Chamber and committees

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.

The Scottish Fiscal Commission (SFC) identify Scotland’s industrial and demographic structure as a downside risk to growth alongside the UKs changing relationship with the EU, a weakening outlook for global trade and weak demand from activity in the UK Continental Shelf (UKCS).

The Scottish Government is using the powers it has to support growth across our industries and ensure that our economic potential is realised. For example, our investment of almost £2.4 billion in enterprise and skills, the most competitive business rates package in the UK, while investing in our National Manufacturing Institute and Scottish National Investment Bank.

The SFC identify Scotland’s projection for slower population growth and declining population aged 16-64 (in contrast to growth in the UK as a whole) as 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 Scottish Fiscal Commission have noted that consumption growth over the recent past has been supported by factors such as households reducing their savings and increasing their borrowing. This has decreased the savings ratio, which the Scottish Fiscal Commission have forecast to decrease at a lower rate in future years.

The Scottish Government position is that over the longer term, both consumption and household savings should be supported by increased productivity and balanced wage growth.

Increasing productivity is central to achieving the ambitions set out in Scotland’s Economic Strategy, and therefore it is a key aim of much of Scotland’s Economic Policies. Furthermore, the Scottish Government is taking forward numerous measures to ensure the benefits of increasing productivity can be shared fairly, such as encouraging employers to pay the real living wage and supporting access to flexible working.

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 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.

Decisions on repayment method have yet to be taken for 2018-19 and no decisions on use of borrowing have been taken for 2019-20.

I also refer the member to the answer to question S5W-17426 on 16 July 2018. All answers to written parliamentary questions are available on the Parliament’s website, the search facility for which can be found at http://www.parliament.scot/parliamentarybusiness/28877.aspx

The Scottish Government has not increased overall taxation in Scotland compared with the rest of the UK. Those who earn less than £26,000 per annum, who make up 55% of Scottish Income Taxpayers, pay less income tax in Scotland than they would in the rest of the UK. In Scotland the average council tax charge for all property bands, including E, F, G and H, is between £300 and £450 lower than England. The average Band D Council Tax bill in Scotland in 2018-19 is £1,208 compared to £1,671 in England – a difference of £463. The Scottish Government is however investing in a range of measures to support the Scottish economy and increase productivity including almost £2.4 billion on enterprise and skills through our enterprise agencies and higher education bodies and providing investment for business to grow through the £500 million Scottish Growth Scheme. Scotland also provides the most competitive non-domestic rates reliefs package in the UK, worth a record £720 million this year.

No decisions have been made on capital borrowing in 2019-20. The impact of capital borrowing in 2019-20 has been modelled by Scottish Government and the Scottish Fiscal Commission but final decisions on if, and how much, to borrow will be taken as part of the 2019-20 budget process.

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 latest statistics from ONS show that over the period 2006 – 2016 (the latest available year) Gross Household Disposable Income per person in Scotland has grown at 2.6% a year in current prices, the same as in the UK as a whole. The SFC forecasts for disposable income growth shows a gap in the coming years, however they are forecasting that this will close (see figure 5 of their publication, which can be found here: http://www.fiscalcommission.scot/media/1314/scotlands-economic-and-fiscal-forecasts-may-2018-full-report.pdf ). The tax changes we have made have ensured that, for the majority of income tax payers, Scotland is the lowest taxed part of the UK.