The economic outlook for Scotland in 2018 and 2019 has improved, according to the Scottish Fiscal Commission’s official economic forecasts, published today.
The Commission forecasts economic growth of 1.4 percent in 2018 and 1.2 percent in 2019, reflecting stronger recent economic performance, a more positive prospect for earnings over the next few years and the fiscal expansion announced in the UK Autumn Budget. This is an increase of 0.7 and 0.4 percentage points respectively, when compared with the Commission’s May forecasts.
The Commission expects annual economic growth from 2020 onwards to settle back to around 1 per cent. This reflects low productivity growth compared with trends before the 2008 financial crisis.
Chair of the Fiscal Commission, Dame Susan Rice, said:
“We have seen economic indicators picking up recently and we believe that the economy will grow more quickly in 2018 and 2019. There is little change in the longer term when we expect the economic prospects for Scotland to remain subdued.”
“Brexit is a major uncertainty in this forecast. Our central assumption remains that of a relatively orderly exit from the EU.”
The Scottish Government’s budget is increasingly determined by devolved tax receipts and social security spending. This means that the Commission’s tax and social security forecasts are now playing a greater role in the budget arithmetic.
The Commission forecasts that £15.2 billion of the Scottish Budget will be raised by devolved taxes in 2019-20. Income tax raises the most revenue, forecast to be £11.7 billion next financial year. Of this, the changes in Scottish Government policy announced in today’s Budget raise an additional £68 million.
Our fiscal forecasts also include the effect of an increased Additional Dwelling Supplement and changes to the non-residential tax which add Â£39 million to our 2019-20 estimate of Land and Buildings Transaction Tax receipts.
The number of devolved social security benefits has increased with plans for new benefits to be devolved next year. Total social security spending is forecast to be £458 million in 2019-20. The Scottish Government has reformed these benefits, extending entitlements, making it easier to apply and increasing payment amounts. We estimate that these new and expanded social security plans will cost £90 million more than the funding received for these benefits.
Notes for Editors
1.The Commission’s Report Scotland’s Economic and Fiscal Forecasts – December 2018 is available now, along with a one page graphic of key figures and a summary document. Background information is also available including spreadsheets with data for all the report’s tables and charts.
2.The Commission’s forecasts assume a relatively orderly and smooth exit from the EU. Our judgments encompass a range of potential outcomes, but a no-deal Brexit is considered to be a downside risk to the forecasts. Our judgements were based on the information available when our economy forecasts closed on 27 November 2018. We expect to produce our next forecasts in May 2019 to support the Government’s Medium Term Financial Strategy.
3.The Commission’s social security forecasts cover Carer’s Allowance, Carer’s Allowance Supplement, Discretionary Housing Payments, Best Start Grant, Funeral Expense Assistance, Scottish Welfare Fund, Best Start Foods and Employability Services. Responsibility for the remaining benefits to be devolved will transfer to the Scottish Parliament by April 2020 at the latest. The benefits still to be devolved are: Attendance Allowance, Disability Living Allowance, Personal Independence Payment, Industrial Injuries Disablement Benefit, Severe Disablement Allowance, Cold Weather Payment and Winter Fuel Payment.
4.The Scottish Fiscal Commission is the independent fiscal institution for Scotland, established by the Scottish Fiscal Commission (2016) Act. Our statutory duty is to provide the independent and official forecasts of Scottish GDP, devolved tax receipts and devolved social security expenditure for the Scottish Government to use in its budget and financial planning. The Commission’s forecasts will also assist the Parliament’s scrutiny of the Scottish Budget and Budget Bill.
5.The Commission’s forecasting remit is specified by the Act and in secondary legislation. A full list of what we forecast is given in our FAQs at http://www.fiscalcommission.scot/about-us/faqs/.
6.Our forecasts represent the collective view of the Scottish Fiscal Commission, comprising the Commissioners: Professor Francis Breedon, Professor Alasdair Smith, Professor David Ulph, and the Chair, Dame Susan Rice.