportunity to notify the OBR of all major policy measures. These rounds allow the OBR to model any large impacts of major policies on the economy (also known as indirect or second-round effects). This forecast is then returned to the Treasury. Round 4 was returned on Wednesday (28th February), and all major decisions have now been taken.
This means any supposed agonisingby Jeremy Hunt over whether to abolish ‘non-dom’ tax status in the coming days is purely pitch-rolling: a PR exercise to guide people through a supposed decision-making process that in fact has already happened.
All major decisions (i.e. over £1bn) are now closed. The final scorecard will be delivered to the OBR on Friday, 1 March. All numbers will then be closed for good, subject to any errors being found, and the OBR will spend the weekend writing their Economic and Fiscal Outlook. Likewise, the Treasury will be writing the speech for the Chancellor and the Red Book that comes out on Wednesday.
Of course, this won’t avoid many news articles over the weekend about the Chancellor still having to make tough decisions, and poring over the numbers to make it all add up. But if you’re reading this, you’ll know how to spot when a reporter is being fed lines directly from 11 Downing Street.
Speaking of which, what exactly is the scorecard?
Much like pitch-rolling, the scorecard is a term borrowed from cricket and in the Treasury’s parlance, it refers to the detailed list of measures taken by the Chancellor since the last fiscal event. It is essentially a very large spreadsheet, with often hundreds of rows detailed the movement in each tax and spending stream from each measure. It was originally called the tally, and it has been present in one form or another in every Budget document going back to the 1870s.
The table does quite resemble a cricket scorecard, and the metaphor has stuck. But it also resembles many other large tables, so why cricket?
It’s probably not unrelated to it being historically a past-time of the upper classes and very popular with Parliamentarians, reflecting the make-up and cultural references of those historically in the Treasury and Parliament.
There are a few different versions of the scorecard – table 4.1 in the Red Book is the one that Westminster insiders are most familiar with already, which is also called the ‘presentational’ scorecard. This is the ‘themed’-version, and measures are quite often grouped together. For most people, that is already more than enough.
But for the purists, the OBR publishes supplementary table 3.11, which is a version of the ‘analytical’ scorecard – which just means it has all the detail on revenue and spending stream.
The OBR’s version is also much more transparent, including a section labelled ‘non-scorecard’ measures – meaning decisions that the Government has taken and probably should have included in their presentation, but has decided not to. This used to be a large number, but has been heavily cut back – in large part because the OBR started publishing it.
Look out for more analysis from Fraser of Allander next week
The research project examined fresh-thinking and technology adoption across Scotland’s housing, health and social care sectors with the aim of better understanding the potential for innovation clusters, the role of public investment and capacity for innovation in the key sectors.
Despite the research reenforcing sector-wide challenges, Edinburgh-based Blackwood and its bespoke tech solutions were included as a case study of what is possible within tech-enabled care, despite the challenges faced by the sector.
Simon Fitzpatrick, Chief Executive at Blackwood said: “We are constantly striving to find new ways to improve the lives of the people we support. Receiving recognition and awareness for it always motivates us to keep pushing boundaries and leading the way.
“The research study by the Fraser of Allander Institute is an extremely valuable piece of work for the sector that we’re thrilled to be positively featured in. It’s very rewarding to be recognised.”
One tech solution mentioned in the report is Blackwood’s CleverCogs technology, a specially designed tablet-based system, which has delivered measurable improvements in quality of life and efficiencies in service delivery, despite major budgetary constraints.
Many Blackwood properties feature its CleverCogs technology which is personalised and links users to care and health services, home automation, local information, entertainment and video access to family and friends. The CleverCogs digital system lets users customise it to suit their life.
Emma Congreve, Deputy Director at the University of Strathclyde’s Fraser of Allander Institute said: “We were asked by the Scottish Government to analyse the current social care innovation landscape and the potential for further development of tech solutions for those who draw on care.
“Blackwood homes provided an example of an organisation that has been able to take forward significant technological innovations. As our report stated, based on our research with others in the sector, this was an exception rather than the rule.”
The report, which was released late last year, also noted Blackwood’s strategy of close collaboration with residents and technology partners to develop solutions tailored to their needs – noting the crucial role of innovation-focused leadership in driving progress and cultural change.
Blackwood is now renowned as Scotland’s most tech-focused housing specialist, deploying cutting-edge technology to help its customers to live independently. With 600 staff across Scotland, the charity’s headquarters are in Edinburgh.
Simon added: “Making change is a team effort of course, so it’s fantastic to see our co-design approaches with customers and partners held up as an example model.
“The report does an excellent job of highlighting the hurdles the housing and care sector is having to jump in Scotland at the moment and it can be difficult to continue to innovate new forms of tech-enabled care while combatting challenges like funding or labour shortages.
“Despite that, it only gives us more fuel to continue that fresh thinking to allow people to live as independently as possible.
