Earnings in Scotland

 

About the Inquiry

At its meeting on 6 February, the Committee agreed to undertake some work on pay in Scotland. The purpose of this paper is to seek agreement on the Committee’s approach to this work.

Background

The issue of pay in Scotland was last considered by the Finance Committee in 2009 when the session 3 Finance Committee reported on various aspects of public sector pay including the process for approving pay proposals, the negotiating machinery across the public sector and the pay policy for senior appointments. 

Employment in Scotland comprises of public sector employment (20.7 %) and private sector employment (79.3 %) as of September 2018. In February 2019, the unemployment rate in Scotland fell over the quarter to 3.5% whilst for the UK as a whole it is 4.0%. Employment increased by 0.6 percentage points to 75.5%, just below the UK wide figure of 75.8% .

Earnings in Scotland

Earnings in Scotland compared to the rest of the UK

The ONS released the Annual Survey of Hours and Earnings 2018 provisional results in October 2018 and SPICe produced a briefing paper on earnings in Scotland based on this publication.  

The figures show that in April 2018, the median, or typical, gross salary in Scotland for all employees was £23,833. This is just below the UK wide figure (£24,006) and is the highest outside London and the South East, but lower than the overall England figure.

The briefing highlights that over the year, salaries for all employees in Scotland grew by 3.1%, which was 0.9% in real terms. This was the third highest increase of the UK regions and nations. Only Northern Ireland and the East of England saw larger increases in salaries.

In addition, Scotland had seen slightly higher growth in real terms income than the UK, increasing by 1.9% compared to 1.7% between 2011 and 2018. Despite this stronger growth in wages, Scotland still sits behind the UK as shown in the figure below—

Income tax forecasts

The principal determinants that underpin the Office of Budget Responsibility’s (OBR’s) and the Scottish Fiscal Commission’s (SFC’s) income tax forecasts are earnings growth and employment growth. The Committee considered these forecasts as part of its scrutiny of the Scottish Government’s Budget 2019/20. The table below from the Committee’s report on the BuIncomdget 2019/20 shows the SFC’s and OBR’s latest forecasts for earnings growth compared with the forecasts which informed Budget 2018-19.

The Committee saw that the SFC’s forecasts for average earnings growth had been slightly revised down in each year of the forecast period while the OBR’s forecasts had been revised up by a similar order of magnitude. This meant that the OBR now forecasts that UK earnings growth will be faster than the SFC forecasts for Scotland over the forecast period. 

The Committee noted that the revised forecasts for income tax illustrate the extent of the potential risk to the Scottish Government’s Budget and that the extent of this risk would not become clearer until the audited outturn figures are available.

The Committee concluded that it was not clear how much the Block Grant Adjustment forecast had changed as a consequence of the OBR’s upward revisions to its forecast rates of earnings growth and employment rate growth and agreed to take forward the future provision of this information with HM Treasury.

 

Number of Scottish Taxpayers

The Committee also considered the gender balance of the Scottish income tax base as part of its budget scrutiny and heard that there were 300,000 fewer women taxpayers and that higher rate taxpayers comprise 91,000 women and 275,000 men as a result of structural problems in the labour market and earnings that affect who is paying tax and at what level. The Scottish Government, in response to this said— 

 

"The Scottish Government has no power over defining the income tax base – including the personal allowance - and so cannot directly change the number of people subject to income tax, or indeed the gender make up of each tax band.

The Programme for Government makes clear our determination to reduce gender inequality and improve the position of women in the workplace. The Scottish Government has established a Gender Pay Gap Working Group that includes stakeholders such as Close the Gap, Engender and STUC. The Group were asked to develop recommendations for tackling the drivers of the gender pay gap to inform the publication of the Gender Pay Gap Action Plan, which is due for publication imminently. " 

Public sector pay compared with private sector pay

The Annual Survey of Hours and Earnings (ASHE) 2018 provisional results, published on 25 October 2018, show that public sector pay in Scotland is slightly higher than the UK, at £15.51 per hour compared to £15.32 per hour. Private sector pay is lower than the UK, at £11.78 per hour in the UK and £11.36 per hour in Scotland. Public sector pay increased in real terms across the UK by 0.4%, but fell by 0.1% in Scotland. Private sector pay increased by 1.4% in Scotland and by 0.9% across the UK.

In November 2018, the ONS published its survey of public and private sector earnings in the UK for 2017. Its main findings were— 

    • After controlling for various individual and job characteristics, on average there is a positive earnings (including pensions) differential in favour of the public sector. 
    • The positive differential in favour of the public sector is mainly concentrated on low-skilled workers and on workers in smaller organisations when the organisation size is considered. 
    • High-skilled employees in the public sector tend to have lower earnings than their counterparts employed in the knowledge-intensive services and primary sectors in the private sector.
    • Relatively low-paid employees have the largest earnings advantage from employment in the public sector; for high-paid employees, the gap still exists in favour of the public sector for those working in smaller organisations, however, employment in the large private sector organisations has a positive impact on the earnings of those employees.

The Institute for Fiscal Studies reported on public sector pay in 2017 and found that the pay differential between the public and private sectors is not the same across the whole public sector. It stated—

On average, pay at the top end in the public sector is not as high as it is in the private sector, and at the bottom end it is not as low as it is in the private sector. This can be shown by looking at the differential for groups of workers with different educational backgrounds. Most public sector workers are highly educated, with 64% of them having completed higher education, 16% having A levels as their highest qualification and 20% having at most GCSEs  

Evidence

The Committee plans to take evidence in two roundtable sessions between April and May 2019.

The first evidence session took place on Wednesday 24 April 2019 and the Committee heard from: Close the Gap; Unison; Resolution Foundation; University of Stirling; STUC; Cornerstone; and IPPR Scotland.

COSLA were unable to attend the roundtable evidence session on 24 April and instead provided written evidence to the Committee.

 
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