Figuring it out: five issues emerging from the Scottish draft budget

The week before Christmas might not seem an ideal time to be mulling over the minutiae of economic forecasts and the implications of tax changes. But on Monday morning, the Fraser of Allander Institute (FAI) review of last week’s Scottish draft budget attracted a big turnout, and helped make sense of the numbers announced by Scotland’s Finance Secretary, Derek Mackay.

Here are some of the key issues to emerge from yesterday morning’s presentations.

  1. Growth: degrees of pessimism

Last month, the UK Office for Budget Responsibility revised downwards its growth forecast for the UK economy to less than 2%. The FAI, meanwhile, has forecast a slightly lower growth rate for the Scottish economy of between 1% and 1.5%. However, the independent Scottish Fiscal Commission (SFC) is much more pessimistic, forecasting growth in the Scottish economy of less than 1% up to 2021. If the SFC’s forecast turns out to be accurate, this would mean the longest run of growth below 1% in Scotland for 60 years.

Dr Graeme Roy, director of the FAI, suggested that the SFC’s gloomy outlook is based on the view that the Scottish working-age population is projected to decline over the next decade. In addition, the SFC also believes that the slowdown in productivity, which has been a blight on the Scottish economy since the 2008 financial crisis, will continue.

  1. Income tax rises: reality v perception

Mr Mackay proposed big changes in Scotland’s tax system, with five income tax bands stretching from 19p to 46p. While these measures attracted the biggest headlines for the budget, the FAI believes that most people will see little meaningful impact in their overall tax bill (relative to income). Charlotte Barbour, director of taxation at the Institute of Chartered Accountants of Scotland, also suggested that the tax changes are unlikely to result in any significant behavioural changes in the way people pay tax in Scotland. And, as has been noted elsewhere, high taxation does not necessarily lead to unsuccessful economies.

However, as the FAI highlighted, perception is important, and if Scotland comes to be seen as the most highly taxed part of the UK, this could have serious implications for business start-ups and inward investment.

  1. Taxation: two systems, multiple implications

Charlotte Barbour also highlighted some of the implications of the tax changes in Scotland that haven’t featured widely in press coverage. How the changes interact with areas such as Gift Aid, pensions, the married couple’s tax allowance, Universal Credit and tax credits will need careful examination in the coming weeks.

  1. Public spending: additional resources, but constrained settlements

The FAI’s David Eiser noted that Mr Mackay was able to meet his government’s commitments to maintain real terms spending on the police and provide £180m for the Attainment Fund. He also announced an additional £400m resource spending on the NHS. But these settlements are constrained in the context of the Scottish Government’s pay policy,

Mr Mackay’s plan offers public sector workers such as nurses, firefighters and teachers earning less than £30,000 pounds a year a 3% pay rise, and those earning more than that a 2% rise. For the NHS alone, this could cost as much as £170m.

In addition, analysis published yesterday by the Scottish Parliament Information Centre (SPICE) has estimated that, if local authorities were to match the Scottish Government’s pay policy, this would cost around £150m in 2018-19.

  1. The budget’s impact on poverty

If the growth forecasts are correct, even by 2022 real household incomes in Scotland will be below 2007 levels. Dr Jim McCormick, Associate Director Scotland to the Joseph Rowntree Foundation, looked at the Scottish budget in the context of poverty, and suggested that three principles need to be addressed before the budget can be finalised: there are opportunities both to increase participation by minority groups in employment and to improve progression in low-wage sectors, such as hospitality and retail; energy efficiency is one important way of lowering household bills and improving housing quality in the private rented sector; and options such as topping up child tax credits and more generous Council Tax rebates are better at reducing poverty than cutting income tax.

Finalising the budget

As all of the speakers noted, the Scottish draft budget is not a done deal. The minority Scottish National Party government in the Scottish Parliament needs the support of at least one other party to ensure its measures are adopted. The most likely partner is the Scottish Green Party, which has indicated that the budget cannot pass as it stands, but could support the government if an additional £150m is committed to local government.

It took until February this year before the Scottish Government’s 2016 draft budget could be passed. Time will tell whether a budget announced shortly before Christmas 2017 can finally be agreed before Valentine’s Day 2018.