“Our customers are at the heart of everything we do and we owe it to them to explore every opportunity that technology offers to enhance the quality of their lives. It’s rewarding that Blackwood is setting the standard in that.”
As Scotland’s most tech-focused housing provider, its Blackwood House design guide – developed in partnership with architects Lewis and Hickey – is the gold standard for accessible housing.
Over the next five years Blackwood aims to build 400 such homes, that can adapt to tenants’ future needs. Each can be adapted to include a host of benefits such as lift access, remotely controlled automated functions, and digital care and housing systems.
The housing specialist puts customers at the heart of everything it does, and their satisfaction is critical to Blackwood’s success. As a modern, supportive employer it also provides individuals with pathways towards achieving long and rewarding careers in roles that make a positive difference.
This blog looked at the ways in which the gap in employment rates between disabled and non-disabled people has changed since 2014, finding that Scotland has lower rates of employment for disabled people compared to the rest of the UK. The gap has been closing more quickly, however.
This initial research led us to a question: why has the gap been closing more quickly? And furthermore, what changes have happened for different groups of people with disabilities?
Our full report, published today, models the reasons behind this change, and explores more detailed statistics on employment differences by type of disability.
Our work is based on a previous report by the DWP which looked at changes in the disability employment gap across the UK.
Some of our key findings include:
The employment rate for disabled people in Scotland has increased by 9 percentage points since 2014. Non-disabled employment rates also increased by 3 percentage points during this time period. This increase in the employment rate has been larger in Scotland compared to the rest of the UK, although the employment rate remains lower.
The employment rate has largely increased due to an increase in disability prevalence (70% of the total change), meaning that this change is primarily due to working people becoming disabled. A small portion of the change (10%) was due to a change in working patterns among disabled people.
On average, Scotland’s disabled working age population grew by about 4.6% each year between 2014 and 2022, while Scotland’s total working age population grew by less than 0.1%
Over half of the change in disability prevalence is due to an increase in reporting mental health-related disabilities and learning difficulties. In 2014, over a third of disabled people in Scotland reported musculoskeletal conditions as their main issue, and around a quarter reported a mental health condition or learning difficulty. These proportions have now switched.
Employment rates for all types of disability have increased since 2014. Musculoskeletal conditions – those affecting arms, legs, feet, neck, and back – had significant increases in employment rates, without significant increases in disability prevalence. By comparison, rates of reported mental illness grew substantially in both employment rates and in total prevalence, although the change in employment outpaced the change in population size.
Disabled people are disproportionately less likely to work in manufacturing; professional, scientific, and technical activities; or construction, and are more likely to work in education, retail, and health and social work.
The proposals in the UK Government’s Back to Work Plan contain a confusing mixture of devolved and reserved responsibilities, which leave us slightly mystified as to exactly how this is all going to work in practice (writes Fraser of Allander Institute’s MAIRI SPOWAGE):
In his speech, the Chancellor said: “… last week I announced our Back to Work Plan. We will reform the Fit Note process so that treatment rather than time off work becomes the default.
“We will reform the Work Capability Assessment to reflect greater flexibility and availability of home working after the pandemic. And we will spend £1.3 billion over the next five years to help nearly 700,000 people with health conditions find jobs.
“Over 180,000 more people will be helped through the Universal Support Programme and nearly 500,000 more people will be offered treatment for mental health conditions and employment support.
“Over the forecast period, the OBR judge these measures will more than halve the net flow of people who are signed off work with no work search requirements. At the same time, we will provide a further £1.3 billion of funding to offer extra help to the 300,000 people who have been unemployed for over a year without having sickness or a disability.
“But we will ask for something in return. If after 18 months of intensive support jobseekers have not found a job, we will roll out a programme requiring them to take part in a mandatory work placement to increase their skills and improve their employability. And if they choose not to engage with the work search process for six months, we will close their case and stop their benefits.”
These changes have the potential to impact recipients of Universal Credit. The complication is that UC is reserved, while many elements of employment support – the “extra help” that the Chancellor talks about – is, on the whole, devolved.
Because of this, many of the support mechanisms to help people avoid sanctions in England (& Wales in most cases) generated Barnett consequentials, including:
Restart: expand eligibility and extend the scheme for two years
Mandatory Work Placements: phased rollout
Universal Support: increase to 100,000 starts per year
Talking Therapies: expand access and increase provision
Individual Placement and Support (IPS): expand access
Sanctions: closing claims for disengaged claimants & end of scheme review
Fit Note Reform trial
So, in summary, it looks like the sanctions could be applied in a reserved benefit, following support that may or may not be provided by the Scottish devolved employability system as the Scottish Government could choose to spend the money on something else.
We wait for more details from both the UK & Scottish Governments about how this is going to work in practice.
Discussions about the necessities and trade-offs around the transition to net zero are back on the news agenda this week (write Fraser of Allander Institute’s EMMA CONGREVER and CIARA CRUMMEY).
