Fraser of Allander Institute - sbs.strath.ac.uk · Economic ommentary, ecember 2018 4 1.4% 2021...

Vol 42 No 4

Fraser of AllanderInstitute

Economic Commentary

1 Fraser of Allander Institute

Foreword The past 12 months have provided both good news and bad for Scotland’s economy – economic growth has picked up during 2018, but overall growth remains low. One reason for the low growth is a lack of productivity growth.

This mix of fortunes is also evident in the latest of Deloitte’s Power Up reports, Power Up: UK-Wide Growth. It showed that Scotland’s economy has only grown at around half the UK average rate and while the country has outperformed the UK average in productivity growth over the last 10 years, productivity growth remains low.

The latest Power-Up report looked at many years of employment and productivity data to help identify where Scotland can maximise opportunities by learning from the past, before combining this with the very real experiences and views of current business leaders, educators, local government officials and other stakeholders.

One of the findings is that Scotland’s businesses need to collaborate further with educators and policymakers to develop the vital skills required to harness productivity for regional growth. Another key finding is that Scotland’s business leaders will need to remain open and agile to transformational opportunities, as digital strategies and technology innovation continue to influence productivity gains in the short term.

Our report also highlighted that Scotland needs more businesses of scale that are competitively positioned across international markets.

Scotland can grow these businesses. Innovation and entrepreneurialism are embedded in Scotland’s roots, standing businesses in good stead to respond to the challenges ahead. This was reflected in the recent Summit Entrepreneurship Awards which Deloitte was proud to sponsor once again.

Like many before them, this year’s finalists demonstrated exceptional leadership skills. Their vision and commitment, combined with ongoing investment in their people, technology and other assets, has ensured they continue to run strong, sustainable businesses which can adapt to ever-changing marketplaces.

As we face the challenges ahead including the continuing uncertainty around Brexit, it is important that business leaders in Scotland continue to plan for the future. Similarly, it is important not to lose sight of the importance of announcements such as the upcoming Scottish Budget, detailing the Scottish Government’s spending and tax plans for the year ahead.

The Scottish Government’s use of income tax powers has certainly been the main focus of recent Scottish Budgets, and with the announcement in October’s UK Budget that the Chancellor intends to raise the higher rate threshold to £50,000, from April next year, it is likely to dominate once again.

Scotland’s Finance Secretary, Derek Mackay, has indicated he does not intend to match this for Scottish income tax bands, which apply to earnings and pensions for Scottish residents, and that will result in a noticeable difference in the tax paid between Scotland’s higher rate tax payers and those in the rest of the UK.

What impact this will have on investment and growth in Scotland is the subject of much debate. However, it is important that Scotland is seen as an attractive place for people and businesses. We have an ageing population, a shrinking working age population and it is vital for our future that we do not deter people from choosing to come to Scotland.

There are no easy answers to how to improve Scotland’s productivity growth, our economic growth or how to balance the nation’s books. As the country’s business landscape continues to evolve, it will be important for all leaders to think innovatively and plan differently, to identify solutions from which everyone can benefit.

John Macintosh Tax PartnerDeloitteDecember 2018

Deloitte supports the production of the Fraser Economic Commentary. It has no control over its editorial content, including in particular the Institute’s economic forecasts.

2Economic Commentary, December 2018

Economic Commentary

5Outlook and appraisal

4At a glance

3Summary

18Latest Scottish indicators

20Scottish Fiscal Commission’s forecasts

Fraser of Allander Institute

Contents

8UK economy

11Scottish economy

15Scottish labour market

6Global economy

For regular analysis on the Scottish economy and public finances please see our blog

www.fraserofallander.orgCopyright © University of Strathclyde, 2018. ISSN 2046-5378

21Our forecasts

23‘No deal’

25Policy context

29Economic Perspectives

Ewan Sutherland


Scott McGrane et al


David Waite et al

http://www.fraserofallander.org


The vote on the UK’s EU Withdrawal Agreement will be one of the most significant in a generation. It has the potential to shape the future of the UK and Scottish economies for decades to come.

