Tag: Fraser of Allander Institute

Robertson Trust awards £1.7 million to six projects under Financial Security Programme funding

THE ROBERTSON TRUST has announced that six organisations have been awarded over £1.7M under their Financial Security Programme Awards. All of the projects are working to deliver big change that lasts on tackling poverty and trauma in Scotland.

Through our Financial Security theme, we want to fund, support and influence to improve income adequacy, income security, reduce cost-related pressures on finances and improve financial safety nets for people in financial trouble.

We made an open call for long-term change project ideas through our Programme Awards in October 2022 for organisations focused on delivering big change that lasts on financial security in Scotland. 

Our Programme Awards will allow us to work alongside some of the organisations best placed to achieve impact on poverty and trauma in Scotland, allowing us to learn from them and them from us as we go. 

The successful organisations include proposals to develop strengthening social security in Scotland, reducing the costs of essential goods and services, and preventing and relieving financial crisis now and in the future in Scotland. 

We are pleased to share details of the organisations awarded funding:

  • One Parent Families Scotland awarded £384,678.00. This project will deliver evidence-based recommendations to achieve transformational change to the UK child maintenance system to contribute to reducing child poverty. A partnership with One Parent Families Scotland, IPPR (Scotland) & Fife Gingerbread, each organisation will lead on different strands of work, while working together across all activities. Ambitious policy proposals will be developed, at both Scottish and UK government levels, to radically reform the child maintenance system (CMS), informed by robust evidence and lived experience. The project aims to see action to tackle immediate shortcomings of the existing child maintenance system, and secure public and political support for long-term, systemic reform.   
  • The Poverty Alliance – awarded £492,697.00 to fund new work to tackle rural poverty. Too often people living on low incomes in rural parts of pay a premium for essential goods and services – food, energy, transport, etc. ‘Taking Action on Rural Poverty’ (TARP) will develop new ways of addressing rural poverty in Scotland by reducing the rural poverty premium. The project will do this by bringing together people with direct experience of poverty, community and voluntary organisations, the private sector and public bodies to identify and test solutions to the poverty premium. It will also work to improve processes to involve people in local decision making and to make changes to national policy that will affect rural poverty.  
  • Child Poverty Action Group (CPAG) – awarded £249,866.00 CPAG strengthening social security project aims to ensure the delivery of Scottish Child Payment and other national and local payments provide greater financial security and stability for those on the margins of entitlement or excluded altogether. The project will develop new ways of bringing together the voice of lived experience and CPAG’s social security expertise to develop and promote approaches that will ensure more families can access Scotland-based payments, and that these payments can be relied upon throughout changes in family’s circumstances. In so doing it will not only aim to prevent families being pulled into poverty but also look to secure greater financial stability for families in Scotland.
  • Save the Children – awarded £249,761.00. The aim of this ambitious project is to inspire and coalesce public support around sustainable policy solutions to meet Scotland 2030 child poverty targets and deliver financial security in Scotland. The project will provide evidence and deeper insight into public attitudes across Scotland on different interventions that could sustainably drive down child poverty. Importantly, it will build a narrative framework – informed by these insights and our lived experience panel – and work with partners across the sector to ensure policy makers and campaigners have evidence on where the public has an appetite for change. Through engagement and influencing the project will build a network of champions to help ensure that findings and insights are lived and breathed and can have real world impact far beyond the lifetime of this project.
  • The Trussell Trust – awarded £230,000.00. The Trussell Trust is launching a three-year project that will help gain an understanding of how to provide better access to and engagement with local advice and support services that reduce destitution and prevent food bank use. The project as a whole will run pilots in six areas – Glasgow, Perth & Kinross, North Lanarkshire, Dundee, Orkney, and Aberdeenshire. By testing different models in six localities that represent key geographies of Scotland, the aim is to learn which interventions work in different areas, support community-led priorities, evaluate and learn comparatively from their experiences, and make recommendations to local and national government. The Robertson Trust is providing funding to part-fund the whole project, alongside a number of other funders.
  • University of Strathclyde (Fraser of Allander Institute) – awarded £158,742.00. The Fraser of Allander Institute and the Scottish Commission for People with Learning Disabilities (SCLD) are collaborating to address the limited understanding of the additional costs of disability in Scotland. The social model of disability recognises that people are disabled by barriers in society not by their impairment or disability. The extent to which financial barriers constrain and impact the lives of people with a learning disability and their families is a key part of our research. This project, co-produced with a researcher with lived experience, will provide valuable evidence for the Scottish Government for future programmes of social security reform.

Commenting on the announcement of the new Programme Awards, Robertson Trust Head of Programmes and Practice, Russell Gunson, said: “I’m delighted to share the details of the Robertson Trust’s new programme awards today.

“Each of the awards we have made have demonstrated the potential to deliver big change that lasts on poverty and trauma in Scotland. We’re really excited to be working together to make the most of the potential for long-term change in Scotland. 

“Our support comes at a time when people and places facing poverty are experiencing gale force winds against them and their living standards. We have been living through crisis after crisis, stretching back through this cost-of-living emergency, the Covid-19 pandemic and at least back to the financial crash 15 years ago.