The changes required to meet net zero targets are complex and challenging yet the risks of not doing enough are immense. Inherent in this are trade-offs but also opportunities. An ordered transition where businesses and households have certainty over what they will need to do is the best way to minimise harm to incomes and to maximise the benefits that can be realised.
For many businesses and households, the costs associated transition to net zero will be manageable, and perhaps even cost effective in the long run. But for some, the upfront costs will be difficult to manage.
Whilst there is a general awareness of the direct costs that will fall on households from, for example the phasing out of gas boilers (a devolved policy, so not affected by the UK Prime Minister’s recent announcement) there is also the impact in livelihoods due to changes in the structure of the economy.
At the moment, all the attention is on the ‘just transition’ for workers in carbon-intensive industries, in the North East in particular. But the impact on jobs could be far wider than this.
The Joseph Rowntree Foundation asked us, along with colleagues in the Strathclyde Business School, to look into the potential for disruption to jobs in the wider Scottish economy, particularly in relation to low paid jobs. Our assessment of the available literature and various Scottish Government plans, reports and action plans didn’t provide much to go on, so we embarked on some experimental mapping and modelling of the potential intersection of net zero and low pay.
Today we published a report that we hope provides a rationale and a way forward for government, and others, to consider this issue fully. Whilst we can’t yet confidently put a figure on it, we have found that there is potential for significant disruption to jobs in sectors that employ large numbers of low pay workers, including retail and hospitality.
The mechanisms through which this impact could be felt are varied. Issues we looked at included the knock-on impact from depressed wages in areas where carbon intensive businesses cease trading. We also considered the impact on the viability of businesses with large commercial footprints who may need to invest large amounts to bring buildings up to new energy efficient standards.
There are many unknowns in this type of analysis, including the sufficiency of government policy and the behavioural response from consumers. For example, the Scottish Government is hoping to see car use reduced in Scotland.
Households may also independently decide they wish to reduce car use. It is easy to see how this could impact on the viability of out-of-town shopping centres that rely on customers arriving by car and if there aren’t serious efforts to provide adequate replacement public transport or alternative active travel routes, these large centres of employment may become unviable.
Some of the scenarios that we work through may not lead to jobs disappearing completely, but simply shifting to other places or other sectors. There are two further issues to consider here. Firstly, low paid workers tend to be less flexible on where they can work, due to a variety of factors including available transport and difficulties finding affordable childcare to cover long commuting times.
They also tend have less of a financial buffer to deal with even short periods of unemployment. Secondly, simply moving low paid jobs from one place to another misses a crucial opportunity to maximise the benefits that the transition to net zero could bring by providing career pathways into new, higher paid, growth sectors.
There is an opportunity here to better join up Scottish Government ambitions on tackling poverty and the transition to net zero that is currently missing from both the Just Transition plans and the Fair Work Action Plan. We hope this analysis will be useful in informing the future development of this work.
The first results of the Scottish Census which took place in March 2022 have been released today, which show that the Scottish population has increased by 2.7% since the last Census in 2011 (write Fraser of Allander Institute’s MAIRI SPOWAGE and JOAO SOUSA).
Digging underneath this, there were 585,000 births and 634,800 deaths since the 2011 Census. So, without migration, the Scottish population would have decreased by 49,800. Net migration of +191,000 people is the reason that we have seen this population growth in Scotland.
The Census shows that the population in Scotland grew less quickly than England and Wales (+6.3%) and Northern Ireland (+5.1%).
The main story is of an ageing population
The numbers show a significant increase in the share of the population that is over the age of 65. 1 in 5 people were aged 65 or over in 2022; it was only 1 in 8 in 1971 and 1 in 6 in 2011.
The larger share of older people is largely a good news story, reflecting the success in increasing life expectancy over the long run. But fewer children are also being born.
So not only is today’s share of the population over the age 65 larger than ever before, it will continue to grow in the coming decades (even with the levels of inward net migration seen over the last decade or so).
Chart: Dependency ratios at successive Scottish Census
Source: National Records of Scotland, FAI calculations
This means that the working age population – which produces most economic output and pays the largest share of the taxes that fund public services – will need to support a larger share of the population than in previous decades.
Older people generally also need to rely on health and social care more, which increases funding pressures on public services, and increases the number of people entitled to claim state pension – bringing into focus the cost over the long term of policies such as the triple lock.
This is not a Scottish-specific issue, or even a UK-specific one, but it is one the country will need to grapple with. As the Office for Budget Responsibility and the Scottish Fiscal Commission’s recent analysis showed, if these spending pressures were to be accommodated, it would mean an unsustainable path for the public finances, which would have to be addressed by either tax increases, spending reductions, or (most likely) a combination of the two.
The population is also moving within Scotland
The published results also provide an up-to-date picture of population counts and structure across council areas – and the 2.7% increase in national population has not been equal across the board.
