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.
Scotland’s notional deficit has continued to fall at a faster pace than the UK’s, driven by record energy sector revenues and strong growth in the tax take, figures for the 2022-23 financial year show.
Total revenue for Scotland increased by 20.7% (£15 billion) compared with 11.3% for the UK as a whole. This includes a £1.9 billion increase in revenue from Scottish income tax and £6.9 billion increase in North Sea revenue. These increases have partially been offset by a rise in spending on cost of living measures and interest payments on UK Government debt.
To mark publication of the 30th Government Expenditure and Revenue Scotland (GERS) statistics, the Cabinet Secretary for Wellbeing Economy, Fair Work and Energy, Neil Gray, visited the University of Glasgow’s Mazumdar-Shaw Advanced Research Centre to learn about the significant economic potential of quantum technology to Scotland’s economy. Recent research has suggested the sector could be worth £1 billion to Scotland by 2030.
Mr Gray said: “I am pleased that Scotland’s finances are improving at a faster rate than the UK as a whole, with revenue driven by Scotland’s progressive approach to income tax and our vibrant energy sector.
“While the record revenues from the North Sea show the extent that the UK continues to benefit from Scotland’s natural wealth, these statistics do not reflect the full benefits of the green economy, with hundreds of millions of pounds in revenue not yet captured.
“It is important to remember that GERS reflects the current constitutional position, with 41% of public expenditure and 64% of tax revenue the responsibility of the UK Government. Indeed, a full £1 billion of our deficit is the direct result of the UK Government’s mismanagement of the public finances.
“An independent Scotland would have the powers to make different choices, with different budgetary results, to best serve Scotland’s interests.
“While we are bound to the UK’s economic model and do not hold all the financial levers needed, we will continue to use all the powers we do have to grow a green wellbeing economy, while making the case that we need independence to enable Scotland to match the economic success of our European neighbours.
“I’m grateful to the University of Glasgow for showing me their world-leading quantum technology research, which could be worth £1 billion to our economy within seven years, highlighting just how bright Scotland’s future could be outside of the UK.”
Government Expenditure & Revenue Scotland figures ‘show Scotland benefits from being part of a strong United Kingdom with a sharing and pooling of resources’
The Scottish Government has published their annual Government Expenditure & Revenue Scotland report, which shows the difference between total revenue and total public sector spending in Scotland.
The figures for 2022-2023 showed that people in Scotland are continuing to benefit from levels of public spending substantially above the United Kingdom average.
And even in a year of exceptional North Sea Revenues, Scotland’s deficit is still more than £19 billion, demonstrating how the country continues to benefit from being part of a strong United Kingdom, with the vital pooling and sharing of resources that the Union brings.
Commenting on the figures, Scottish Secretary Alister Jack said: “The Scottish Government’s own figures show yet again how people in Scotland benefit hugely from being part of a strong United Kingdom.
“Scotland’s deficit is more than £19billion – even in a year of exceptional North Sea Revenues. Without oil and gas, that figure soars to more than £28billion.
“People in Scotland benefit to the tune of £1,521 per person thanks to higher levels of public spending.
“As we face cost of living pressures and unprecedented global challenges it is clear Scotland is better off as part of a strong United Kingdom.”
GERS 2023 – Uptick in oil revenues narrows the gap between Scottish and UK Deficit
Fraser of Allander Institute’s MAIRI SPOWAGE, JOAO SOUSA and CIARA CRUMMEY unpick the latest statistics:
The revenues raised from Scotland, from both devolved and reserved taxation;
Public expenditure for and on behalf of Scotland, again for both devolved and reserved expenditure;
The difference between these two figures, which is called in the publication the “net fiscal balance” – but as you may well hear colloquially referred to as the “deficit”.
These statistics form the backdrop to a key battleground in the constitutional debate, particularly when it is focussed on the fiscal sustainability of an independent Scotland and what different choices Scotland could make in terms of taxation and spending.
So what do the latest statistics show?
The latest figures show that the net fiscal balance for 2022-23 was -£19.1 bn, which represents -9.0% of GDP. This is a fall from the 2021-22 figure of -12.8% of GDP and is down significantly from 2020-21 which was inflated hugely by COVID-related spending.
The comparable UK figure for 2022-23 is -5.2% of GDP. The UK figure is unchanged from 2021-22. The reason for the differential trend for Scotland and the UK as a whole has been driven by North Sea revenue, which contributed £9.4 billion to Scottish revenue in 2022-23.
Chart 1: Scottish and UK net fiscal balance, 1998-99 to 2022-23
Source: Scottish Government
In this year of record North Sea revenue (at least in cash terms), the difference between the Scottish and UK deficit is driven by the expenditure side of the net fiscal balance equation.