“It is often hard to think long-term when the immediate challenges are so pressing but the Trust has protected significant funds for this long-term change work so that we can prevent poverty and trauma in the future, while also helping to make a difference here and now.

“We will only be successful if we commit to the belief that things can change – we’ve made progress before and we know we can again – if we build the participation, partnerships and coalitions necessary to make change irresistible, and if we build social change over the long-term to reshape the systems and structures that sit underneath why we have the levels of poverty, trauma and inequality that we do.

“We look forward to working with each of the projects and are keen to learn alongside them, to understand what helps and hinders in achieving our mutual ambition of ending poverty and trauma, and its negative impacts, in our society.”

Commenting on the announcement of the Programme Awards, David Reilly, Communities and Networks Manager at the Poverty Alliance said: “Rural poverty is an issue of growing concern for the Poverty Alliance.

“This important grant from Robertson Trust will not only allow us to test ideas to practically take action on rural poverty, but will also help us to strengthen the networks and relationships that we need to make long term progress on rural poverty.”

John Dickie, Director of Child Poverty Action Group (CPAG) in Scotland said: “Child Poverty Action Group in Scotland is delighted to be awarded funding by The Robertson Trust. This grant provides us with a unique opportunity to help shape the way Scottish Child Payment and other local and national payments support those currently on the margins.

“It will enable us to bring our expertise together with the voice of lived experience to prevent poverty and increase families financial stability by helping create more inclusive, consistent and secure financial support through the social security system”.

Satwat Rehman, CEO of One Parent Families Scotland, said: “One Parent Families Scotland is delighted to receive this funding from The Robertson Trust. Child maintenance is an issue which single parents have raised with us time and again, calling for there to be a fairer and more equitable system.

“Four in ten children in poverty in Scotland live in a single parent family but maintenance payments can contribute to the costs of raising a child and in giving them a decent quality of life.

“However, over £474 million in child maintenance in the UK has gone unpaid – money owed to children. This is an issue of children’s rights and the rights of the child to financial support.

” Working alongside our amazing partners IPPR Scotland and Fife Gingerbread we will develop ways of supporting families through the maze that is the current child maintenance system and work with families to design a model that works for them and contributes to lifting children out of poverty. “

Claire Telfer, Head of Scotland, Save the Children said: “We are thrilled to have received The Robertson Trust grant for this exciting work.

“We believe this will be a game-changing project in the development of policy and actions to drive down child poverty and we can’t wait to get started”.

David Brownlee, the Trussell Trust’s Financial Inclusion Lead, Scotland, said: “We are delighted to be partnering with The Robertson Trust for this ambitious project. The Trussell Trust has just released its end of year stats, showing the highest levels of need ever in Scotland.

“The record levels of need seen this year, represents a 50% increase in the number of parcels distributed by food banks in the Trussell Trust network in Scotland compared to five years ago in 2017/18.

“The chronic cost of living crisis has only deepened our commitment to end the need for food banks in Scotland and the whole of the Trussell Trust network – this project will play a key part in enabling us to see how to achieve that aim.”

Emma Congreve, Deputy Director of Fraser of Allander Institute, said: “The Fraser of Allander are delighted to be collaborating with SCLD and embarking on this project to produce better evidence to underpin more effective policy for people with learning disabilities in Scotland, especially as this will enable us to recruit and support a researcher with lived experience which we would not have been able to do without this investment.”

Fraser of Allander Weekly Update – Bitter pill to swallow?

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

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

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

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

No sign of a recession… yet

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

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

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

How does Scotland compare to other regions of the UK?

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

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

Chart: GVA per head, ITL 1 Regions

Source: ONS

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

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

Chart: GVA per head, local authority

Source: ONS

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

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

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

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

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

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

Fraser of Allander Institute: A new financial year beckons

Thursday 6th April is the first day of the new tax year (hands-up who missed the ISA deadline, again) and a number of changes in both UK and Scottish policy come into effect (writes FRASER of ALLANDER Institute).

Here is a brief rundown of some of the changes that have come into play at the start of this new financial year:;

Firstly, taxes.

For higher rate tax payers the new 1p comes into effect in Scotland as well as the reduction in the threshold for those paying the additional rate, mirroring what has happened in the rest of the UK. Other band thresholds, including the personal allowance (the rate at which people start to pay tax) have remain frozen.

The UK Spring Budget announced changes to the pension annual allowance and lifetime allowance also come into effect.

Council Tax bills have gone up across the country. Local authorities have the ability to vary the Band D rate charged, which then translates into rises in bills across all bands via a set of multipliers. On average, Band D rates have risen by 5%, but there are clear exceptions (Chart 1).

Failure to reform Council Tax makes any additional revenue raised through Council Tax regressive in nature. Failure to revalue the tax base means that increasingly the bills paid by households bear little resemblance to the relative value of their home.  This isn’t the fault of Councils – the ball firmly remains in the Scottish Government’s court on this one.

Unlike Council Tax, there has been a revaluation for Non-Domestic Rates. Even though the poundage rate charged to non-domestic properties has remained frozen (as also the case in rUK) businesses will see a change in their bills reflecting their updated ‘rateable values’.