Areas around Edinburgh showed the strongest increases, with Midlothian (16.1%), East Lothian (12.6%) and Edinburgh City itself (7.6%) topping the list. At the other end of the scale, Na h-Eileanan Siar (-5.5%), Inverclyde (-3.8%) and Dumfries and Galloway (-3.6%) showed the sharpest declines. In total, 22 of the 32 council areas showed an increase in population.
These changes in population have also led to changes in the structure of the population in different council areas. The four areas with the largest proportional increase in the share of over 65s (Shetland, Aberdeenshire, Clackmannanshire, Highland) are all lower population density than the national average, which itself is a long way below that of the large urban centres. All four also saw falls in the share of the working age population of 5% or more.
By contrast, Glasgow City saw its share of the working age population increase by 0.6%, and Edinburgh City’s decreased by only 1.6%, well under the average decline across Scotland of 3.7%.
These results serve as an illustration of the difficulties faced by more rural areas of Scotland in attracting people of working age relative to large urban areas, and the disparate effects of an ageing population on different areas of the country.
Are the Census results reliable?
There has been considerable coverage of the approach to the Scottish Census given the challenges that were faced in ensuring a good return rate in order to have as good quality as possible.
National Records of Scotland had to extend the deadline to allow households more time to get the forms in, and ended up with a return rate of 90%, compared to the 94% that they achieved in the 2011 Census. This also compares rather unfavourably to the (admittedly very good) response rate in England and Wales in 2021 of 97% (in 2011, the E&W return rate was also 94%).
So why was the return rate lower than it had been in the past?
For anyone who doesn’t remember, in July 2020, about 9 months before the Scottish Census originally scheduled for 2021 was supposed to take place, National Records of Scotland decided that they would delay the Scottish Census for a year due to “the impact of the Covid pandemic”.
The ONS and NISRA, who are responsible for the Census in England and Wales and Northern Ireland respectively, took a different view and proceeded with their census on the original planned date.
At the time, there was concern about the impact that this delay could have on the coherence of the census data across the UK, and the potential (for ever more) for this incoherence to weaken the power that the Census has to provide a snapshot of the UK population. This is particularly true for the groups that are only really reached well in a full population census – small and underrepresented groups, for example.
However, there is no doubt that this delay had an impact on the return rate for the Scottish Census, perhaps due to the lack of benefit that would have been accrued from the coverage and publicity of the UK-wide census going on at the same time.
Having said that, use of a coverage survey and the additional data sources used to supplement the gaps caused by non-returns is not unusual. Even at 94% coverage, these techniques would be used to ensure that the whole population is reflected in the counts. This is not, in itself, a reason to question the validity of the Census results.
However, the lower response rate does mean more of this is required from these results. And in some places in the country with particularly low return rates, such as Glasgow, it does make the results more uncertain.
National Records of Scotland have assessed the overall margins of error at the Scotland level is similar to 2011: but no doubt will be doing more assessment over the next year(s) on how the lower return rate could affect particular groups or geographies.
FRASER OF ALLANDER INSTITUTE PUBLISHES INITIAL FINDINGS
Disabled adults are significantly less likely to be in work compared to adults without disabilities (write ALLISON CATALANO and CHIRSTY McFADYEN).
In Scotland, 81% of working aged adults without disabilities had jobs in 2021, compared to just under 50% of adults with disabilities. This discrepancy of 31 percentage points – called the “disability employment gap” – is larger in Scotland compared to the rest of the UK (Chart 1).
Scotland has a goal of reducing the disability employment gap by half between 2016 and 2038. The 2021 numbers, encouragingly, show an improvement of 6 percentage points. A higher proportion of disabled people moved into work in Scotland between 2014 and 2021 compared to the UK as a whole, as well.
Chart 1: Gap in employment between people with and without disabilities in Scotland and in the UK, 2014-21
Source: Annual Population Survey, 2014-2021
In 2023, the DWP published a report on the employment of disabled people in the UK. This report looked at the reason why employment among people with disabilities has increased, while employment for the rest of the population has stayed roughly the same.
The DWP report highlighted four reasons behind the growth in the number of disabled people in employment:
Disability prevalence has increased in the UK, and the most common types of disabilities have changed.
The non-disabled employment rate has increased, implying that more jobs are available to both groups.
The disability employment gap has been narrowing overall.
There are more individuals in the working-age population.
The level of detail provided in the DWP report for the UK is difficult to replicate for Scotland with publicly available data: smaller sample sizes north of the border mean that more restrictions are placed on the data available to ensure that appropriate care has been taken with interpreting the robustness of results.
The Fraser of Allander Institute, in collaboration with the Scottish Parliament Information Centre (SPICe) are undertaking work to understand whether the same factors are driving changes in Scotland, and if not, what is different here and why.
This work is ongoing and future articles will get into more of the detail. This article sets the scene about the scale of the issue in Scotland vs the UK based on what know from data currently available.
What’s the state of disability employment in Scotland?