Whatever happens, it will not mark the end of the uncertainty. A vote in favour will see the UK enter a near two-year transition process. But the most challenging issue – a future UK-EU trade deal – has yet to be agreed.

Some will argue that a vote against will increase the likelihood of ‘no-deal’. Others argue that it provides a last opportunity to secure a softer Brexit.

In such times, any economic forecasts must come with major health warnings.

What we can say with some confidence however, is that ‘no deal’ would be a substantial (negative) economic shock. The Bank of England have set out a ‘worst-case’ scenario which could see the UK economy shrink by around 8% from 2019.

To put that in context, that is around double the size of the recession Scotland witnessed during the financial crisis. Whilst some people have questioned this analysis, even under a less disruptive ‘no deal’, the Bank’s analysis suggests that the slowdown could still be significant.

All this comes at a time when the Scottish economy had been showning signs of picking-up. Growth in Scotland for the first six months of 2018 had outperformed the UK as a whole.

In the event of a ‘smooth’ Brexit with a full transition period, we expect growth to pick up. We have kept our forecasts broadly unchanged on September at 1.4% for 2019, followed by 1.5% for 2020 and 1.4% for 2021.

SummaryGiven the Brexit debate, the Scottish Government’s upcoming Budget has received little attention.

But the government faces a number of decisions that will shape the direction of Scotland’s public finances for years to come.

Will Mr Mackay choose to follow – at least in part – the decision by the Chancellor to raise the Higher Rate threshold on income tax? Or will he take a further decisive shift to differentiate Scottish and rUK income tax policy?

As a minority administration, what might be offered to secure parliamentary support? Will Scottish Green Party backing lead to a more fundamental look at the funding of local government?

And what is the long-term strategy for public services? With the NHS on track to soon account for around £1 of every £2 spent by the Scottish Government, pressures on other budgets continue to increase. We have heard a lot about plans for priority areas of spend, but what about other areas?

During the coming months of debate and negotiations, the Scottish budget will no doubt play second fiddle to Brexit. But we should not forget the importance of the budget, not only because it determines how much income and council tax we all pay, but because of what it will tell us about the long term outlook for public spending and tax competitiveness in Scotland.

Fraser of Allander Institute December 2018


1.4%

2021

1.4% 1.5% 1.4%

20202019

We expect growth to pick up but remain below trend - even assuming a broad based agreement with the EU.

Scottish growth forecast Unemployment forecast

JobMarket

3.9%down from

4.2%

2019

3.9%down from

4.3%

2020

4.1%2021


At a glance

2019 2020 2021

GDP 1.4% 1.5% 1.4%

Production 1.6% 1.7% 1.6%

Construction 1.1% 1.1% 1.1%

Services 1.4% 1.4% 1.4%

Table: FAI forecast Scottish economic growth (%), 2019 – 2021

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2013 2014 2015 2016 2017 2018

Per

cent

age

chan

ge (

%)

Scottish quarterly GDP growth

Scottish annual GDP growth - Q on Q

Chart: Scottish growth (since 2013) – year and quarter Table: Employment & unemployment rates, July - Sep 2018

-3%

-2%

-1%

0%

1%

2%

3%

4%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Annu

al G

VA G

row

th

Forecast

Chart: FAI forecast Scottish economic growth range

Employment (16-64) Unemployment (16+)

Rate (%) Year Change Rate (%) Year

Change

Scotland 75.0% ▼ 3.8% ▼

England 75.8% ▲ 4.1% ▼

Wales 75.0% ▲ 3.9% ▼

N. Ireland 68.5% ▲ 4.1% -UK 75.5% ▲ 4.1% ▼



Outlook and AppraisalWhilst economic growth in Scotland remains below trend, it has picked-up in 2018 to its fastest pace since 2014. However, businesses are increasingly nervous about the prospects for the UK and Scottish economies in the light of the looming Brexit impasse and the potential political crisis it could usher in.