Secondly, benefits

The UK Government announced in its Autumn Statement that reserved benefits would be uprated by 10.1%. This practice of uprating, using the previous September CPI, is standard procedure.

Devolved benefits have received the same uplift from the Scottish Government, with the exception of the Scottish Child Payment. This increased in value in November 2022 and it was decided it was not in scope for further uplift for 2023/24.

Although not strictly a benefit, the continuation of the energy price guarantee on energy means that we are not facing a rise in our energy bills this month. The guarantee has been extended at its current level for a further 3 months, by which time it is hoped that energy prices will have come down to more reasonable levels. It will hopefully be warmer by then too!

On that note, we wish you a pleasant Easter weekend, and fingers crossed that the sun will shine.

Inflation continues to loom large as 2023 gets properly underway

This week always feels like a bit of a transition every year – it starts to feel a bit late to say “Happy New Year”, and the start of the week is dubbed “Blue Monday” as people realise that those well-meaning new year resolutions have already been broken (writes Fraser of Allander Director MAIRI SPOWAGE).

One of mine was to think hard to find the optimistic news in what can sometimes feel like the unrelentingly negative economic situation we are in, which is likely to remain tricky throughout the year. I was tested hard this week as new inflation data was released on Wednesday.

Inflation falls to 10.5% – but let’s not get too excited

The ONS released the official inflation data for December, which showed CPI inflation had fallen from 10.7% in November to 10.5% in December.

The main items driving the fall in inflation are petrol and diesel prices, and prices for clothing in footwear. Prices at the pump have been falling since their peak in July, and in December they were back to roughly the levels they were at before the Russian invasion of Ukraine. Clothing and footwear has fallen really due to a lack of discounting in December 2021, so when compared to December 2022 it appears that prices have fallen.

Obviously, energy prices are still contributing hugely to this very high inflation rate (which, let’s not forget represents a 40 year high of inflation apart from the preceding three months in 2022). That increase is currently stable in the figures due to the UK Government’s Energy Price Guarantee – but this cap on unit prices is only in place until end March, when it increases to £3,000 for a household with typical use. The ONS estimate that this will add 1 percentage point to inflation when it comes into effect.

Worryingly for those on the lowest incomes, food prices continue to increase faster than the headline rate. The inflation rate for food and non-alcoholic beverages increased to 16.9% in December from 16.5% in November.

We were asked two main questions when the data came out on Wednesday.

The first was, of course – what is the outlook for inflation for the rest of 2023? The expectation by the OBR is that inflation is likely to fall to under 4% by the end of the year. But remember, this does not mean that prices will start to fall at this point – just that they will grow less quickly.

This is somewhat simply due to the definition of inflation – it compares prices now to prices a year earlier, so as we move into October, we will be comparing to the much higher energy costs from October 2022. It was therefore inevitable that growth was likely to slow down – a point to bear in mind when some try to take credit for the fall in inflation.

The second is whether we are likely to see further increases in the Bank of England’s base rate at their next meeting on 2nd February – especially given that inflation has come down a bit. Unfortunately for mortgage payers, it is still very likely that we will see further increases in the base rate.

Why? Because inflation is not just been driven by food and energy costs. CPI excluding energy, food, alcohol and tobacco (often referred to as core CPI) is at 6.3%, and has been around this level since July 2022. This is being generated by domestic factors, including the tight labour market, which means the Bank is likely to take the view that they need to continue to cool demand in the economy.

Scottish unemployment remains at 3.3%

We also got updated figures on the labour market on Tuesday, covering the three months to November. Scottish unemployment remained at 3.3%, slightly below the UK rate of 3.7%. Employment remains high, at 76.1%, with inactivity at 21.3%.

Changes in inactivity over the period of the pandemic have been a focus of much analysis – because although the level is now similar to before the pandemic, the underlying reasons why people are inactive seem to have changed – with an increasing number saying that they are not in work or seeking work because of ill health or disability.

See a great Twitter thread on this by our colleague Professor Stuart Mcintyre – as part of his monthly analysis of the labour market.

Alongside the headline labour market numbers, there is also information ONS publishes monthly on earnings and vacancies.

The vacancy level alongside the labour market data helps us understand how tight the labour market continues to be. The total number of vacancies has been falling in recent months, since the record highs in Q2 2022. However, the number of vacancies remains historically very high, with 1.0 unemployed people for each vacancy – a rate which remains indicative of a tight labour market.

Earnings (ex bonuses) grew by 6.4% in the year to the three-month period Sept-Nov. Given the inflation rate over this period, this means that earnings are continuing to fall in real terms. In the face of continuing public sector pay disputes across the UK, the split between the public and private sectors is particularly interesting. Private sector pay grew by 7.2% compared to 3.3% for the public sector.

Health Foundation publishes important research into health and health inequalities in Scotland

This week the Health Foundation published a report to provide a picture of health and health inequalities in Scotland, in order to inform future efforts to improve both.

An independent review underpins their report, and we were delighted to work with the Health Foundation on this programme of work, as one of four independent organisations to carry out supporting research. See our research here.

