Scottish Government Advocates Alternatives to Austerity
Source: Scottish Government (08/06/15)
New analysis shows Chancellor has £93 billion flexibility to meet fiscal mandate, the Scottish Government has argued.
The UK Government could ease the scale and speed of its spending cuts, invest in public services and still achieve its debt and borrowing targets, Deputy First Minister John Swinney will tell George Osborne today.
New analysis to be published by the Scottish Government today (Monday) highlights the flexibility the UK Government has to increase spending on public services above its current plans - by £8 billion in 2016-17 then up to £36 billion in 2019-20 - and still meet its Charter for Budget Responsibility targets.
That would allow a total of £93 billion of additional UK investment over the next four years as a whole when compared to current UK Government plans, providing up to £7 billion in additional investment for devolved public spending in Scotland.
Deputy First Minister John Swinney will meet the Chancellor of the Exchequer today (Monday) and put the case for using this flexibility to reverse in-year budget cuts and invest to support growth.
Speaking ahead of the meeting, Mr Swinney said: “Cuts are already hitting the poorest households the hardest, damaging public services and threatening economic recovery. Yet the UK Government is planning to inflict even deeper austerity this year, including cuts to Scotland’s budget this year.
“The cuts agenda is unnecessary and ideologically driven and we will continue to argue strongly for a moderate increase in spending on public services of 0.5% a year in real terms, between 2016-17 and 2019-20. That strikes the best balance between investing in public services and ensuring the sustainability of the public finances.
“However what we can show today is that the UK Government’s current plans go significantly beyond what is needed to meet their own arbitrary debt and borrowing targets.
“Our analysis shows that the Chancellor could meet his fiscal mandate and still invest an additional £93 billion of public services over the next four years, compared to its current plans. This would provide an additional £7 billion in investment for devolved public spending in Scotland.
“I will be making the cases that the Chancellor should reverse the latest unacceptable and damaging cuts to the Scottish Government’s budget and use the flexibility at his disposal to ease the scale of cuts in future years and invest in households and businesses.
“Our limited tax powers make it impossible for the Scottish Government to fill the gap being created by the Chancellor without taxing those who are already taking the brunt of the cuts.
“The threat of further cuts hanging over Scotland underlines the need for more powers to be devolved through the Scotland Bill including employment policy, the minimum wage, welfare, business taxes, national insurance and equality policy - the powers we need to create jobs, grow revenues and lift people out of poverty.”
Scottish Government: State of the Economy – June 2015
Summary of Key Conclusions
To download the full pdf document, see the Scottish Government’s website here.
In 2014 we saw very encouraging trends across a range of fundamentals, particularly domestic and inward investment. Moreover, conditions in some of Scotland’s key export markets, particularly the United States, continued to strengthen. These developments contributed to Scotland’s economy growing in 2014 at its fastest rate since 2006.
The positive economic trends observed in 2014 are expected to continue into 2015, with further growth in employment and output. However, the combined effects of the fall in oil prices and the muted trade environment in Europe (and elsewhere) create some uncertainty for the economic outlook in 2015.
Firstly, as is the case in other advanced economies lower oil prices will boost production and consumption in the economy as a whole. However, the fall in the oil price also affects the profitability of the offshore sector in Scotland and economic activity in the North East in particular. We expect the combined impacts of the lower oil price to be broadly neutral on output and employment in the economy as a whole although there will be issues of timing and regional and sectoral effects given the distribution of activity across the economy.
Second, a weaker Euro makes it more expensive for Scottish companies exporting to the Euro Area relative to a year ago, which comes at a time when growth in that market is still lagging behind that of other advanced economies.
On the domestic front, aspects to monitor in 2015 include the degree to which wage growth picks up, both in nominal terms and relative to inflation which is now below zero. Related to this is how conditions evolve in the labour market and whether we see a continuation of the improvements in areas such as underemployment. In the external environment, it will be interesting to observe how monetary policy across advanced economies, led by the US, evolves in response to very benign inflation in the context of relatively robust economic conditions.
Overall, the general outlook is for conditions in Scotland to continue to strengthen as the year progresses. We expect growth in 2015 to be in line with forecasters’ expectations of around 2.3%.
Recent Global Economic Developments
- The global recovery continued at a moderate pace – 3.4% – in 2014, with growth rates ranging from 0.9% in the Euro Area to 4.6% in emerging markets. World growth in 2015 is projected to see a modest acceleration to 3.5%.
- A major economic event since the last State of the Economy has been the fall in oil prices at the end of 2014. Whilst this has thrown up challenges for oil producers it is generally regarded as a positive stimulus for the world economy via its downwards effect on costs and prices (e.g. fuel, energy and food). This has led some forecasters to revise up their 2015 outlook.
- The pattern of global recovery remains asymmetric. Among advanced economies the US and UK saw the strongest growth in 2014. The Euro Area economy also expanded in 2014 for the first time since before the Euro crisis, albeit still well below its pre-crisis pace. The combined effects of weak demand, considerable spare capacity, and the oil price fall also pushed the Euro Area into outright deflation in December, prompting the ECB to launch a large-scale Quantitative Easing (QE) programme in January in a bid to stimulate demand and inflation. Demand in emerging markets is relatively muted as many grapple with structural problems and falling prices for key export commodities (especially oil and gas). These factors – alongside capital outflows from investors seeking to capitalise on the US recovery – have led to currency depreciation, generating inflation and forcing many countries, including Brazil, Russia and South Africa to tighten monetary policy which has in turn dampened growth.
