Publication - Corporate report

Scotland's Fiscal Outlook: The Scottish Government's Medium-Term Financial Strategy

Published: 28 Jan 2021

This is the third Medium Term Financial Strategy (MTFS) published by the Scottish Government. The MTFS provides the context for the Scottish Budget and the next Scottish Parliament. This context will frame the incoming Government’s strategic approach to fiscal policy.

Scotland's Fiscal Outlook: The Scottish Government's Medium-Term Financial Strategy
Footnotes

Footnotes

1 To learn more about the Fiscal Framework and how it operates, please consult Scottish Government (2017), Fiscal Framework: factsheet, URL: https://www.gov.scot/publications/fiscal-framework-factsheet

2 Scottish Government (2020), Scotland’s Wellbeing: The Impact of COVID-19, URL: https://nationalperformance.gov.scot/scotlands-wellbeing-impact-covid-19

3 Institute for Fiscal Studies (2020), The IFS Green Budget, URL: https://www.ifs.org.uk/uploads/IFS%20GB2020%20Digital.pdf

4 Bardaka et al. (2020), ‘Total factor productivity (TFP) and fiscal consolidation: How harmful is austerity?’, Economic Modelling, 94, 908-922, URL: https://doi.org/10.1016/j.econmod.2020.02.032 and Ostry et al. (2016), ‘Neoliberalism: Oversold?’, Finance and Development, 53(2), URL: https://www.imf.org/external/pubs/ft/fandd/2016/06/ostry.htm

5 IMF (2014), Redistribution, Inequality, and Growth, URL: https://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf and OECD (2014), Trends in Income Inequality and its Impact on Economic Growth, URL: https://www.oecd-ilibrary.org/social-issues-migration-health/trends-in-income-inequality-and-its-impact-on-economic-growth_5jxrjncwxv6j-en

6 Scottish Government (2018), Infrastructure investment: evidence summary, URL: https://www.gov.scot/publications/exploring-economic-rationale-infrastructure-investment/

7 Barnardo’s & NSPCC Scotland (2020), Challenges from the Frontline – Revisited, URL: https://learning.nspcc.org.uk/media/2402/challenges-frontline-revisited-adversities-scotland.pdf

8 Women’s Budget Group (2017), Austerity is reducing social security for women URL: https://wbg.org.uk/wp-content/uploads/2017/11/soc-security-pre-budget-nov-2017-final.pdf and Elson (2012), ‘The reduction of the UK budget deficit: a human rights perspective’, International Review of Applied Economics, 26(2), 177-190

9 Reed and Portes (2014), Cumulative Impact Assessment: A Research Report by Landman Economics and the National Institute of Economic and Social Research (NIESR) for the Equality and Human Rights Commission (EHRC), URL: http://bit.ly/2nW8s6j

10 IFS (2020), The IFS Green Budget, ibid.

11 IMF (2020), Fiscal Monitor: Policies for the Recovery, URL: https://www.imf.org/en/Publications/FM/Issues/2020/09/30/october-2020-fiscal-monitor

12 OECD (2020), ‘Coronavirus (COVID-19): Living With Uncertainty’, OECD Economic Outlook, Interim Report September 2020, URL: https://doi.org/10.1787/34ffc900-en

13 IMF Managing Director Kristalina Georgieva, speaking to Sky News 17 October

14 Press Conference: OECD Economic Outlook 2020 (Interim report), URL: https://tinyurl.com/y272yhcr

15 Financial Times (2020), ‘UK economy set to be one of the last to recover from pandemic’, URL: https://www.ft.com/content/5c51299a-fd9f-4e14-9576-a42a6317c324

16 OBR (2020), Economic and fiscal outlook – November 2020, URL: https://obr.uk/efo/economic-and-fiscal-outlook-november-2020/

17 Scottish Government (2020), Coronavirus (COVID-19): UK fiscal path – a new approach; URL: https://www.gov.scot/publications/coronavirus-covid-19-uk-fiscal-path-new-approach/

18 Scottish Government (2020), Coronavirus (COVID-19) - UK fiscal path: update - November 2020, URL: https://www.gov.scot/publications/covid-19-uk-fiscal-path-november-update/

19 Scottish Government (2020), Protecting Scotland, Renewing Scotland: The Government's Programme for Scotland 2020-2021, URL: https://www.gov.scot/publications/protecting-scotland-renewing-scotland-governments-programme-scotland-2020-2021/

20 Scottish Government (2020), Securing a green recovery on a path to net zero: climate change plan 2018–2032 – update, URL: https://www.gov.scot/publications/securing-green-recovery-path-net-zero-update-climate-change-plan-20182032/

21 Scottish Government (2021), Capital Spending Review and Infrastructure Investment Plan 2021-22 to 2025-26 [forthcoming publications]

22 The figures in this chapter are the latest available as of Friday 22 January, which was the cut-off point for new data releases. All URLs were also last accessed on Friday 22 January 2021.

23 ONS (2020), Earnings and employment from Pay As You Earn Real Time Information, seasonally adjusted, [Dataset] URL: https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/datasets/realtimeinformationstatisticsreferencetableseasonallyadjusted

24 ONS (2020), JOBS05: Workforce jobs by region and industry, [Dataset] URL: https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/datasets/workforcejobsbyregionandindustryjobs05

25 Davenport and Zaranko (2020), ‘Levelling up: where and how?’, The IFS Green Budget, URL: https://www.ifs.org.uk/publications/15055?s=03

26 ONS (2021), Business insights and impact on the UK economy, [Dataset] URL: https://www.ons.gov.uk/releases/businessinsightsandimpactontheukeconomy7january2021

27 Scottish Government (2018), Scotland’s Place in Europe: People, Jobs and Investment, URL: https://www.gov.scot/publications/scotlands-place-europe-people-jobs-investment/

28 OBR (2020), November Economic and Fiscal Outlook, ibid. There have been further fiscal measures announced since, including £4.6 billion in new lockdown grants to support businesses announced on 5 January 2021.