And finally, I don’t care if it’s too late – Happy New Year everyone! But that is the last time I’ll say it this year.

Budget 2023-24: Scottish finances on a tightrope but choices are there to be made, says Fraser of Allander Institute

The outlook for Scotland’s budget in 2023-24 has undoubtedly been made more challenging due to factors wholly outwith the control of the Scottish Government, but there are decisions that Deputy First Minister John Swinney can make to ease the path ahead for Scotland, according to a report published yesterday by the Fraser of Allander Institute.

In its-pre Budget report, the University of Strathclyde-based Institute says that in the face of high inflation, the UK Government’s Autumn Statement provided some comfort with additional transfers that will more or less offset the impacts of inflation over the next two years.

The Scottish Government now needs to set out how it will use its significant devolved tax powers and whether to use them to generate more revenue for public services, including public sector workers.

The Resource Spending Review, published in May this year, provided a blueprint for spend over this parliament, but we have already seen deviations from planned spend in this financial year, and changing priorities may see further revisions when the draft Budget is set out on the 15 December.

The Fraser of Allander Institute’s annual pre-budget report, published today (12 December) examines the context to the budget and the key decisions facing the Scottish government in 2023-24.

Its findings include:

  • the economic situation has deteriorated markedly since the 2022-23 budget was presented, with high inflation set to eat away at living standards over the next two years.
  • the high inflation environment eroded the value of the Scottish Government’s budget in 2022-23 meaning that the present financial year’s budget is worth about £1bn less in real terms
  • Despite fears of cuts to the near-term budget, the announcements made by the UK Chancellor more or less offset the impacts of inflation on the Scottish budget in 2023-24 and 2024-25
  • the Scottish Government has significant devolved tax powers and therefore has decisions to make on Thursday about whether or not to use them to generate more revenue for public services.

Professor Mairi Spowage, Director of the Institute, said: “John Swinney is getting set to present his first budget in seven years, in what he has acknowledged is an unprecedentedly tricky time for the Scottish public finances.

“The challenges he has been dealing with for 2022-23 ease a bit for 2023-24: there was some additional money announced at the Autumn Statement which generated around a £1bn of consequentials, offsetting the inflationary pressures on the budget.

“But there are also flexibilities that the Deputy First Minister has for the next financial year that were not available to him for this year – the Scottish Government does have tax powers that could be used, if he wishes, to raise more revenue.”

Emma Congreve, Deputy Director, said: “In amongst all the headline-grabbing decisions, it will be important to take a step back to see how this Budget helps Scotland achieve its long term ambitions.

“We are expecting that the government will set out, clearly and transparently, the choices it has made and what the impact, both good and bad, will be for policy outcomes and the impacts on different groups.”

Access the full report here.

New campaign to maximise Scotland’s economic potential

Law firm CMS and the Fraser of Allander Institute has launched a new campaign aimed at bringing together Scotland’s business community, government and policy groups to maximise the nation’s economic growth potential.

The International Scotland initiative begins with the release of a new report highlighting some of the core opportunities for Scottish business, trade, and tourism to excel on the international stage.

The International Scotland report sets out how the nation punches above its weight in key sectors such as renewables, tourism and food & drink. It also recognises the strength of the Scottish university sector in supporting new, innovative companies and highlights how Scotland is an ideal location to attract international talent.

The report also focuses on some of the pros and cons of Brexit, suggesting that the UK’s exit from the EU could bring opportunities for the whisky market in nations like India and has also resulted in an upturn in international students at Scottish universities. It does, however, highlight the damaging impact Brexit has had on supply chains and many companies’ ability to do business, as well as its detrimental effect on foreign investment into Scotland.

A full copy of the International Scotland report can be found here

CMS and the Fraser of Allander Institute will now stage a series of events across Scotland involving direct engagement with the business community, Scottish Government ministers and other policy influencers.

Richard Lochhead MSP, Scottish Government Minister for Just Transition, Employment and Fair Work, will address the first event, focusing on Scotland’s transition to net-zero, in Aberdeen on 22 November.

Ivan McKee MSP, Scottish Government Minister for Business, Trade, Tourism and Enterprise, will then speak at an event focused on his ministerial remit in Edinburgh on 23 November. Mr McKee will also address the final ‘Invest in Scotland’ event, taking place in Glasgow on 7 December.

During the events, participants will discuss the key themes covered by the International Scotland report with a focus on developing policy proposals and recommendations aimed at reducing economic barriers and maximising global economic opportunities.

Companies and individuals wishing to apply to attend the events can register their interest here

Allan Wernham, Managing Director of CMS Scotland, said: “CMS is proud to join forces with Fraser of Allander Institute to launch the International Scotland campaign.

“Leveraging the knowledge and expertise within both organisations, we are focused on the core themes of business, trade and tourism; inward investment; and the transition to net zero and the key opportunities and challenges for Scotland in fulfilling its full economic potential.

“We now look forward to engaging in further discussions with the business community, government and policy groups to build consensus on the best way forward and develop innovative policy ideas that will help the Scottish economy to thrive.”