Chart 1: Scottish growth since 2013, year and quarter

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%


2013 2014 2015 2016 2017 2018

Per

cent

age

chan

ge (

%)

Scottish quarterly GDP growth

Scottish annual GDP growth - Q on Q

Source: Scottish Government

Table 1: UK labour market, Jul - Sep 2018

Employment (16-64)

Unemployment (16+)

Inactivity (16-64)

Scotland 75.0% 3.8% 22.0%

England 75.8% 4.1% 20.8%

Wales 75.0% 3.9% 21.9%

N. Ireland 68.5% 4.1% 28.5%

UK 75.5% 4.1% 21.2%

Source: ONS, LFS

Table 2: Change in Scottish GDP relative to baseline of full EU membership after 15 years

EEA FTA WTO

UK (2018)* -2.5% -6.7% -9.3%

SG (2018) -2.7% -6.1% -8.5%

FAI (2017) - -4.9% -7.5%

Source: Fraser of Allander Institute

Introduction

As we outlined in our last Commentary, growth in the Scottish economy has picked up in recent times – consistent with the forecast we set out this time last year. Chart 1.

Whilst activity remains below trend, it has certainly been more positive than in recent times and has helped unemployment to remain at a near historical low. Table 1.

But the outlook is dominated by one issue: Brexit.

There remains a sense that no one knows where the ongoing political process will end: indeed, the range of outcomes seems as wide as ever.

Forecasting any economic outlook in such times is fraught with difficulties. We make no excuses for saying that we can offer little certainty to where the economy might go in the months ahead.

Whatever the outcome, it is far from apparent that the fog enveloping the near term outlook will roll away to reveal a clarity that has been starkly absent thus far.

Indeed, many critical elements may simply be fudged, or more openly deferred, leaving uncertainty for many more months, if not years.

In such times, building resilience into plans for 2019 and beyond is perhaps the most effective strategy that can be undertaken at the current time by businesses.

One of the most frustrating things about the Brexit debate – whether you agree or disagree with the decision – is that many important issues, such as this month’s Scottish Budget, are being side-lined.

But the decisions that Mr Mackay will take on tax, public spending and economic policy, will shape the economic and fiscal outlook for years to come.

It is therefore important that we continue to debate and critique the choices that will be made.

* Figures for the UK economy


Table 3: OECD & EU quarterly growth rates: 2017 to 2018

2017 2018

Q1 Q2 Q3 Q4 Q1 Q2 Q3

UK 0.4 0.3 0.4 0.4 0.1 0.4 0.6

US 0.4 0.7 0.7 0.6 0.5 1.0 0.9

Japan 0.7 0.5 0.6 0.2 -0.2 0.7 -0.3

Canada 1.0 1.1 0.4 0.4 0.4 0.7 0.5

Euro Area 0.7 0.7 0.7 0.7 0.4 0.4 0.2

Germany 1.1 0.5 0.6 0.5 0.4 0.5 -0.2

France 0.8 0.6 0.6 0.7 0.2 0.2 0.4

Italy 0.5 0.4 0.4 0.3 0.3 0.2 0.0Source: OECD

Chart 2: Global manufacturing PMI’s: falling back in recent months

-4

-2

0

2

4

6

8

10

2012 2013 2014 2015 2016 2017 2018

Inde

x, 2

015

= 10

0

World Advanced economies Emerging market economies

Source: Thomson Reuters Datastream

Chart 3: Global Economic Policy Uncertainty Index, 1997 - Oct 2018

0

50

100

150

200

250

300

350

Eco

nom

ic P

olic

y U

ncer

tain

ty I

ndex

Source: Economic Policy Uncertainty

The global economy

The global economy has been in robust health for over two years now.

World GDP is estimated to have risen by 3.7 per cent in 2017, up from 3.2 per cent in 2016. The IMF forecast that it will remain at this – above trend – level in 2018.