Scotland has a higher proportion of working-aged disabled people compared to the UK. It also has a lower rate of employment among disabled people, and a larger gap in employment between people with and without disabilities. Employment rates are noticeably different for different types of disabilities in Scotland compared to the rest of the UK, and disabled peoples are less likely to have educational qualifications in Scotland.
How is disability defined?
The current definition used in UK (and Scottish) surveys comes from the Government Statistical Service and the 2010 Equality Act. This change affected data collection from mid-2013 onwards, meaning that it’s not possible to compare current data to data before 2013. Our analysis specifically looks at the data since 2014 as a result.
This definition covers people who report “current physical or mental health conditions of illnesses lasting or expected to last 12 months or more; and that these conditions or illnesses reduce their ability to carry out day-to-day activities.” Previously, the definition was based on the Disability Discrimination Act (2005) (DDA), which applied to “all people with a long term health problem or disability that limits their day-to-day activities.” The slight difference in these terms means that some people may qualify as DDA disabled but not as Equality Act disabled.
Scotland has consistently had a higher proportion of working-aged disabled people.
In 2014, around 18% of the Scottish working-age population were classified as Equality Act disabled.
Since 2014, the number of disabled working-age adults has grown by around 222,000 people, making up over 24% of the working-age population as of 2021. By comparison, the total size of the working-age population only grew by around 31,000 people over the same time period. had a higher proportion of disabled adults in 2014 than the UK average, and this gap has widened over time. The 2021 data shows a further significant divergence, but this may be due to particular issues related to the pandemic and may not persist (Chart 2).
Chart 2: The size of the Scottish population with and without disabilities, and the proportion of the population with disabilities from 2014-21.
Source: Annual Population Survey, 2014-2021
Scotland has a higher disability gap and a lower rate of employment among disabled people.
Employment rates for working-aged people without disabilities in Scotland is roughly the same as in the rest of the UK. Employment rates for disabled people is much lower, however.
Since 2014, disabled people have moved into work faster in Scotland compared to the rest of the UK. The employment gap fell by around 6.5 percentage points between 2014 and 2021 in Scotland, compared to a fall of around 4.5 percentage points for the entire UK (Chart 3).
Chart 3: Proportion of adults between 16-64 that are in work by disability status, Scotland and the UK, 2014-21
Source: Annual Population Survey, 2014-2021
Scotland has different employment rates for people with different types of disabilities.
Unsurprisingly, Scotland has lower employment rates than the UK as a whole for the vast majority of types of disability.
The largest differences in employment rates are for people with diabetes, chest or breathing problems, and difficulty with seeing, hearing, or speech. Scotland fares better in the employment of people with stomach, liver, kidney and digestion problems, for instance, and slightly better for people with autism.[1]
Chart 4: Proportion of the working-age population with disabilities by working status and type of disability, 2022
Source: Annual Population Survey, 2014-2021. * Estimates are based on a small sample size and may not be precise.
Disabled people have lower qualification levels in Scotland.
Disabled people are more likely to have no qualifications than those without disabilities, both in Scotland and the UK. Scottish adults are also more likely to have no qualifications compared to the rest of the UK, although the gap in qualifications for disabled people is larger for Scotland than for the rest of the country (Chart 4).
The proportion of people with no qualifications has been falling in recent years. This may be due to older people, on average, being less likely to have formal qualifications, and as they move to retirement age, the number of working age people without qualifications goes down.
For disabled people, it may also be true that the increase in the number of disabled people have changed the make-up of the disabled population, especially for people who are becoming disabled later in life (for example, due to mental health issues that present post-education).
Chart 5: Proportion of working-age adults with no qualifications by disability status, Scotland & rUK, 2014-21
Source: Annual Population Survey, 2014-2021
Where are there gaps in our knowledge?
As discussed at the start, publicly available data on disability types is severely limited. For example, survey data in Scotland has detailed disaggregation on different types of disability, but only publicly provides information on whether or not someone qualifies as disabled under the 2010 Equality Act definition. The Scottish Government has been making strides to improve this data, however – a 2022 publication analyses disability employment by type of disability, but only examines one year.
One particular issue that we have found is for people who have a learning disability where the data is extremely poor. We will be publishing a new article later this week that sets out some of the particular issues for people with a learning disability.
Our next phase of research will look into more of the detail around employment levels for people in Scotland living with different disabilities based on access to non-public secure data held by the ONS. There may still be limits on the data we are able to use (for example, where robustness thresholds set by the ONS are not met), but we hope we will be able to add to the evidence base here in Scotland and provide better insights for policy makers and stakeholders on where support needs to be focussed.
It’s a new term at Holyrood, and a new Programme for Government – the first for the new First Minister Humza Yousaf (writes Fraser of Allander Institute’s EMMA CONGREVE).
In terms of content, however, there are not a lot of new ideas to get excited about. This isn’t necessarily a criticism – we all remember the meltdown generated by a certain “mini-budget” statement made by the UK Government about this time last year. In addition, the public finances don’t exactly have a lot of give in them at the moment.