Chart 2: Spending and revenue per head, Scotland-UK, 1998-99 to 2022-23
Source: Scottish Government
On revenues, including the North Sea, Scotland raised £696 more per head than the UK, whilst on expenditure, Scotland spent £2,217 more per head than the UK average.
So what do these statistics really tell us?
These statistics reflect the situation of Scotland as part of the current constitutional situation. That is, Scotland as a devolved government as part of the UK. The majority of spending that is carried out to deliver services for the people of Scotland are provided by devolved government (either Scottish Government or Local Government).
To a certain extent therefore, the higher per head spending levels are driven by the way that the funding for devolved services is calculated through the Barnett formula. Add on top of that the higher than population share of reserved social security expenditure, and we have identified the two main reasons for higher public expenditure in Scotland.
Let’s go over some of the main points that may come up today when folks are analysing these statistics.
Scotland isn’t unusual in the UK in running a negative net fiscal balance
This is absolutely right. ONS produce figures for all regions and nations of the UK, and these have shown consistently (in normal years, so excluding COVID times) that outside of London and surrounding areas, most parts of the UK are estimated to raise less revenue than is spent on their behalf.
In 2021, we discussed the differences between parts of the UK in an episode of BBC Radio 4’s More or Less programme.
The Scottish Government doesn’t have a deficit as it has to run a balanced budget
This statement isn’t quite true (the SG now has limited capital borrowing powers and resource borrowing powers to cover forecast error). The Scottish Government’s Budget is funded through the Barnett determined Block Grant, with some adjustments to reflect the devolution of taxes and social security responsibilities (most significantly, income tax).
The SG do not have the flexibility to borrow for discretionary resource spending.
However, to focus on this around the publication of GERS somewhat misses the point of the publication. It looks at money spent on services for the benefit of Scotland, whoever spends it, and compares that to taxes raised, whoever collects them. As touched on above, the Barnett-determined block grant funds services at a higher level per head in Scotland than in England in aggregate.
What does this tell us about independence?
Setting aside the noise that will no doubt accompany GERS today, there are essentially two key issues, that need to be considered together.
GERS takes the current constitutional settlement as given. If the very purpose of independence is to take different choices about the type of economy and society that we live in, then it is possible that these a set of accounts based upon the world today could look different, over the long term, in an independent Scotland.
That said, GERS does provide an accurate picture of where Scotland is in 2023. In doing so it sets the starting point for a discussion about the immediate choices, opportunities and challenges that need to be addressed by those advocating new fiscal arrangements. And here the challenge is stark, with a likely deficit far in excess of the UK as a whole, other comparable countries or that which is deemed to be sustainable in the long-term. It is not enough to say ‘everything will be fine’ or ‘look at this country, they can run a sensible fiscal balance so why can’t Scotland?’. Concrete proposals and ideas are needed.
And please guys… dodge the myths!
We have produced a detailed guide to GERS which goes through the background of the publication and all of the main issues around its production, including some of the odd theories that emerge around it. A few years ago, we also produced a podcast which you can enjoy at your leisure.
In summary though, to go through the main claims usually made about GERS:
GERS is an accredited National Statistics produced by statisticians in the Scottish Government (so is not produced by the UK Government) and is a serious attempt to understand the key fiscal facts under the current constitutional arrangement
Some people look to discredit the veracity of GERS because it relies – in part – on estimation. Estimation is a part of all economic statistics and is not a reason to dismiss the figures as “made up”.
Will the numbers change if you make different reasonable assumptions about the bits of GERS that are estimated? In short, not to any great extent.
If you have any more questions about how revenues and spending are compiled in GERS, the SG publish a very helpful FAQs page, including dealing with issues around company headquarters and the whisky industry.
Look out for more analysis
It’ll be interesting to see the coverage of these statistics today and the talking points that are generated given where we are in the constitutional debate.
If you have any questions about GERS for us, then why not get in touch? Submit them to fraser@strath.ac.uk and we’ll try to cover them in our weekly update later this week!
UK Government will continue to top-up the Scottish Government’s tax revenues, worth £1.4 billion last year, as a benefit of strength and scale of the UK.
Boost to borrowing powers and backing of Barnett formula will build a better future for Scotland and help to grow the economy.
Chief Secretary to the Treasury John Glen hails a fair and responsible deal in line with the Prime Minister’s economic priorities.
The UK and Scottish Governments have today reached an agreement on an updated Fiscal Framework.
