Government Expenditure & Revenue Scotland (GERS) 2016-17 was published this morning. It shows that in 2016-17 Scotland’s notional net fiscal deficit was 8.3%, down from 9.3% in 2015-16. The UK’s deficit for the same period was 2.4%.
The figures also show that non-North Sea oil and gas revenue increased by 6.1% on the previous financial year, and that public spending in Scotland is £13,175 per person, £1,437 per person greater than the UK average.
We reported back in May on experimental statistics by the ONS showing how Scotland compared with the other nations and regions of the UK in terms of public spending deficits. The Fraser of Allander Institute referred to this data in its analysis of GERS today, noting that “[t]he key reason for Scotland’s ranking behind other parts of the UK is not because of lower revenues, but higher levels of spending. Indeed only London, the South East and the East of England are estimated to raise more revenue per head than Scotland.” Scotland is second only to Northern Ireland in terms of public spending.
As for the next few years, the Fraser projects that Scotland’s deficit will be at around the 7% mark by 2020-21.
Finally, on the notion that GERS is unreliable, Dr Graeme Roy, Director of the Fraser of Allander Institute said the following1:
Some have dismissed GERS as it relies, in part, on estimating some Scottish tax revenues. This is unfair. All economic figures are subject to a degree of estimation, including GDP and unemployment statistics. So estimation is not unusual. Furthermore, radically changing the estimation techniques do not alter the headline conclusions of GERS.
It is important to remember that 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 a set of accounts based upon the current constitutional settlement and policy priorities will tell us little about the *long-term* finances of an independent Scotland.
But GERS does provide a pretty accurate picture of where Scotland is in 2016-17. In doing so, it sets a useful starting point for a discussion about the immediate choices and challenges that need to be addressed by those advocating further constitutional change.
All countries face big fiscal challenges in terms of what will replace declining revenues in the face of rising spending pressures over the next few years. Changing the constitutional set-up doesn’t alter the fact that these fiscal challenges need to be addressed by all governments in all countries. But a more autonomous Scotland will be forced to meet such challenges sooner rather than later.
The Fraser of Allander Institute has published forecasts for growth in the Scottish economy over the second and third quarters of 2017:
GVA growth in 2017 Q2 is estimated to be 0.49% which, at an annual rate, is 1.98%
GVA growth in 2017 Q3 is estimated to be 0.40% which, at an annual rate, is 1.62%
They add: “[W]e note that the UK economy — which had a surprisingly strong 2016 — has weakened in recent quarters. This will have an implication for Scottish trade with the rest of the UK and may therefore dampen growth in Scotland through 2017.”
From “Chapter 5: Scotland” of the UK parliament’s House of Lords European Union Committee report on Brexit and devolution, published today:
We conclude, on the basis of the weight of evidence submitted to this inquiry, that the Scottish Government’s further proposal, for continued Scottish membership of the Single Market, through the European Economic Area, while the rest of the UK leaves the Single Market, is politically impracticable, legally highly complex and economically potentially disruptive to the functioning of the UK single market.
Nevertheless, we urge the Government to respect the particular circumstances in Scotland. While we acknowledge that the referendum was a UK-wide vote, giving a UK-wide result, the Government needs to recognise the fact that the vote to remain in Scotland, at 62%, was the largest and most decisive (either in favour of remaining or leaving) in any nation of the UK.
We therefore consider that, in the event that the UK Government does not secure a UK-wide agreement that adequately reflects Scotland’s specific needs, there is a strong political and economic case for making differentiated arrangements for Scotland.
The Scottish economy has particularly pressing needs, including its reliance on access to EU labour, which is acute in sectors such as health and social care, agriculture, food and drink, and hospitality. We also note Scotland’s demographic needs, and its reliance upon EU migration to enable its population (and in particular, that of working age) to grow. Scotland’s more sparsely populated regions are disproportionately reliant both on EU migration and EU funding. Many of our witnesses argued that the most pressing case, in view of Scotland’s economic and demographic circumstances, would be for a standalone approach to immigration policy. We address this issue in the next chapter.
Our witnesses have also suggested that differentiated arrangements could be reached in fields such as energy policy, justice and home affairs cooperation, participation in Europol, access to EU structural or research funds, participation in such programmes as Horizon 2020 or Erasmus, reciprocal healthcare provision, workers’ rights and working hours, and agriculture and fisheries.
Finally, we reiterate that maintenance of the integrity and efficient operation of the UK single market must be an over-arching objective for the whole United Kingdom. But that objective does not preclude differentiated arrangements for Scotland in some areas, and nor does it justify excluding the Scottish Government from the Brexit process. […]
Scottish GDP grew by 0.8% in the first quarter of 2017, averting recession following a 0.2% contraction in Q4 2016. Scotland’s 0.8% growth compares with 0.2% in the UK as a whole, 0.4% in the United States, and 0.6% in the euro area1.