The complete collection of slides presented at the Fraser of Allander Institute’s Scottish budget review are available to download here.


Our blog post on the Fraser of Allander Institute’s review of the Chancellor of the Exchequer’s 2017 Autumn Budget is available here.

Gender pay gap – will it ever close?

égalité des sexes

By Heather Cameron

Last Thursday was labelled ‘Equal Pay Day’ – the last day of the year women effectively stop earning relative to men – just one day later than the previous year.

According to the Fawcett Society, this means women are in effect ‘working for free’ until the end of the year as a result of the gender pay gap.

Given that it is 46 years since the Equal Pay Act was introduced ‘to prevent discrimination, as regards terms and conditions of employment, between men and women’, it is dispiriting that considerable inequalities remain between men and women’s pay.

How much of a gap?

The Fawcett Society has calculated the current gender pay gap for full-time workers at 13.9%.

Recent research by Deloitte suggests that the gender pay gap will not close until 2069 unless action is taken to tackle it now. It shows that the hourly pay gap between men and women is closing at a rate of just 2.5 pence per annum, and in some cases is even widening.

The study also notes that men receive considerably higher average pay even in female-dominated occupations, such as teaching and caring.

And new research from New Policy Institute (NPI) found that, although things have been improving with higher employment rates and increases in earnings, the formal employment rate for women is still lower and female weekly earnings are still less than 70% of male weekly earnings.

The research also highlighted that significant barriers continue to prevent women entering the labour market, particularly when it comes to high-paid, secure, quality jobs.

The overall global situation would appear even worse as the most recent Global gender gap report from the World Economic Forum indicates that the gap could take 170 years to close.

In terms of the economic impact, the gender pay gap has been highlighted as a particular issue in relation to the UK’s low productivity problem.

It has been suggested that equalising women’s productivity could add almost £600 billion to the economy, and that 10% could be added to the size of the economy by 2030 if the millions of women who wanted to work could find suitable jobs.

Causes

The gender pay gap has been attributed to four main causes by the Fawcett Society:

  • Discrimination – often women are still paid less than men for the same job and unfair treatment remains common, especially around maternity
  • Unequal caring responsibilities – women continue to play a greater role in caring for family
  • A divided labour market – women are more likely to be in low-paid and low-skilled jobs
  • Men in the most senior roles – men continue to make up the majority of those in the highest paid and most senior roles

Deloitte’s research similarly highlights that women are disproportionately more likely to enter low paid industries or sectors.

However, it emphasises that one contributory factor to the gender pay gap occurs before labour market entry, when boys and girls decide what to study at school and in further education. Three times more boys than girls take computing and 50% more boys than girls study design and technology.

This is significant because the gap in starting salaries between men and women who have studied Science, Technology, Engineering and Mathematics (STEM) subjects, and who go on to take jobs in these sectors, was found to be far smaller.

Way forward

Deloitte’s research therefore suggests that increasing the participation of females in STEM subjects and careers could help reduce the gender pay gap.

Nevertheless, it also notes that as there are several causes, no single measure will be enough to eradicate it.

The government’s policy to introduce mandatory gender pay gap reporting for all large companies employing more than 250 employees has been welcomed as a step forward. But there are concerns this is not enough. The NPI research suggests that it could go further, with extension of the duty to companies employing 50 people.

In addition, encouraging take-up of the voluntary living wage and boosting pay in sectors that have been traditionally low paid and have predominantly employed women are suggested as ways to help speed up the reduction of the gender pay gap.

The NPI report calls for ‘a multi-dimensional policy response, sitting underneath a clear gender focused employment strategy’ to reduce gender inequalities and the subsequent pay gap.


If you enjoyed reading this, why not take a look at some of our other posts on equalities issues

Follow us on Twitter to see what developments in public and social policy are interesting our research team.

Careering into the future

The New Year typically provokes reflection in people, particularly in areas of their lives such as relationships (lawyers report seeing a significant increase in enquiries about divorce at the start of January) and employment. On the 5th of January, the day that most of the country returned to work after the festive break, Scottish recruitment website s1jobs.com went down for a period due to the volume of traffic they were receiving, as people considered their options for change on what was dubbed ‘the most depressing day of the year’.