Holyrood’s capital borrowing powers will rise in line with inflation, enabling the Scottish Government to invest further in schools, hospitals, roads and other key infrastructure that will help to create better paid jobs and opportunity in Scotland.
The new deal maintains the Barnett formula, through which the Scottish Government receives over £8 billion more funding each year than if it received the levels of UK Government spending per person elsewhere in the UK. It also updates funding arrangements in relation to court revenues and the Crown Estate.
Chief Secretary to the Treasury, John Glen, said:“This is a fair and responsible deal that has been arrived at following a serious and proactive offer from the UK Government.
“We have kept what works and listened to the Scottish Government’s calls for greater certainty and flexibility to deliver for Scotland.
“The Scottish Government can now use this for greater investment in public services to help the people of Scotland prosper. These are the clear benefits of a United Kingdom that is stronger as a union.”
The funding arrangements for tax will be continued, with the Scottish Government continuing to keep every penny of devolved Scottish taxes while also receiving an additional contribution from the rest of the UK.
Under the previous Fiscal Framework, the Scottish Government could borrow £450 million per year within a £3 billion cap, as well as receiving a Barnett-based share of UK Government borrowing. Going forward these amounts will instead rise in line with inflation, which supports additional investment across Scotland and lays the foundations for economic growth.
The UK Government has listened to calls from the Scottish Government for greater certainty and flexibility to help them manage their Budget and agreed a permanent doubling of the resource borrowing annual limit from £300 million to £600 million.
Limits on how much can be withdrawn from the Scotland Reserve to spend in future years will also be removed. This will boost spending through borrowing by £90 million in 2024/25. All future limits will increase in line with inflation.
Scottish Secretary Alister Jack said:“The renewed Fiscal Framework shows what can be achieved when there is a collaborative focus on delivering economic opportunity and why we are stronger and more prosperous as one United Kingdom.
“The deal – worth billions of pounds to Scotland over the coming years – builds upon work to support economic growth and provide more high skill jobs, investment and future opportunities for local people, such as the establishment of Investment Zones and Freeports in Scotland.
“The UK Government knows that high prices are still a huge worry for families. That’s why we’re sticking to our plan to halve inflation, reduce debt and grow the economy. As well as providing targeted cost of living support, we are directly investing more than £2.4 billion in hundreds of projects across Scotland as we help level up the country.”
As both governments continue to work together to tackle challenges like the cost of living, an updated Fiscal Framework equips the Scottish Government with the instruments for growth while protecting the wider public finances.
Scotland’s Deputy First Minister Shona Robison said: “This is a finely balanced agreement that gives us some extra flexibility to deal with unexpected shocks, against a background of continuing widespread concern about the sustainability of UK public finances and while it is a narrower review than we would have liked, I am grateful to the Chief Secretary to the Treasury for reaching this deal.
“As I set out in the Medium-Term Financial Strategy, we are committed to tackling poverty, building a fair, green and growing economy, and improving our public services to make them fit for the needs of future generations.
“We still face a profoundly challenging situation and will need to make tough choices in the context of a poorly performing UK economy and the constraints of devolution, to ensure finances remain sustainable.”
This morning the UK and Scottish governments have published the long-awaited update to the Fiscal Framework, following the review that has been going on for the last couple of years (writes MAIRI SPOWAGE of the Fraser of Allander Institute).
Since this was due to happen in 2021, we have been waiting for the outcome of this review. For more background, see our blog from late 2021.
For those new to it, the Fiscal Framework sets out the rules for how devolution of tax and social security powers following the Scotland Act 2016 is supposed to work in terms of finances. It sets out the mechanisms by which the Scottish block grant is adjusted to reflect the fact that large amounts of tax and social security powers are now the responsibility of the Scottish Parliament.
It also sets out fiscal flexibilities that the Scottish Government can choose to use in managing these new powers, as new tax and social security powers also come with risks that require to be managed.
In this blog, we set out the main headlines and our initial reaction to the updates.
The mechanism for adjusting the Block Grant will remain permanently as the Index Per Capita (IPC) method.
This is one of the most complex areas of the fiscal framework but definitely one of the most significant.
For tax, it sets out the mechanism for working out how much the UK Government has “given up” by devolving a tax to Scotland, given that it is a significant loss in revenue. As, following devolution, there are different policies pursued in rest of UK and Scotland, this is not straightforward. Essentially though, the mechanism agreed in 2016 was to grow the tax at the point of devolution at the rate, per person, that it grows in the rest of the UK. This is known as the Index Per Capita (IPC) method.
So, the idea is that if taxes per head grow quicker in Scotland, the Scottish Budget will be better off – conversely, if taxes per head grow more slowly, the Scottish Budget will be worse off.