However, as we highlighted in our last commentary, most economists believe that growth has peaked (at least in advanced economies).

Indeed, there is growing evidence of a slowdown in many of Scotland’s key trading partners. Table 3. In particular, output in the Euro Area rose by just 0.2% – a four year low – over the summer.

Significantly, the German economy contracted for the first time since 2015, driven in part by ongoing challenges in car manufacturing, but also wider fragility in investment and household spending.

Indicators of activity across the global economy have eased back. Chart 2. Some of this reflects a natural change in the economic cycle. However, there are concerns that heightened political uncertainty could turn a ‘soft-landing’ into something altogether more challenging. Chart 3.

Chief amongst these are the potential impacts of rising trade tensions, led by the increasing protectionist policies of the Trump administration.

World trade accelerated sharply in 2017 – to grow at its fastest rate since 2011 – but there are signs that this momentum is fading with recent trade disputes taking their toll.

Chart 4: Long-term impact of Brexit on Ireland’s GDP

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%EEA CU FTA WTO

% c

hang

e fro

m b

asel

ine

in 2

030

Tariffs and customs

Regulatory divergence

Service barriers

Source: The Department of Business, Enterprise & Innovation (DBEI), Irish Government


Chart 5: Stock market performance to Nov 2018, 2007 = 100

0

50

100

150

200

250

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Indi

ces:

Jan

200

7 =

100

STOXX Europe 600

STOXX Asia/Pacific 600

S&P 500

FTSE 100


Chart 6: Exchange rates, $/€ to £, 2013 - Nov 2018

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

1.80

2013 2014 2015 2016 2017 2018

US

$/E

uro

to G

BP

US $ to GBP

Euro to GBP


Chart 7: Price of oil, 2013 - Nov 2018, US $/BBL

0

20

40

60

80

100

120

2013 2014 2015 2016 2017 2018

US

$ / B

BL


Of course, Europe faces its own challenges from Brexit – nowhere more so than Ireland. Chart 4.

The heightened risk around that global outlook has spilled over into renewed volatility in stock markets. Most major indices have seen falls in recent weeks.

The FTSE 100 is down around 10% on its May 2018 peak. Chart 5. Such volatility has some investors speculating that the world’s major central banks may put off plans to tighten monetary policy.

Closer to home, Sterling continues to trade at a discount, driven by concerns over the UK’s long-run prospects post-Brexit. Chart 6.

The FT reported in November that investors have withdrawn more than $1tn from UK-focused equity funds since the referendum – the highest outflows since the financial crisis.

And in October, the UK market was rated the least popular of 22 asset classes among fund managers in a Bank of America Merrill Lynch survey.

The price of oil has entered ‘bear market’ territory. In just over a month, Brent has plunged by around 30% to below $60. Chart 7. Whilst fears of a global slowdown have not helped, it is an oversupply that has had the greatest impact.

This of course matters here in Scotland. The oil and gas sector had just come through a difficult period, with confidence returning. Chart 8.

Whilst the low oil price will come as a blow to many, the mood in the sector remains confident with most contractors and operators better prepared for a lower break-even price.

Chart 8: Optimism in North Sea , 2004 - May-Oct 2018

-100

-80

-60

-40

-20

0

20

40

60

80

100

% n

et b

alan

ces

Business optimism in UKCS compared to a year ago

Business optimism in UKCS over next year

Source: FAI / AGCC


Chart 9: UK economic growth compared to (best & worst) G7 economies

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2015 2016 2017 2018

GD

P g

row

th

Lowest G7 GDP growth

Highest G7 GDP growth

Latest UK Data

EU Referendum

Source: ONS & OECD

Chart 10: UK economic performance, 2008 - Q3 2018

-10

-8

-6

-4

-2

0

2

4

6

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Real G

DP

growth: quarter on previous year's quarter

Rea

l GD

P g

row

th: q

uarte

r on

qua

rter

Quarter on quarter (left hand side)

Quarter on previous year's quarter (right hand side)

Source: ONS

Chart 11: Post-referendum performance relative to pre- and post-referendum growth forecasts

94

96

98

100

102

104

106

108

110

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2015 2016 2017 2018 2019

GD

P (

inde

xed,

201

5/16

=100

)

Actual

BOE May 2016

BOE Aug 2016

EU

Ref

eren

dum

Source: Bank of England & ONS

The UK economy

Following a period of relatively strong growth in 2014 through 2016, the UK economy has slowed significantly over the last couple of years. Chart 9.