However (and this a criticism!) there are a few big issues that have been kicked into the long grass, yet again, some of which could raise money, others that could prove critical to preventing additional spend in the future.
Here is our first glance summary of what is on offer for the next parliamentary year.
A focus on rebuilding trust with business
The First Minister’s New Deal for Business Group was mentioned several times as a way the Scottish Government plans to rebuild relationships with business after a rocky few months in the Spring.
The FM has said the PfG is “anti-poverty, pro-growth”. The data we published last week showed that the Scottish Government does have some way to go to build trust with business.
There is a specific commitment to “work with business to identify and remove regulations that are no longer required, if a good case can be made”. It will be interesting to see how this works in practice – particularly given the recent response to concerns about the short-term lets regulations.
More widely on the economy, there is a commitment to a new Green Industrial Strategy. While many may welcome a clear expression of how the Scottish Government plan to grasp the economic opportunity presented by net zero, the thought of another Government strategy document may also fill some with horror.
Childcare
Widely trailed, the expansion of childcare makes up a key plank of the commitment to reducing poverty.
However, in terms of detail, there isn’t a lot to go on. A vague commitment to phase in funded support to those two-year-olds “who will benefit the most”, developing some evidence on what might be required for future expansion for those over nine months and at primary school, and testing a new digital service for parents managing their childcare is the extent of it.
We may have to wait till the Budget until we have any more clarity on what the scale of some the spend and outcomes here could be. There appears to be no commitment to expanding the childcare entitlement to two-year-olds on the same basis currently offered to three- and four-year-olds, though we can only infer that from reading between the lines of the document.
A figure of 13,000 additional children and families accessing funded childcare is mentioned, but it’s not clear what this this relates to or what this will do to reduce poverty. Overall, these announcements are unlikely to add up to a significant impact on child poverty numbers unless they are deployed at a much larger scale.
There is also a specific funding commitment for the next budget year to increase pay in the early learning and childcare sector to £12 an hour, in line with the commitment for social care workers. Given the recent concerns from the childcare sector about the viability of their operations, it will be interesting to see if this alleviates their concerns.
What wasn’t in there
There is scant mention of the National Care Service, other than the Bill will continue (“subject to the agreement of Parliament” which sounds fairly ominous), but we had previously been promised an update “after the summer recess” on what the Government’s updated plans (and associated costings) are. The Programme for Government would have been an obvious place to provide that update, but we shall have to wait a bit longer to see
On Council Tax, there will be a ‘continuation’ of the Joint Working Group to identify further reforms to council tax (we have a few ideas) and some new levers to be handed over to local government for empty and second properties. Nothing substantive here and another year, it seems, of everyone avoiding dealing with the thorn in the side of any claims that Scotland has a progressive tax system.
Little detail on fiscal trade-offs
In May, the Deputy First Minister presented the Medium-Term Financial Strategy (MTFS), in which outlined three pillars to achieving fiscal sustainability – spending decisions focused on critical missions, supporting economic growth and a strategic approach to tax policy – set against the backdrop of spending commitments in excess of funding by £1bn in 2024-25, rising to £1.9 billion by 2027-28.
At the time, the SFC expected a larger income tax reconciliation than has transpired, and the increased borrowing powers in the latest Fiscal Framework Agreement also help ease some of this, but we think the funding gap remains at around £600m – still a large number.
The Programme for Government adds little detail on how the Scottish Government will deal with this shortfall. There is a vague mention of “more effective targeting of existing provision and services to support those who need it most” in line with the MTFS, but no specifics on whether there will be cuts to programmes and if so, to which.
The list of public service reform activities, while welcome (who could object to cataloguing assets or trying to save public funds on estates?), is hardly transformational, and unlikely to go a long way towards addressing the funding gap.
There is also no detail on the direction of travel of the taxes the Scottish Government does control, with a tax strategy promised for May next year instead – and of course we will know more about plans for 2024-25 come Budget time, even if being clear in advance and about longer-term intentions would be more in line with the aim of being strategic in tax policymaking.
The First Minister did outline the intention to introduce a new Building Safety Levy akin to that legislated for by the UK Government for England and which will apply from next year, with the intention to make developers contribute to the cost of cladding remediation work.
But this is not part of current devolved powers, and so the Scottish Government would need to successfully negotiate that with the UK Government before even starting the lengthy process of introducing and designing a new levy. So it’s unclear when it could come into place, assuming the Scottish Government did get said powers.
As for revenues, clearly that depends on the tax rate – but that would have to be balanced against the Government’s intention to encourage further housebuilding. If it were to be levied at a similar rate to England, while it no doubt would raise welcome revenues, it would not be a major solution to the medium-term funding gap.
Looking ahead to the budget – on 14th December??