In 2016, when the fiscal framework was first agreed, the IPC method was the SG’s preference, whereas the UKG preferred the “Comparable Method” (which would generally be worse than the IPC method for the Scottish Budget). SO they agreed to use IPC for the first 5 years and review it in this review published today.
They have now agreed that the IPC method will remain on a permanent basis.
Interestingly, this means that on a permanent basis, the mechanisms for adjusting the block grants for Wales and Scotland will be different, given Wales’s Fiscal Framework uses the Comparable Method, albeit with additional provisions to keep a funding floor in place.
Borrowing Powers for managing forecast error have been increased significantly
Resource borrowing powers to manage forecast error associated with tax and social security powers have been increased from £300m to £600m. This is required because when budgets are set, the tax, social security and block grant adjustment estimates are set on the basis of forecasts from both the Scottish Fiscal Commission and the Office for Budget Responsibility. When the outturn data is available, if there is a discrepancy (which is very likely) then the Scottish Budget has to reconcile these differences.
This will be good news for the Deputy First Minister looking ahead to delivering her first budget in December, given that it was confirmed recently that there will be a large negative reconciliation to reflect income tax receipts in 2021-22 of £390m. As these changes are coming into effect for the 2024-25 budget year, this means she will have more flexibility to borrow to cover this.
All limits, such as resource and capital borrowing powers, will be uprated in line with inflation
When the Fiscal Framework was first agreed, the limits on borrowing for both resource and capital, and the limits for what could be put into the Scotland reserve, were set in cash terms and have been fixed ever since.
This agreement today sets out that the ones that remain will be uprated by inflation (although the exact inflation measure and timing is still to be confirmed), and that the limits on the additions and drawdowns on the Scotland Reserve will also be abolished.
The VAT Assignment can gets kicked down the road again
One thing that is a little disappointing is that there was no final decision on VAT Assignment. See our blog from 2019 to get the background in this.
VAT Assignment was included as part of the Smith Commission powers. The idea was that half of VAT raised in Scotland would be assigned to the Scottish Budget, which would mean, if the Scottish Economy was performing better than the UK as a whole, the budget would be better off, and conversely, if VAT was growing less quickly in Scotland, the budget would be worse off.
However, after almost 10 years, it has become clear that there is no way to estimate VAT in Scotland that is precise enough for this to have budgetary implications. It is a large amount of money (more than £5 billion) so even small fluctuations in how it is estimated can mean changes of hundreds of millions of pounds.
Today, the Governments have agreed to just keep discussing it. We think it is time that everyone admitted it is just not a sensible idea.
We’ll keep digging through the detail of everything published today and will provide more commentary through our weekly update on Friday.
This follows (larger than thought before) contractions in March and April, which means that in total the economy has contracted by 0.4% in the 3 months to May.
Now, these monthly figures can of course be volatile, and we shouldn’t read too much into the individual movements every month. The first estimates that are produced for each month and quarter are also more subject to revision than older estimates.
This has been underlined by the media line “Scotland is growing at 4 times of the UK” (which we discussed the issues with as part of a previous update) now no longer being true for the first quarter of the year. For the first quarter, the new estimate is that Scotland grew by 0.2% compared to 0.1% for the UK as a whole.
The recent monthly contractions have also meant that the size of the Scottish economy has dipped slightly below that all-important level of February 2020, the so-called “pre-pandemic levels of output”.
Bearing in mind the caveats above, we can see in the latest figures significant contractions in the wholesale and retail and accommodation and food services sectors, perhaps signalling the contraction in consumer-facing services we have been expecting given the pressure on household budgets.
In production, there was a very large contraction in the electricity and gas supply sector, which, given the dominance of wind generation in Scotland, is likely to reflect the weather in May (i.e. it wasn’t very windy). The construction sector has also shown contractions in each of the last 3 months, although in general, this sector’s output is well above pre-pandemic levels.
Towards the end of August, we’ll get the figures for June which will give us the first estimate of the figure for the full quarter. There will have to be a significant recovery in June for that not to be a contraction overall. Of course, there would also have to be a contraction in Q3 for us to be technically in recession.
We’ll also be looking with interest at the new forecasts produced by the Bank of England next week. The decision on rates will of course take the headlines. The Bank’s view may soften slightly, with market expectations coalescing around a 0.25 rise in the base rate. However, we’ll also be digging through their new forecasts to see what the Bank is expecting to happen for the rest of 2023 and beyond.
We’ll discuss all this in next week’s update! Enjoy the weekend, whether you’re seeing Barbie, Oppenheimer, or simply dodging the rain at a BBQ!