In late October, the OBR revised down their forecasts for GDP growth in 2018 to just 1.3%. Since then, figures have shown that growth picked-up over the summer (+0.6%), boosted in part by good weather, the World Cup and recovery in sectors which had experienced a challenging start to 2018.

This recovery was particularly pronounced in construction, where output grew by over 2%.

It is over a longer time horizon that a clearer picture of the true health of an economy can be assessed. This shows that even with these recent positive figures, UK growth remains below trend with annual growth of 1.5%. Chart 10.

It is therefore hard not to conclude that the ongoing Brexit uncertainty has had an impact. The fall in the pound has squeezed household incomes. Business investment has arguably taken the biggest hit and has contracted now for three consecutive quarters.

Of course, predicting where the economy ‘would have been’ had a referendum not been called is fraught with difficulty. Chart 11.

What we can at least conclude is that those who predicted a sharp recession immediately after June 2016 were wrong, but so too were those who suggested that leaving the EU would have no negative impact. Chart 12.

Chart 12: Weaker productivity forecasts for UK for next 5 years

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23

Pro

duct

ivity

fore

cast

s (%

cha

nge

on la

st y

ear)

November 2016 forecasts

October 2018 forecasts

n/a n/a

Source: Office for Budget Responsibility


Chart 13: Productivity performance pre and post financial crisis in G7

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0%

Italy

Canada

France

Germany

United Kingdom

Japan

United States

Growth of labour productivity per hour worked

Average growth, 1997-2007 Average growth, 2008-2018

Source: ONS & OECD

Chart 14: OBR forecasts for the UK unemployment rate: currently overly pessimistic

0

1

2

3

4

5

6

7

8

9

10

Une

mpl

oym

ent

rate

(%)

Latest

Mar 2017 - Mar 2018

Dec 2014 - Nov 2016

Nov 2011 - Mar 2014

Jun 2010 - Mar 2011


Chart 15: Output gap estimates, Q1 2008 - Q2 2018

-6

-4

-2

0

2

4

6

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

%

Range excl. highest and lowest estimates Range of all estimates

OBR estimate High (all estimates)

High (excluding highest)


Interestingly, much of the explanation why both the Bank of England and the Office for Budget Responsibility remain relatively pessimistic about the outlook for the UK economy is not driven by short-term factors, such as Brexit uncertainty or even a more fragile and volatile global policy environment.

Instead, it is driven by continued weak productivity. It is this, more than anything else that is holding back growth forecasts.

It is easy to see why the government’s official forecasters continue to take a much more pessimistic outlook for productivity given recent performance. Productivity across developed economies is much lower than pre-crisis but the drop off in the UK is particularly pronounced. Chart 13.

At the same time however, the labour market continues to perform much better than expected, with unemployment consistently beating forecasts – Chart 14. Indeed, there are increasing signs of skills shortages and rising vacancies across sectors.

Taken together, the outlook for productivity and the labour market, means that there seems to be little spare capacity to help growth pick-up beyond current levels – Chart 15. Most forecasts predict that the UK is operating at close to its potential or sustainable level (the ‘output gap’).

It also means that whilst real earnings have started to rise once again, the prospects for a substantial pick-up in take-home pay appear remote. For many households, the feeling of ‘austerity’ is likely to continue for some time to come. Chart 16.