Professor Mairi Spowage, Director of the Fraser of Allander Institute, said: “We are excited to work with CMS on this new, internationally focused campaign.

“Using the evidence base highlighted in the International Scotland report, we will engage with a wider cross-section of stakeholders to explore the key barriers and enablers for the Scottish economy on the international stage.

“The forthcoming events taking place across Scotland will serve as the basis for feedback, input, further reflection and, ultimately, policy recommendation to drive economic growth.”

International-Scotland-Report-November-2022Download

Fraser of Allander Institute: Sentiment goes down as interest rates go up

There’s been another busy week of economic and fiscal news to cover. The main headline is of course that the Bank of England Monetary Policy Committee (MPC) decided to raise interest rates for the eighth successive time, to 3%.

Also grabbing the headlines was the forecast that, if interest rates follow market expectations and go up to 5.25% by Q3 2023, the economy is likely to contract for 2 years, only returning to growth in Q3 2024.

The Governor of the Bank, Andrew Bailey, made clear that it was possible that the markets has over done the likely pathway for rates, implying that they may not end up getting above 5%.

But, as the chart below shows, their view is that the economy is in for a rough time over the next 2-3 years, whatever the specific pathway for rates. Whatever happens, their expectation is that we will not be above pre-pandemic levels of output by the end of 2025.

Chart: Outlook for UK GDP Growth, 2019 Q4=100

Source: BoE

On Wednesday, we published our latest Scottish Business Monitor, covering Q3 2022, which showed that business sentiment is now in negative territory for the first since the end of 2020.

Chart: Net balance (%) of firms expecting an increase in their volume of business over the next six months, Q1 1998 – Q3 2022

*Net balance of firms is defined as the share of firms reporting higher minus the share of firms reporting lower

With the price of goods, energy, and borrowing on the rise, the majority of Scottish firms that we surveyed are expecting to wind down their operations or pass on costs to their consumers over the next year.

However, there is some good news from our latest survey. Supply chain issues continue to ease, which may dampen inflationary pressures, and the ongoing energy crisis has motivated Scottish businesses to consider making energy-efficient improvements to their processes.

Additionally, In the most recent quarter, half of responding businesses reported that they had vacancies to hire new members of staff, down from 56% reported in the previous quarter.

Of those firms with vacancies, 90% were finding them difficult to fill – up 3 percentage points since the last survey. A lack of skills and applications continue to be the main barriers to filling job posts, and, increasingly, wage expectations are making it difficult for Scottish firms to hire the staff that they need.

Unsurprisingly, Scottish firms expect energy bills and wages to be their main cost pressures in the coming 6 months.

Scottish Economy contracts in August

Somewhat lost in the other news on Wednesday (see below) was new GDP data from the Scottish Government for August.

This showed that GDP fell by 0.3% in August, taking the Scottish economy below pre-pandemic levels of output – very consistent with the messages we saw from the Bank about a likely contraction overall in Q3.

The contraction was driven mainly by a fall in services output. In a sign of things to come, consumer facing services fell by 2.4%, chiming with what we are hearing from businesses.

Scottish Government cuts health funding to fund pay deals

On Wednesday, we had the Scottish Government’s Emergency Budget Review. We gave our initial reactions here, and the coverage since the publication on Wednesday has focussed very much on the cuts made to health spending to fund pay deals for health workers.

What is clear is that this may not be the end of the story for the 2022-23 budget. John Swinney in the Chamber made it clear that there could be further implications for the Scottish Budget from the UKG’s Autumn Budget on 17th November, perhaps even for 2022-23. And it is also clear that many pay deals are far from settled.

Only 12 more sleeps until the next fiscal event!!

Fraser of Allander Institute update: Comings and goings of Prime Ministers and fiscal statements

This week has seen the appointment of a new Prime Minister, but in terms of economic news it has been a far less tumultuous week than recent ones (writes EMMA CONGREVE, Deputy Director and Senior Knowledge Exchange Fellow at the Fraser of Allander Institute).

Both the UK and Scottish governments announced the postponement of planned budget events. The Scottish Government’s decision not to go ahead with its ‘Emergency Budget Review’ at this time was not surprising. However, there are questions around what budgetary changes will be made this financial year in response to inflation’s impact on public spending.

As highlighted in an article last week, that includes understanding the detail of employability cuts (announced back in September), and indeed the detail of where else the Scottish Government is eking out savings. We need better transparency over how these decisions have been made and the impact on people providing services and the people they support.

If/when the Emergency Budget Review goes ahead is unclear. It may well end up being rolled into the draft Scottish budget announcement for 2023/24, due on the 15th December.

The UK government’s decision to postpone its planned fiscal statement (now rebranded as the Autumn Statement) from the 31st October to the 17th November is justifiable given the prime ministerial change (and in light of the decisions of the incoming Chancellor Jeremy Hunt the previous week).

Delaying the fiscal statement should also mean that the outlook for borrowing costs should be slightly better than it would have been had the statement been published next week since it shifts the reference period for bond yields that the OBR will use in its forecasts.