Firstly, the figures show a substantial rise of over 7% in metals manufacturing, driven in part by the re-opening of the Dalziel steel plant.
Secondly, as our latest Oil and Gas survey highlighted, there has been a growing return to confidence in the oil and gas supply chain. The data published today appears to indicate that this has actually now translated into a welcome degree of bounce-back in actual activity within the sector.
Thirdly, the figures report massive growth of over 12% in refined petroleum output which is largely output from Grangemouth. We’d urge caution with this series as it’s especially volatile […]
Finally, other sectors of manufacturing have also bounced back from a weak 2016. Food and drink for example, also grew strongly by historical standards.
The FAI on longer-term performance:
[…] [I]f Scotland can — over the remaining three quarters of 2017 — secure its average quarterly growth rate of 0.35% then this will bring in 4Q-on-4Q growth over 2017 of 1.2%. Identical to our June forecast.
Dr Gary Gillespie, the Scottish Government’s Chief Economist, on the growth outlook for 20171:
Looking ahead, the outlook for growth in 2017 remains positive but at below trend growth.
There are emerging signs that confidence is returning to the oil and gas sector which, coupled with the structural improvements made by the industry since 2015, will put it on a stronger footing to take advantage of the opportunities which will emerge as cyclical factors improve.
The low value of Sterling is expected to support export led growth for the manufacturing sector, whilst continuing to rebalance the economy as rising import prices feed through to higher inflation, impacting real income growth and household consumption.
Brexit continues to present a significant risk to business and consumer sentiment in Scotland with investment sensitive to changing market signals. The range of independent forecasts for Scotland suggest growth of between 0.9% and 1.3% in 2017.
Employment statistics for February to April 2017 were released this morning. They show a continued decline in unemployment in Scotland. The figure now sits at 4%, the lowest of the four UK countries1, a decrease of 0.6% on the previous quarter (Nov 2016 to Jan 2017), and down 1.8% year on year. The BBC notes that 4% “equals the figure recorded between March and May in 2008.” In fact, it’s the joint-lowest since records began in 1992.
In March 2017 82.6% of jobs in Scotland were in the services industries. This compares to 91.9% in London and 77.9% in Wales.
For the period from January to December 2016, Scotland—along with the North East and North West of England—had the lowest average actual weekly hours worked in full-time jobs, at 36.9 hours. This compares to London’s 38.4 hours, the highest in the UK during 2016.
Despite apparently very little growth in the overall economy, Scotland’s labour market continues to hold up remarkably well.
Over the year to the 3-months January to March 2017, unemployment in Scotland fell 48,000 whilst employment levels rose 41,000.
The current rates of employment and unemployment are close to the best on record.
Levels of underemployment—that is people in work but who would prefer to work longer hours—have also fallen back towards pre-recession levels.
Scotland’s youth unemployment rate continues to outperform all other parts of the UK and compares favourably internationally.
…since the financial crisis there has been a rise in part-time employment (up around 9% since 2007). Within the part-time figures, there has been a 60% increase in the number of people who say the reason they are working part-time is that they cannot find a full-time job.
…nearly [three quarters] of the growth in Scottish employment over the last year was in the form of self-employment.
…there has been a further rise in economic inactivity—that is people not actively seeking work—of 15,000 over the last year.
In 2016, productivity as measured by output per hour worked in Scotland fell 1.5%.
Weak productivity levels will make it difficult for businesses to find new resources to support sustained wage increases.
The FAI also notes in its analysis that “the lack of growth in the wider economy—coupled with rising inflation—means that there is little prospect of a sustained improvement in people’s take-home pay.”
The data finds that in 2015/16 Scotland raised the fourth most (£10,230) in public sector revenue per person out of the UK’s 12 NUTS 1 statistical regions, and received the second most (£13,054) in terms of public sector expenditure. This resulted in a deficit of £2,824 per person.
Scotland’s deficit was the fifth biggest in the UK, behind Northern Ireland (£5,437), Wales (£4,545), and North East (£3,827) and North West (£3,043) England. Only the East of England, the South East, and London had a surplus.
We’ve created three graphs based on the data. You can explore all the data here.
Source: ONS—Country and regional public sector finances: Financial year ending March 2016, Table 3 (.xls).
Source: ONS—Country and regional public sector finances: Financial year ending March 2016, Table 5 (.xls).
To put the UK in context, the below chart from Eurostat shows just how big the disparity in GDP per capita is between London and the national average when compared with other EU countries.
(We’re not sure why the UK is the only country with two blue circles for ‘Capital region’. We’ve asked Eurostat about this and will update the page when they get back to us.) Update—Eurostat has informed us that the lower blue dot in the UK column is a visualisation error and in fact belongs to ‘Other NUTS regions’.