Chart 16: UK real and nominal pay growth since 2007

-3

-2

-1

0

1

2

3

4

5

6

Jul-07 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Jul-18

Qua

rter

on s

ame

quar

ter

a ye

ar a

go g

row

th (

%)

Nominal Regular Pay

Real Regular Pay

Source: ONS


Chart 17: UK Services, Construction and Manufacturing PMI

44

46

48

50

52

54

56

58

60

2016 2017 2018

Bal

ance

of r

espo

nden

ts (

> 50

= e

xpan

sion

)

Services Manufacturing Construction

Source: RBS, IHS Markit

Chart 18: Surveys of capacity pressures

-6

-5

-4

-3

-2

-1

0

1

2

3

4

Sur

vey

indi

cato

rs

Agents

BCC

CBI

Source: Bank of England

Chart 19: CFO Business Uncertainty since 2013

0%

10%

20%

30%

40%

50%

60%

70%

2013 2014 2015 2016 2017 2018

% o

f bus

ines

ses

ratin

g un

certa

inty

ver

y hi

gh o

r hig

h

Source: Deloitte

Faced with an ongoing squeeze, it is no surprise that borrowing amongst households is on the rise once again. At the same time, the UK savings ratio continues to remain close to record lows.

Most up to date business surveys point to growth continuing, but at a slow pace.

The UK manufacturing PMI fell to just 51.1 in October (well below market expectations and well above 50 marks expansion). UK services PMI also fell to 52.2. Chart 17.

The CBI’s Business Optimism indicator decreased to -16 for Q4 2018, the lowest reading since immediately after the EU referendum.

At the heart of the slowdown in business activity is a fall-off in investment.

November’s Bank of England Inflation Report found that, for Q3 2018, Brexit uncertainty was the single largest factor weighting on investment plans. Chart 18. Other measures, such as Deloitte’s CFO survey, have also found evidence of rising uncertainty. Chart 19.

Of course how this affects different parts of the UK will vary.

New work by researchers at the University of Strathclyde – as part of the Economics Statistics Centre of Excellence (ESCOE) – shows that the economic gap between the south and north of England has widened since the referendum. Chart 20.

After adjusting for inflation, London’s economy is roughly 5% bigger than it was in June 2016 compared to growth of only 1.3% in the North East.

Chart 20: Nowcasts of UK regional growth, year to Q3 2018

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

Rea

l GVA

gro

wth

(%)

Source: ESCoE


Chart 21: GDP per capita in Scotland and the UK, Q1 1999 = 100

90

95

100

105

110

115

120

125

130

135

Inde

x (Q

1 19

99 =

100

)

Scotland

UK

ForecastOutturn

Source: Scottish Government, SFC and OBR

Chart 22: Sector contributions to annual GDP growth, %, Q2 2018 on Q2 2017

-0.02% 0.00%

0.40%0.23%

0.12%

0.36%0.21%

0.30% 0.06%

-0.2%0.0%0.2%0.4%0.6%0.8%1.0%1.2%1.4%1.6%1.8%

Agric

ultu

re, f

ores

try a

nd fi

shin

g

Con

stru

ctio

n

Man

ufac

turin

g

Elec

trici

ty &

gas

sup

ply

Oth

er p

rodu

ctio

n

Dis

tribu

tion,

hot

els

and

cate

ring

Tran

spor

t, st

orag

ean

d co

mm

unic

atio

n

Busi

ness

ser

vice

san

d fin

ance

Gov

ernm

ent a

nd o

ther

Annu

al G

DP

gro

wth

(Q2

on Q

2)

Production Services

Con

tribu

tion

to G

DP

gro

wth

(%)

1.66%

Source: Scottish Government & FAI analysis

Chart 23: Contribution of expenditure components to nominal GDP, Q1 2017 - Q2 2018

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

Q1 Q2 Q3 Q4 Q1 Q2

2017 2018

Con

tribu

tions

to

Nom

inal

GD

P g

row

th

Households Government Investment (GCF) Net Exports Nominal GDP


The Scottish economy

After a sustained period of weak growth, the Scottish economy has been showing signs of strengthening.