The publication of the UK Autumn Statement on 17th November means there will be a window of four weeks between the UK Autumn Statement and the Scottish budget on 15th December.

Assuming the UK Autumn Statement is definitive about spending plans in 2023/24, this should provide adequate time for the Scottish government to prepare its 2023/24 by the 15th. There is little scope to push back the draft budget statement into January due to the timescales required to get the Budget Bill through the Scottish Parliament in time for the 2023/24 financial year.

With an expectation of further fiscal tightening by the UK government, the Scottish Government will be braced for more difficult decisions.

Until we see the UK Autumn Statement however, it remains very uncertain how the UK government will prioritise different tax and spending measures, and over what timescales, and hence the implications for the Scottish budget in 2023/24 and beyond.

As always, we will be looking for evidence-based rationales and transparency in how spend has been prioritised from both governments; a subject we will no doubt return to in the coming weeks.

More detail on the impact of the cost of living crisis

As we discussed last week, CPI inflation for September was estimated at 10.1%. This week, the ONS have published supplementary analysis on how rising prices are affecting adults across Great Britain.

9 in 10 people surveyed reported that their cost of living had increased compared to a year ago and the survey asked questions on the extent to which this had impacted their lives.

Around 45% of adults in both GB and Scotland reported finding energy bills somewhat or very difficult to pay and around 30% of GB and 25% of Scottish adults reported finding rent and mortgage payments difficult to afford.

Other breakdowns by protected characteristics showed different experiences. For example, 55% of disabled people, 69% of Black or Black British adults, 59% of Asian or Asian British adults and 60% of renters were finding it somewhat or very difficult to pay energy bills (compared to the population average of around 45%).

These differences are likely to be linked to socioeconomic status: around half of those with a personal income of less than £20,000 per year said they found it difficult to afford their energy bills which reduced to 23% for those with a personal income of more than £50,000.

This week, the ONS also published a ‘highly experimental’ (their words!) analysis of low-cost groceries. For half of the sampled items, the average lowest price goods increased at a faster rate than the official CPI inflation measure for food and non-alcoholic beverages over the past year.

The highest rising prices were for vegetable oil (65%); pasta (60%) and tea (46%). Bread and milk were among other items that rose by more than the CPI average.

The pressures are also of course affecting businesses. The latest Scottish Government analysis of the BICS survey found that 49.8% of businesses reported that the prices of materials, goods and services bought in September 2022 were higher than in August 2022. Around 60% of businesses reported absorbing these costs, and around 35% reported that at least some of the price increases were passed on to customers.

Going back to the previous survey of GB adults, the most significant behavioural changes reported were ‘spending less on non-essentials’ (62% of adults in GB and in Scotland) and ‘using less fuel such as gas and electricity in my home’ (52% of GB adults, 57% in Scotland). If the latter prevails into the colder season, there is of course a concern that this will have serious adverse impacts on health.

Upcoming webinar for your diary

On the subject of health impacts, the Fraser of Allander Institute, in collaboration with MRC/CSO Social and Public Health Sciences Unit at the University of Glasgow and the Health Foundation are holding a webinar on the 15th November (3 – 4.30pm) to discuss trends in health and the socioeconomic drivers of health in Scotland.

Our report on the trends in socioeconomic determinants of health over the past twenty years will be out in the coming weeks.

Click here to sign up to the webinar to hear all about it.

Weekly update … and what a week!

Monday morning seems like an age ago, and the political circus is likely to continue into next week (writes Fraser of Allander Institute’s MAIRI SPOWAGE).

On Monday, the new chancellor undid pretty much every tax measure in the ex-Chancellor and soon-to-be ex-PM’s “mini”-budget. Only those already legislated for will proceed (the scrapping of the health and social care levy and the stamp duty cuts in England will still happen).

Although the PM has resigned, it still looks like the Fiscal Plan will be presented on 31st October, which is an interesting political situation given that presumably means that Jeremy Hunt will remain as Chancellor whoever wins the leadership election over the next week. But perhaps the last wee while has taught us that presuming anything is foolish!

For Scotland, the extra funding that was going to be generated by these tax measures for the Scottish Budget has now largely disappeared, with only the stamp duty reductions generating additional funding for Scotland.

This presents significant challenges for the Deputy First Minister in managing an already very stretched budget.

Economic Case for Independence published

Somewhat overshadowed by events at Westminster, the Scottish Government published the third in their series of papers to set out a new case for independence on Monday. This paper, “A stronger economy with independence” was expected to set out the economic case, covering issues such as currency, trade, and public sector finances.

We published analysis of the paper on Monday – and look out for our Guide to the Economics of Independence which we’ll be publishing soon and updating as more information is released by the Scottish Government.

Inflation goes back above 10%

The Office for National Statistics (ONS) published September inflation data, which showed that CPI inflation had gone back into double digits, running at 10.1%.

Underneath the headline rate, food and non-alcoholic beverages inflation is now estimated to be 13.1%. There was a slight downward pressure from motor fuels, as the prices at the pumps fall back from the peaks they reached in July.

These data still do not capture the energy price rises households are now experiencing as of 1st October, so expect there to be further increases in the rate when that data is published next month.