So, we’ll need to get the details on these trade-offs – and therefore the areas that will be bearing the brunt of any cuts – in the Scottish Budget itself. Given we’ve heard today that the UK Autumn Statement will be on 22nd November, the usual timing would mean the Scottish budget would be on 14th December.
We’ll have to wait for confirmation from the Scottish Government on the timing, which hopefully will come soon!
This week the Scottish Government released the first statistics on applications and granting of licences for short-term lets by councils (write Fraser of Allander Institute’s JOAO SOUSA and MAIRI SPOWAGE).
The licensing scheme came into force in October 2022 for new operators, and existing operators must apply for a licence before 1 October 2023. We’ll explore a bit more about the expected outcomes from the scheme and what the data tell us so far:
What is the idea behind the licensing scheme?
The Scottish Government committed in the 2018-19 Programme for Government to create a system that would allow local authorities to have “appropriate regulatory powers to balance the needs and concerns of their communities with wider economic and tourism interests”. There have since been three consultations (2019, 2020 and 2021) on the desirability of a scheme and its aims, with a final statutory instrument being laid in late 2021 to implement the scheme now in place.
The licensing scheme is based on provisions from the Civic Government (Scotland) Act 1982, which allow the Scottish Government to make it a criminal offence for operators in specified markets to operate without a licence, making them subject to a fine of up to £2,500 (which the Government intends to legislate to increase to £10,000). There is also a provision for the designation of control areas by councils to manage high concentrations of secondary letting.
The Scottish Government’s stated aims in introducing the scheme are to:
Ensure short-term lets are safe and address issues faced by neighbours;
Allow local authorities to know and understand what activities are happening in their area, and to allow them to handle complaints effectively;
Manage high concentration areas of secondary letting where it affects the availability of residential housing or the character of a neighbourhood);
Restrict short-term lets in places where they deem it not appropriate; and
Help local authorities ensure the available housing stock is used to the best effect.
The Scottish Parliament Information Centre (SPICe) has a helpful blog covering the specifics of the scheme and the legislative process that has underpinned it.
Why does the Government feel the need to intervene?
As part of the business and regulatory impact assessment (BRIA) process, the Scottish Government is required to justify why it feels that government intervention is appropriate. The rationale for intervention is generally a market failure, that is, a situation where market outcomes end up not being socially optimal – either because too much or too little activity happens and/or because costs are imposed on third parties that have no say in the transaction.
In the BRIA for this measure, the Scottish Government highlights two main market failures:
One is asymmetric information, as hosts are likely to know more about the safety and quality of a property than guests. The classic example of this in the market for used cars (George Akerlof’s Nobel Prize-winning contribution), where the asymmetry means that eventually only poor quality cars are sold. In the short-term licensing case, the Government argues that people may unwittingly stay in unsafe accommodation and that unsafe hosts will undercut safe hosts because they will not have to bear the costs of meeting safety standards. The Government then argues that the licensing scheme will provide better information, removing unsafe accommodation and providing a level playing field – and also states that increased consumer confidence might increase demand for short-term lets.
The other market failure described by the government is the existence of negative externalities, which mean that third parties (i.e. neither hosts nor guests) bear some of the costs of these transactions but such costs are not accounted for in the market price. The BRIA lists a number of those, including increased housing costs (to rent long term or buy) for local residents; the decrease in local amenities for long-term residents and reduced sense of community due to a high concentration of short-term lets; nuisance through noise, littering and anti-social behaviour; and potential use of accommodation for criminal purpose, with or without collusion from the host. Nuisance impacts (parking, littering, traffic and noise) were found in a 2019 survey by the Scottish Government to be a big concern, as were the impacts on the housing market through reduction in housing affordability through lower availability and higher prices for long-term residential use.
The effects on neighbourhood character, nuisance and the long-term residential housing market are especially prevalent in areas of very high concentration of short-term lets. Edinburgh City Centre and Skye are the most extreme cases, where the Scottish Government estimates that more than 10% of dwellings are used for secondary letting.
Who and what does licensing cover?
The licensing scheme casts a very wide net. It naturally applies to secondary letting – that is, the letting of a property that is not one’s main residence, so a second home or holiday let. But it also applies to those renting out a room in their property on a short-term basis while living in it, and those letting out a property while on holiday – including house swaps, even if no money is exchanged (as the legislation treats that as an in-kind payments and therefore still requiring licensing).
There are exemptions – for example, those providing a service (e.g. careworkers) while staying overnight, aparthotels and other types of accommodation (hotels, some B&Bs and guesthouses with licensed premises) which already have their own licensing scheme.
The scheme also imposes minimum safety standards, including meeting the repairing standard, providing an energy certificate, fire records and warning systems, gas supply certificates, electrical installation condition reports, portable appliance testing for all movable appliances, legionella risk assessment, and buildings and public liability insurance.
Councils are also allowed to set additional standards which go above those in the legislation. Operators will also have to pay a fee for obtaining the licence, which is to be set by local authorities on the basis of the cost they incur to administer the scheme. The SPICe blog mentions £300 to £500 as the expected level for these fees.