This quest for change looks set to continue throughout the year, rather than fall by the wayside at the end of the month along with the rest of people’s New Year resolutions. As reported by the Chartered Institute of Personal Development (CIPD), a survey by the Institute of Leadership and Management (ILM) found that over a third (37%) of respondents are planning to leave their current job this year, a significant increase on the 19% who expressed the same intention a year earlier.

For those looking to make a complete career change, research published by the UK Commission for Employment and Skills (UKCES) at the end of 2014 may make interesting reading.

Careers of the Future presents a list of jobs which, it is suggested, will be crucial for the UK job market over the next decade. The 40 roles were identified through an analysis of the UK jobs market, and based on the following indicators:

  • Pay: how much do people earn on average in the job?
  • Job opportunities: how much is the job expected to grow in terms of the number of people employed, and which jobs have the greatest recruitment demand?
  • Business need: which jobs do employers say are difficult to fill because of lack of candidates with the right skills and experience?

The report groups the identified ‘key’ roles for the future according to the following sectors: agriculture; business and finance; construction; education; health and care; information technology; manufacturing, installation and maintenance; protective services; science, engineering and technology; and transport and logistics. From these, 12 jobs are identified are as being those that present people, particularly young people, with a good mix of opportunity, reward and long-term potential:

  • Care worker
  • Construction project manager
  • Electrician
  • Farmer
  • IT business analyst
  • Mechanical engineer
  • Nurse
  • Police officer
  • Programme and software development professional
  • Sales account manager/business development manager
  • Secondary school teacher
  • Train and tram driver.

There are no real surprises on this list; more care workers and nurses are needed to reduce the demand placed on current staff by an increasingly ageing population, while the advent of ‘big data’ and apps has made software development “one of the top five most in demand jobs globally”.

The importance of STEM (science, technology, engineering and maths) skills, something we have looked at on the blog previously, is also in evidence on the list. Engineers and electricians are part of a STEM workforce that, while identified as being ‘critical’ to the future of the UK economy, is currently facing a shortfall of around 400,000 graduates annually.

One surprising omission from the list may be identified: lawyer. While shortfalls of new students have been reported in the news for a number of the roles included on the list, concerns over the number of students undertaking law degrees haven’t been raised since 2011. Although the majority of its predictions for what 2015 would look like were wrong (the world is, sadly, still waiting for hoverboards and food rehydrators), Back to the Future Part II did predict the abolition of lawyers by this year. While this is obviously also wide of the mark, it’s certainly interesting to see that law isn’t deemed a key future profession – especially as it is one of the professions (alongside medicine – another omission from the list) that parents would traditionally encourage their children to aspire to join.

Despite the absence of lawyers and doctors on the list, the inclusion of nurses, farmers and secondary school teachers on this forward-looking list suggests that the future may be somewhat more traditional and less radical than the predictions of film-makers 30 years ago!


Further reading

The Idox Information Service has a wealth of research reports, articles and case studies on careers, employment and skills needs. Some further recent reading on the topic includes:

Engineering and technology: skills and demand in industry – annual survey 2014

The extent and cyclicality of career changes: evidence for the UK

Remember the young ones: improving career opportunities for Britain’s young people

The impact of economic perceptions on work-related decisions, IN Journal of Career Assessment, Vol 22 No 2 May 2014

Better quality jobs (The CLES 10)

N.B. Abstracts and access to journal articles are only available to members.

Performance-related pay in the public sector … does it work?

English moneyBy Donna Gardiner

Pay accounts for a large proportion of public sector expenditure and so it’s perhaps unsurprising that in the current context of ‘do more with less’, there has been renewed interest in using pay to help drive performance improvements.

Indeed, as part of last year’s spending review, the government announced the introduction of performance-related pay for all civil servants by 2015-16. It is also working towards the removal of automatic pay progression in schools, prisons, the NHS and the police. In his Budget statement, the Chancellor called progression pay “antiquated” and said it was “deeply unfair” to others within the public and private sectors who did not receive it. Continue reading