Interestingly (well, if you are interested in economic statistics, come on!) it may be that the change in the way the government is supporting households on energy may change the outlook for inflation. If, as is expected, the help after April is more targeted as cash transfers to those households most in need, then this will not put downward pressure on the actual price of energy.

We’ll be looking out for the OBR and Bank of England’s (3rd November) view on the pathway for inflation given these changes.

New Public Sector Finance Data published this morning (Friday)

ONS have also put out the latest public sector finances release, which contains public finance statistics (including deficit and debt) up to September 2022.

These have the first statistics on revenue generated by the Energy Profits Levy, which shows that £2.7 billion was generated from this tax in the year to date. It will be interesting to get the OBR’s independent view of the likely take from this tax over the next few years – and obviously to see if the Chancellor chooses to extend this in some way in the Fiscal Statement.

More broadly, it contains up-to-date statistics on the size of the UK National Debt. Debt has reached £2.5 trillion, which is equivalent to 98% of GDP – levels not seen since the 1960s.

This reminds us of the challenging fiscal environment, which sets the backdrop for the statement by the Chancellor in 10 days time.

No confirmation on the Scottish Government’s Emergency Budget Review 

As we write this, we have no confirmation whether the Scottish Government’s Emergency Budget Review (EBR) will go ahead next week, as previously indicated.

Remember, this review is to look at in-year (2022-23) spending to balance the budget in the face of higher than expected (at the time of the last budget) inflationary pressures, particularly in relation to the public sector pay bill.

We wrote yesterday about employability support, one of the areas that John Swinney has already indicated will be cut. A number of questions remain to be answered. and we hope the EBR will be clear in laying out the evidence considered when deciding where the axe will fall.

The response to whatever is set out by the UK Chancellor on the 31st October will come in the Scottish Government’s draft budget for 2023-24 on the 15th December. For fiscal fans, the fun is due to continue for some months yet!

Inequalities in voting and volunteering: who participates in Scotland?

On 5th September, the Conservative party elected a new prime minister of the United Kingdom. Scotland has not voted for a conservative government since 1955, and Liz Truss marks the twelfth prime minister in the last hundred years elected without majority support in Scotland (writes Fraser of Allander Institute’s ALLISON CATALANO). 

The last time Scotland’s vote mirrored the majority was in 2005 – the last time that a general election resulted in a Labour majority.

The Brexit vote in 2016 is another good example of how far Scotland’s opinion differs from that of the UK majority – less than 40% of Scottish voters approved the referendum to leave the EU, compared to more than 50% from Wales and England.

Scotland’s status as a minority among the UK electorate isn’t so surprising from a population standpoint – Scotland only accounts for about 9% of the total UK electorate. England, by contrast, claims 84% of all voters.

The vast difference between Scotland’s opinion and UK electoral outcomes may result in worsened well-being for the Scottish population. People derive a sense of satisfaction from having the ability to participate in and impact politics and governmental structures. This satisfaction, termed “democratic well-being,” is weakened by perceived or structural inequalities.

Participatory inequality stems from any situation in which a particular group is unlikely to or discouraged from some form of civic participation, which includes behaviours like voting, interacting with political campaigns, activism, or volunteering.

Examining voting in particular, Scottish voters may feel disenfranchised from the political sphere in the UK because of the perceived lack of political power on a national level, and may be less likely to choose to vote or express an interest in politics.

Certain groups in Scotland may also be more or less inclined to participate in national or local elections.

Income levels, health, and educational attainment may all result in different levels of participation both within Scotland and when comparing Scottish participation to the rest of the UK. In this sense, there may be participatory inequalities within the Scottish population and when comparing Scotland to the UK as a whole.

Using Understanding Society: the UK Longitudinal Household Survey, we determined that age, income, health, education, and employment statuses are correlated with an individual’s level of interest in politics, and the likelihood that they voted or volunteered recently. Understanding Society is a yearly panel survey, with yearly data available from 2009 to 2021.

Does participation differ in Scotland compared to the rest of the UK?

Scotland has a high level of average engagement across all survey years relative to Northern Ireland and Wales, but a lower level than England.

  • Scottish residents are more likely to have volunteered in the past year than residents of Northern Ireland or Wales, but less likely to have volunteered than English residents.
  • Scottish voting habits vary. Scotland had the lowest turnout in 2001 and 2005, and the highest turnout in 2015 and 2019. Scotland generally has higher turnout than Northern Ireland but lower turnout than England or Wales (Figure 1).
  • Scottish residents are more likely to express an interest in politics than in Wales and Northern Ireland. Scotland’s responses are roughly similar to England. Interest in politics across the UK increased in 2016 following the EU referendum vote, particularly in Northern Ireland, and peaked in Scotland in 2018 (Figure 2).

Figure 1: General election voter participation by constituent country

Figure 2: Interest in politics by constituent country

Despite Scottish residents being relatively politically engaged, Scotland experiences substantial gaps in participation based on health, income, education, and employment.