- The IMF’s view is that the global stimulus from lower oil prices will not fully offset the drag on demand from subdued conditions in Europe, Japan and emerging markets.Nevertheless, it does expect the pace of world growth to pick up slightly this year.
Recent Scottish Economic Developments
- The Scottish economy grew strongly throughout 2014 and expanded by 2.7% during the year as a whole, the fastest pace since before the recession in 2006.
- Onshore investment made a substantial contribution to nominal growth in 2014, underpinned by infrastructure projects and inward investment, with consumption spending being the other main driver of growth. At a sectoral level, Construction saw particularly strong growth, pushing this sector’s output above pre-recession levels. Production output also continued to expand. Meanwhile, after seven consecutive quarters of expansion Services output was flat at the end of 2014. However, this was partly due to the anticipated fall-back after the boost to activity in the previous quarter from the Commonwealth Games and Ryder Cup.
- The labour market has seen continued jobs growth, underpinned by rising participation – particularly by women – which has hovered around record highs. Recent months have also seen progress in labour market conditions for younger workers with an increase in employment and reduction in youth unemployment.
- Strengthening aggregate labour market conditions are encouraging but they continue to mask a degree of under-utilisation of labour market capacity, with underemployment and a desire for more hours still visible. Nevertheless, this is also an area where we have seen improvements in recent months.
Future Prospects – Scottish Economy
- The fall in oil prices over the past year is a key factor shaping the outlook and presents both upside and downside risks for Scotland. Whilst the onshore economy should benefit through lower costs and prices, oil and gas investment and the offshore sector’s supply chain can expect to be negatively affected.
- Whilst the scale of the impact on output and employment is challenging to quantify, initial analysis suggests that the impact will be broadly neutral over the next two years at the national level, but with differing regional and sectoral impacts. The relative timing of impacts is also important and will depend on specific household, firm and industry responses.
- Business surveys from the first quarter of 2015 have signalled a softening in economic activity in Q1 2015, consistent with that seen in the UK as a whole. Survey responses suggest that the sectoral impacts of lower oil prices have been a factor in this, although other challenges were also cited such as the sharp appreciation in sterling at the start of the year. Consumer sentiment data indicates that households remain positive in their outlook for both the Scottish economy and their own finances over the next year, though also indicate that at the start of 2015 they were still taking a somewhat cautious approach to spending.
- Notwithstanding the negative impacts of lower oil prices on some parts of the economy, the overall outlook remains positive with high employment levels and signs of wage growth, both of which are helping to boost household incomes. Elsewhere, with both interest rates and cost pressures low, and following strong investment in 2014, firms are well placed to capitalise on domestic and external demand this year.
- There are still headwinds, for example from further fiscal tightening at the UK level, weak conditions in key export markets and sterling appreciation.
- However, recent forecasts have been revised up and on average they expect growth in 2015 of around 2.3%.
To download the full pdf document, see the Scottish Government’s website here.
SNP and Labour to Call for Stronger Powers
Source: Holyrood Magazine
The SNP and Labour have both called for the new Scotland Bill to go further and bring new devolved powers to the Scottish Parliament.
The Bill, designed to implement the recommendations from the Smith Commission, will get a second reading in Westminster today, with both the SNP and Labour planning to table amendments to strengthen Scotland’s devolved powers.
The SNP amendment warns, “the measures proposed in the Scotland Bill are not an adequate response to the election result in Scotland”, calling for the inclusion of additional devolved powers over “job creation, taxation, welfare and wages
Labour meanwhile called on changes that would the Scottish Parliament to mitigate austerity.
Scottish Labour MP Ian Murray will call for the Scottish Parliament to have power to top up UK benefit rates and create new ones, along with full devolution of housing benefit.
Describing the Bill as “woefully lacking”, SNP MP Angus Robertson said: “The Smith powers are widely seen as the bare minimum which should be delivered to Scotland and yet every party in the Scottish Parliament - even the Scottish Tories –have backed the view of the cross-party Devolution Committee that the Bill as it stands simply doesn't measure up.
“It is abundantly clear that there needs to be substantial changes and improvements to bring the Bill up to scratch - and to deliver the powers people in Scotland want to see.
“As it stands, major powers over social security, the minimum wage and other key economic powers would remain in the hands of David Cameron and George Osborne - it is time these powers were delivered to Scotland to allow us to take real action to grow our economy and tackle poverty.
Murray said: “The original purpose of devolution was to keep the social solidarity that comes from being part of something bigger whilst recognising the uniqueness of Scotland’s role in the UK.”
He added: “The Bill we will debate over the coming weeks isn’t perfect, but it allows us to keep the benefits of pooling and sharing resources across the UK whilst taking our own decisions in key areas. That’s what over two million Scots voted for just last year.”
Responding to the SNP amendments, he said: “The SNP promised in their manifesto to deliver Full Fiscal Autonomy, but they have barely settled into their Westminster offices before completely abandoning it.
“The SNP know their policy of Full Fiscal Autonomy would be a disaster for Scotland, they just won’t admit it.
“The First Minister said during the General Election that her MPs would vote for it this year, their amendments to the Scotland Bill confirm that they won’t.
“The reality is that Full Fiscal Autonomy would mean a level of austerity to our public services in Scotland that even George Osborne wouldn’t dream of, which is why the SNP are sprinting away from their own flagship policy.”
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