Chamber and committees

The Scottish Government borrowed in 2017-18 using the Equal repayments (ER) method - an annuity profile of equal annual payments, hence varying levels of principal and interest (in the earlier years more interest and less principal is paid and vice versa in the latter years of the loan). This method is allowable under the Borrowing Memorandum of Understanding agreed between Scottish Government and HM Treasury. Decisions on repayment method have yet to be taken for 2018-19 and beyond.

Scotland provides the most competitive non-domestic rates reliefs package available anywhere in the UK and is worth a record £720 million, up from £660 million in 2017-18, which includes several measures that are unique to Scotland. The Small Business Bonus Scheme (SBBS) has lifted over 100,000 properties out of rates altogether in 2017-18 and has saved businesses over £1.5 billion cumulatively since 2009. The package of measures also includes the UK’s first targeted 100 percent rates relief for nurseries which was introduced from 1 April 2018, along with the growth accelerator and relief for new unoccupied builds which supports investment in non-domestic property.

These measures have been welcomed by businesses the length and breadth of Scotland.

Polling by YouGov for the Times showed that more than half of Scots support our income tax changes. When asked if they supported the income tax changes announced at the Budget, 54% of respondents said they supported the change, and only 27% did not. That is double the number of respondents supporting the policy change than not.

Between 2007 and 2017, Scotland’s productivity has increased by 5.4% in total, or 0.6% per year on average. This compares to a UK increase of 1.7% in total, or 0.2% per year on average.

The Scottish Government is taking action to support the Scottish economy’s productivity, in line with the priorities set out in our Economic Strategy – to tackle inequality and increase competitiveness. This is very much aligned with our vision for education in Scotland – to ensure that we achieve excellence and equity for all of our children and young people in a highly performing education system.

The Scottish Government is investing enormously in the provision of funded early learning and childcare (ELC) for all 3 and 4 year olds and for the most disadvantaged 2 year olds and has recently announced a multi-year funding deal with local authorities that will ensure the successful delivery of the transformational expansion of ELC to 1140 hours a year from 2020. We are investing £750m through the Attainment Scotland Challenge over the course of this parliament to tackle the attainment gap. Furthermore, we are making Higher education more accessible and investing over £1.8 billion to support the Further and Higher Education sectors through the Scottish Funding Council’s 18-19 budget, guaranteeing that Higher Education will remain free of tuition fees for all eligible Scottish or EU domiciled undergraduate students.

Taken together, these measures are creating an excellent, work relevant education offer for Scotland’s young people, giving them the skills for the current and anticipated jobs market – which can help drive increased productivity. These policies can also help deliver inclusive growth by helping to close the attainment gap, contributing to our preventative actions to reduce Child Poverty and ensuring that every child, no matter their background or circumstances, has an equal chance of going on to higher education.

As highlighted by the Scottish Fiscal Commission’s latest report, the growth rate of Real Disposable Household Income (RDHI) is influenced by a range of macroeconomic trends. In particular differences in population growth rates are an important determinant in the difference between the growth rate of RDHI between the UK and Scotland.

The Scottish Fiscal Commission go on to forecast that any gap between Scottish and UK RDHI on a per capita basis (controlling for differences in population growth) will narrow and then close over the next two years.

The Scottish Government’s 2018-19 income tax reform will - even after behaviour effects - deliver an additional £1.2 billion over the next 5 years to support public services and the economy, as well as making our system fairer and more progressive.

The SFC’s report, Table 3.5, clearly states that the main reason for their downgrade in income tax receipts is a change in their projections for wage and employment growth. There is no evidence that would suggest our income tax policy is leading to a downgrade in forecasts. In their December report the SFC note that the income tax policy is “not of a large enough magnitude to have a significant aggregate impact on the Scottish economy” (page 76). The SFCs reports can be found here: http://www.fiscalcommission.scot/media/1196/scotlands-economic-fiscal-forecasts-publication.pdf and here: http://www.fiscalcommission.scot/media/1314/scotlands-economic-and-fiscal-forecasts-may-2018-full-report.pdf

The Scottish Fiscal Commission (SFC) forecast that there is limited room for population growth to contribute further to economic growth because total population growth in Scotland is expected to slow in the coming years. Furthermore, the population aged 16-64, which make up most of the working age population, is expected to start to shrink from 2018 onwards. This is expected to place a particular drag on growth in GDP in Scotland.

One of the factors that risks limiting population growth going forward, is lower international migration growth. The contribution of migration to Scotland's economy and demographic profile is crucial, and relatively more important than it is to other parts of the UK. Powers over migration are reserved to the UK Government, however it is increasingly clear the UK Government’s immigration policy does not address Scotland's economic, demographic and social needs. As such, the case is overwhelming for the Scottish Government to be able to set the rules for migration in a way that will attract and retain people with the skills we need.

The Laffer curve suggests that increasing tax rates beyond a certain point is counter-productive for raising further tax revenue because higher tax rates discourage people from working. However, the independent Scottish Fiscal Commission very clearly forecast that the Scottish Government’s 2018-19 income tax reform will - even after behaviour effects - deliver an additional £1.2 billion over the next 5 years to support public services and the economy.

As the Scottish Fiscal Commission state in their latest report, the available data shows a “mixed picture” on wage growth in Scotland, with some sources showing earnings growing in real terms, and others showing negative growth.

The Scottish Government’s Public Sector Pay Policy for 2018 – 19 is directly boosting wage growth in Scotland by lifting the 1% public sector pay cap, as well as providing support to employment and the wider economy. Furthermore, the Scottish Government is continuing to take action to support wages by championing the real Living Wage. We have achieved our target of reaching 1,000 accredited employers, and over 80% of workers in Scotland now earn the real Living Wage of £8.75 per hour, the highest rate in the UK.