29 See also OBR (2020), Devolved Taxes and Spending Forecasts, p-6 URL: https://tinyurl.com/y2qhddk9

30 The OBR’s forecasts of rUK receipts were updated at the Welsh Budget on December 21.

31 Drawing on Scotland’s historic Income Tax performance, it is assumed that growth in employment is 0.7 percentage points lower than in the central forecast while earnings growth is 0.5 percentage points lower.

32 Drawing on Scotland’s historic Income Tax performance, it is assumed that growth in employment is 0.35 percentage points higher than in the central forecast while earnings growth is 0.25 percentage points higher.

33 ACEVO Commission on Youth Unemployment (2012), Youth unemployment:

the crisis we cannot afford, URL: http://www.bris.ac.uk/media-library/sites/cmpo/documents/youthunemployment.pdf

34 Scottish Government (2018), Health and Social Care: medium term financial framework, URL: https://www.gov.scot/publications/scottish-government-medium-term-health-social-care-financial-framework/

35 Scottish Government (2020), Tackling child poverty: second year progress report (2019-2020), URL: https://www.gov.scot/publications/tackling-child-poverty-delivery-plan-second-year-progress-report-2019-20/

36 Climate Change Committee (2020), The Sixth Carbon Budget – The UK’s path to Net Zero, URL: https://www.theccc.org.uk/publication/sixth-carbon-budget/

37 AGER (2020), Towards a Robust, Resilient Wellbeing Economy for Scotland: Report of the Advisory Group on Economic Recovery, URL: https://www.gov.scot/publications/towards-robust-resilient-wellbeing-economy-scotland-report-advisory-group-economic-recovery/

38 The modelled average public sector earnings premium is the difference between average earnings of public sector and private sector employees after controlling for worker, job and firm characteristics; and there is greater diversity of workers in the private than public sector. Source: ONS (2020), Public and private sector earnings: 2019, [Dataset] URL: https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/articles/publicandprivatesectorearnings/2019

39 Pension schemes for the civil service and the judiciary are reserved schemes. While employer pension contributions are paid to these schemes in respect of Scottish employees/appointees, scheme cash flow is managed by the Cabinet Office and the Ministry of Justice, respectively, with shortfalls topped up by UK Government-funded AME. The Scottish Local Government Pension Scheme is a funded scheme, managed locally, with some public bodies as participating employers. Member and employer contributions are invested; resulting returns on investment are added to fund assets used to pay pensions.

40 SFC (2020), Forecast Evaluation Report – September 2020, URL: https://www.fiscalcommission.scot/publications/forecast-evaluation-report-september-2020/

41 Scottish Government (2015), Scotland’s Economic Strategy, URL: https://www.gov.scot/publications/scotlands-economic-strategy/

42 Scottish Government (2019), Scottish Government's Medium Term Financial Strategy: May 2019, URL: https://www.gov.scot/publications/scotlands-fiscal-outlook-scottish-governments-medium-term-financial-strategy-2019/

43 Scottish Parliament Finance and Constitution and Social Security Committees and Scottish Government (2020), The scope and terms of reference for the independent report

and review of the Fiscal Framework, URL: https://www.parliament.scot/S5_Finance/General%20Documents/Report(2).pdf

44 Scottish Government (2021), Budget 2021/22: Supporting the COVID-19 Recovery - Analysis of Consultation Responses, URL: https://www.gov.scot/publications/budget-2021-22-supporting-covid-19-recovery-analysis-consultation-responses/

45 Barclay (2017), Non-domestic tax rates review: Barclay report, URL: https://www.gov.scot/publications/report-barclay-review-non-domestic-rates/

46 An et al. (2018), ‘How well do economists forecast recessions?’, International Finance, 21(2), pp.100-121. URL: https://www.imf.org/en/Publications/WP/Issues/2018/03/05/How-Well-Do-Economists-Forecast-Recessions-45672

47 Correlation and Covariance are statistical properties that are related to each other, but not (always) identical. During the simulations the covariance is used, but for ease, correlation is referred to in the note as this acts as a more universal reference point and is more widely understood.

48 Historical Official Forecast Database – which can be found at: https://obr.uk/data/

49 See also the Scottish Fiscal Commission’s analysis available here.

50 This is equivalent of around a temporary $30 fall in the global oil price in 2020 Q1 and then recovering the vast majority of this fall in 2020 Q2, and fully recovering back to the baseline price by the end of 2022.

51 This is an extension of the analysis in the Scottish Income Tax Outturn Statistics using data from the Real Time Information (RTI) and Self-Assessment system. The published outturn statistics are available here. This analysis, and the results, may therefore be different from the Survey of Personal Incomes (SPI) which is based on a representative sample of Scottish taxpayer records. SPI data for 2018-19 will not be published until later this year.

52 See also the Scottish Fiscal Commission’s analysis available here.

53 Fiscal Framework: factsheet - gov.scot (www.gov.scot)

54 Fiscal Framework: agreement between the Scottish and UK Governments - gov.scot (www.gov.scot) Annex C, paragraph C.47

55 This was the only social security benefit in operation during 2019-20 that had a corresponding BGA.

56 See Fiscal Framework outturn report: 2019 - gov.scot (www.gov.scot) for further background.


Contact

Email: Gabrielle.Cahen@gov.scot