  • Scotland has the largest gap in participation between individuals that considered themselves in good health and individuals that considered themselves in poor health in the United Kingdom (Figure 3).
  • The lowest income quintile in Scotland is more engaged than the lowest income quintile in Wales or Northern Ireland. However, Scotland experiences larger gaps between the highest and lowest income quintile than the national average in political interest. Notably, the bottom income quintile in Scotland was more likely to have voted than in any other part of the UK. Political interest was also higher than the national average for the lowest earners.
  • Individuals with no qualifications in Scotland are less likely to volunteer than anywhere else in the UK, although they are more likely to have voted in a general election than the UK average. Unqualified individuals in Scotland are less likely to express an interest in politics than in England or Wales.
  • Scotland experiences a greater gap in participation based on work-related benefits compared to the rest of the UK. Individuals receiving in-work income or unemployment benefits are less likely to have voted, volunteer, or express a political interest in Scotland than anywhere else in Great Britain.

Figure 3: The gap in civic participation between self-reported good health and bad health is wider for each behaviour in Scotland compared to the rest of the UK

How do inequalities impact civic engagement in Scotland?

Health and income inequality are consistent predictors of voter turnout in Scotland. Scotland’s wide range of participatory behaviour based on health is particularly interesting.

Scotland has a unique relationship with health inequalities, and a history of unusually poor health outcomes based on region, education, and income.  Although health inequality takes many forms, life expectancies provide a good frame of reference.

In general, higher incomes beget longer lives. Scotland is a complete anomaly in this regard – despite having the highest average income in the United Kingdom, Scottish people have the shortest life expectancy.

Life expectancies also vary widely within Scotland, and even within cities and neighbourhoods. For instance, a male born in Glasgow between 2018-2020 has a life expectancy that is 7.5 years shorter than one born in the Shetland Islands.

Within Glasgow neighbourhoods, the difference in life expectancies is striking – males born in the least deprived areas can expect to live 15 years longer than males born in the most deprived areas.

I examined the health impacts on voting, volunteering, and political interest based on individual’s self-perceived general health, mental health, long-term illness or disability, and receipt of any illness or disability benefits.

Individuals that consider themselves in poor health are less likely to engage in civic behaviour compared to those that considered themselves in generally good health (Figure 4). Overall, self-perceived general health was the most significant health predictor of civic behaviour.

Figure 4: Inequalities in civic participation by self-reported health status

Surprisingly, claiming a long-term illness or disability did not impact an individual’s ability to participate. This is largely because of the broadness of the term “disability” – a person can be disabled in a way that limits their ability to vote, but many disabilities are easier to manage and would have no impact on someone’s ability to understand politics or volunteer. Receiving disability benefits, however, indicates that a person’s circumstance is difficult enough that it interferes with regular work and income.

The Understanding Society Survey has 41 different benefit classifications. Using their descriptions as illness or disability benefits, I looked into people who received at least one of the following benefits: severe disablement allowance, industrial industry disablement allowance, disability living allowance, war disablement pension, incapacity benefit, received working tax credit (including disabled person’s tax credit), and any other disability benefit or payment.

Scottish residents receiving some form of disability benefit were:

  • 10% less likely to have voted in the most recent election than Scottish residents that did not receive disability benefits
  • 19% less likely to report an interest in politics
  • 41% less likely to have volunteered in the past year

Receiving work or income benefits is another way of looking into the degree to which income inequality affects participation. I considered the following benefit classifications to be low income or unemployment benefits: income support, job seeker’s allowance, national insurance credit, housing benefit, rent rebate, universal credit.

Receiving work or income benefits affected participation more substantially than those receiving disability benefits (Table 1).

Table 1: Proportion of each population which participated in the following civic behaviours

Voted in a recent electionInterested in politicsVolunteered in the past year
Receiving unemployment or income benefits66%20%8%
Receiving illness or disability benefits72%26%10%
Total Scottish population80%32%17%

Income inequality is also closely related to civic participation. By dividing household income into five quartiles of the population, we found that the highest-earning 20% of the Scottish population was significantly more likely to participate in civic behaviours (Figure 5). This is a clear example of participatory inequalities based on income.

Figure 5: Civic participation inequalities based on income quintile

Education also has a significant impact on all aspects of civic participation. Volunteering is the most notably impacted behaviour by education; only 4.4% of Scottish residents without educational qualifications reported volunteering in the past year, compared to over 27% of Scots with university degrees.

Table 2: Percentage of each population which participated in the following civic behaviours

Voted in a recent electionInterested in politicsVolunteered in the past year
No educational qualifications73.5%21.3%4.4%
Scottish average80%32%17%
Has a university degree87.6%38.4%27.1%

Scotland suffers from unequal participation across a number of metrics, most notably education, income, health, and benefit receipt status. Poorer, less educated, and less healthy Scottish residents are less likely to have participated in voting and volunteering. The differences in participation are also larger within Scotland than any other constituent country in the United Kingdom.

Civic participation – whether by voting or by selecting causes to volunteer for – ultimately shapes political agendas. Values that are important to low-income, unqualified, or unhealthy members of society may be overlooked on a national scale due to disproportionately low levels of participation among these individuals.

The more equality in participation among all levels of society, the more that any particular group is able to better their circumstances.