Disgraced former Royal Bank of Scotland chief executive Fred Goodwin will be back in the spotlight in a High Court trial starting this week that will delve into the disastrous events at the bank in 2008.
The £700m High Court case has been brought by thousands of RBS shareholders who allege they lost money in a £12bn rights issue launched by the bank in June 2008. A few months later, RBS had to be bailed out by the British government to the tune of £45.5bn.
The investors claim the rights issue prospectus contained misleading statements about the true financial position of RBS under Mr Goodwin’s leadership. RBS and four ex-directors named as defendants including Mr Goodwin deny wrongdoing. Mr Goodwin will testify under oath for the first time during the trial.
Royal Bank of Scotland … has tried to reach a last-minute settlement with a group of investors who allege that the lender misled them over a 2008 capital increase, according to two people close to the matter.
A successful settlement would save RBS from a lengthy and potentially embarrassing trial, at which its former Chief Executive Fred Goodwin would face scrutiny over his decision-making and leadership at the time of the lender’s near-collapse.
A British judge has given Royal Bank of Scotland … a week to avoid a trial by reaching a deal with investors who allege the bank misled them over its 2008 fundraising.
Judge Robert Hildyard adjourned the case on Wednesday until June 7, but warned this would be the final chance to reach an out-of-court settlement and said the two sides must inform him whether a settlement has been reached by June 1.
RBS has already offered almost 1 billion pounds ($1.3 billion) to avoid a trial that would rake over its near collapse and state bailout during the height of the credit crisis and bring former chief executive Fred Goodwin to court.
Fred Goodwin, the former chief executive of Royal Bank of Scotland, is likely to escape a potentially embarrassing court appearance after the bank reached a legal settlement in principle with a shareholder action group.
The group, which represents about 9,000 RBS investors, said on Monday that it would accept 82p a share from the bank.
National accounts for the fourth quarter of 2016 were released today. Headline results from the Government’s publication:
During the fourth quarter of 2016, Scottish onshore GDP decreased by 0.2% in real terms. In 2016 as a whole, GDP increased by 0.4% compared to 2015. These results are re-printed in this publication without revision following their release on 5 April 2017.
During 2016 as a whole, the value of Scottish onshore GDP is estimated at £149.8 billion in total, or £27,839 per person.
Including a geographical share of UK extra-regio (offshore and overseas) economic activity, Scottish GDP is estimated at £159.0 billion during 2016, or £29,554 per person.
Analysis of the expenditure measure of onshore GDP shows that growth over the latest 12 months was mostly driven by consumer spending, but with positive contributions also made by government, capital investment and exports. There was a negative contribution to GDP growth from the widening of the onshore net trade deficit, due to the increasing value of imports.
Manufactured Exports make up around half of the total value of exports from Scotland to the rest of the world (excluding oil and gas). The Index of Manufactured Exports (IME) fell by 2.3% in volume terms during the fourth quarter of 2016. Comparing the most recent four quarters to the previous four quarters (4Q-on-4Q growth), the volume of manufactured exports fell by 5.3 per cent.
Over the year to 2016 Quarter 4, total consumer spending by the Household and NPISH sectors is estimated to have increased by 2.9% in current prices (unadjusted for inflation, not real terms)
Gross Disposable Household Income (GDHI) is estimated to have increased by 1.6% over the year to 2016 Quarter 4 (in current prices, not real terms). The Household Savings Ratio is 2.6 per cent in the latest quarter.
Some charts and analysis based on the data…
The below chart shows GDP per capita from 1998 to 2016, with and without North Sea oil and gas:
GDP grew by 0.4% in real terms from 2015 to 2016, but growth was flat (+0.01%) if you compare Q4 2016 with Q4 20151.
As highlighted by The Scotsman, North Sea oil revenues in 2016 were negative for the first calendar year on record2. The below chart shows how onshore and offshore revenue have contributed to Scotland’s public finances since 1998:
Both North Sea and overall revenues had been falling since 2011. However, there was a levelling off of total revenue in 2015, and in 2016 total revenue rose by £2.1 billion despite oil revenues being negative. Let us hope this is the beginning of an upward trend.
The chart below shows Gross Value Added (GVA)3 by broad industry group:
Services is by far the biggest contributor, with a weight of 76% of GVA, and 67% of GDP. Services grew by 1.8% in real terms in 20164, but shrank by 0.04% in real terms in the last quarter of 20165. For the UK as a whole, the ONS’s latest figures show that services make up 79% of UK GDP.
14 May: Added chart showing real-terms GDP (chained volume index) since 1998
13 May: Added chart showing GVA by broad industry group
12 May: Added chart comparing onshore and offshore public sector revenue since 1998