Is there evidence for these market failures and how well does the scheme address them?
There is some evidence in the BRIA that specific areas of Scotland have very high concentrations of short-term lets, and that such concentrations have reduce the supply of housing available for long-term residential use. This drives up prices and reduces affordability, and is especially true for second homes.
The scheme goes some way towards addressing this by imposing additional costs on secondary letting and allowing councils to set up control areas in which planning permission is required for letting out an entire second home. If the intended effect is to encourage some people at the margin who would otherwise keep letting out their second home to release it for long-term use, then it will have some effect.
It is, though, debatable how large that will be relative to the additional income earned through short-term letting. But the Government’s BRIA has made no attempt to quantify this – in fact, section E (which summaries costs and benefits) is notable for the absence of any quantification of impacts.
One clear effect of the scheme will be to increase the cost of supplying accommodation. Even if a host provides safe accommodation already, with all the formal requirements set out in the regulations, it will still have to bear the cost of the licence.
But it is unlikely that many will have no other additional costs. The question then becomes who bears these additional costs, and that depends mostly on the price elasticity of demand, that is, how price sensitive consumers are.
If guests are not very price sensitive, then we would expect them to bear most of the additional costs through higher prices, without much reduction in the quantity of accommodation purchased. But if they are very price sensitive, then more of the cost will be borne by suppliers – and if it tips some into not making a high enough return on supplying short-term accommodation, then they might exit the market altogether – leading to both higher prices and lower availability.
That may well be the Government’s intended outcome – but the BRIA does not make that clear. And by including those renting a room in their home while living there in the scheme, it’s not clear either that licensing will lead to the release of substantial amounts of property into residential use.
But rooms for short-term rental are substantially cheaper than whole dwelling accommodation, and hosts are likely to be earning considerably less – and given the fee and cost structure of complying, they are the most likely to decide not to supply short-term accommodation.
If that happens, we will be in a situation where supply is lower, prices are higher and little additional housing is available – because those most likely to exit the market were already using it for their main residence. The BRIA states that a visit to Scotland does not have a perfect substitute in visiting a different place, implying that the market would be able to bear higher prices – but that presumes that the prospective visitor has a very specific preference for visiting Scotland.
But no evidence is provided to back this up – and if consumers are instead indifferent about destinations and are instead shopping around given specific dates they have in place, their price sensitivity could be much greater.
The BRIA argues that the reduction in information asymmetry may in fact increase demand for accommodation in Scotland relative to competitor destinations. This is an unpersuasive argument.
Unlike other markets where little recourse exists – e.g. cash sales or small value items – there is a lot of information already in the market, including peer reviews on platforms which already require those reviewing to have previously purchased the service.
The platforms themselves have an incentive to maintain high quality as otherwise their reputation will suffer. And in any case in none of the consultation documents provide much evidence that the sector is currently providing much unsafe accommodation – bringing into question whether the market failure the scheme is meant to address is a significant one to begin with.
What does today’s statistics release tell us about the scheme?
Today’s release covered the first two quarters (Q4 2022 and Q1 2023) during which applications could be made for a licence, though only new operators were required to have applied already.
It is also hard to know the total number of potentially affected operators. The BRIA used the non-domestic rates valuation roll for premises registered for self-catering or B&B/guest house use, which amounted to around 18,000 in April 2021. But many of the properties covered will not be subject to non-domestic rates but instead council tax, as their main purpose is residential use. Airbnb had 35,000 properties available to let in Scotland in January 2019.
In any case, the number of applications received by 31 March 2023 was just over 2,500, indicating that probably less than a tenth of all eligible properties were in the system by then. Of the applications received, just over a third had received a decision, and not a single one had been refused. This is perhaps unsurprising at this stage – people who have already applied when compliance is only mandatory for new operators will be disproportionally likely to comply with the rules.
Numbers were especially low in urban areas: both Edinburgh and Glasgow had less than 100 applications each, and Aberdeen and Dundee had less than 50 each. With urban areas being much more likely to have home sharing, we probably should read little into the fact that the majority of applications so far have been for secondary letting of whole dwellings.
The low numbers in the system though could be something of a concern going forward. The scheme’s binding deadline was extended by six months to 1 October 2023 in December of last year, and while the First Minister has ruled out subsequent delays, local authorities might find themselves flooded with applications right before the deadline.
It also raises the issue of compliance with the scheme and of the public’s awareness of it. The Scottish Government has set up a website with information on how to comply, but given how few people have already applied, it might be required to step up its information campaign – we are not sure people are fully aware they are in theory committing a criminal offence if they do not apply for licence and continue operating.
Overall, whilst the policy imperative on second homes in some areas of Scotland is well evidenced, the breadth of this legislation to target use of primary residences seems much less so. Many will be surprised to find that it includes house swaps! It is not clear to us what policy problem the inclusion of this activity is actually trying to address.