Growth has picked up and employment remains at relatively high levels. This has been a positive turnaround on twelve months ago.

Growth over the year to June 2018 was the fastest since late 2014/ early 2015, with the Scottish economy outpacing the UK for the last two quarters.

That being said, annual growth of 1.7% (quarter-to quarter) and 1.4% (4Q-on-4Q), still lags Scotland’s long-term historical growth rates.

At the same time, much of the pick-up in recent times arguably reflects a degree of ‘catch-up’ after a challenging period for the Scottish economy.

As Chart 21 highlights, since late 2014 the Scottish economy has been lagging behind the rest of the UK. The last six months have at least helped to stop this trend.

Overall, the upturn has been relatively broad-based.

Over Q2, there was growth of 0.3% in production activities, 1.9% in construction and 0.5% in services.

With services making up over 75% of activity – it is no surprise that Scotland’s overall rate of growth has been shaped by services. Chart 22.

The pick-up in Scottish exports continues, with international exports increasing by almost 10% over the last year.

With imports growing only 3% in value, this has contributed significantly to nominal GDP growth over the last year. Chart 23.

This currently means that, in the latest quarter, Scotland has a positive trade balance with the rest of the world, off-setting a large deficit with the rest of the UK.

In our report, Scotland 2050, we discuss Scotland’s wider long-term export challenge and our gap in performance with the best performing countries.

We highlight the importance in taking advantage of the significant global opportunities that are open to the Scottish firms.

https://www.sbs.strath.ac.uk/economics/fraser/20180919/Scotland_in_2050_Realising_our_global_potential.pdf


Chart 24: Scottish and UK economic performance since the financial crisis

80

85

90

95

100

105

110

115

120

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Leve

l of G

DP

& G

DP

per

hea

d (2

006

Q1

= 10

0)

Scottish GDP Scottish GDP per head UK GDP UK GDP per head


Chart 25: Scottish recession during the financial crisis - the impact of data revisions (date estimates were published)

92

94

96

98

100

102

104

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Chart 26: Scotland’s construction sector since financial crisis

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Scottish Construction Series


The Scottish economy ten years after the financial crisis

It is 10 years since Scotland – like many other parts of the world – slipped into recession as the global financial system ground to a halt.

A decade later, how have we fared?

The financial crisis wiped around 4% of output from the Scottish economy. UK output fell by over 6%. Chart 24. Interestingly however, the scale of the downturn is now believed to have been much less – around 50% smaller – than first measured at the time at the height of the crisis. Chart 25.

Instead, what has been particularly challenging for Scotland has been the weak recovery. It took around five years for output to return to its pre-crisis level in Scotland.

Chart 24 also shows that whilst the UK economy suffered a deeper recession than Scotland (driven by a sharper fall in services), it performed better in the recovery period.

Today, GDP per head in Scotland is 1.7 per cent greater than it was 10 years ago. To put that in context, average annual growth in the preceding 10 years was 1.9% per annum.

The impact of the crisis varied by sector.

Unsurprisingly, construction bore the brunt of the downturn – contracting by over 20%. According to the newly revised data from the Scottish Government, the sector in Scotland around the same level as it was 10 years ago. Chart 26.

Chart 27: Volume of residential property sales in Scotland per year, Q2 2003 - Q2 2018

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Source: National Records of Scotland


Scottish Economy Dashboard

Agriculture

% of Economy 2017 Q2 2018

Growth

Construction ■ Uplift in public sector capital investment should help support infrastructure, but wider measures of activity – including commercial property and house-building – remain relatively subdued

■ Grew strongly in 2017 but performance in the last four quarters has been relatively poor

■ Sector is arguably most exposed to any hit to migration post-Brexit

■ Sector will need clarity on support, opportunities and regulation post-Brexit to ensure growth can continue

ServicesRetail and wholesale

Accommodation & food services

Financial & insurance

76%10%

3%

6%

1.0%1.6%

0.2%

-0.9%

0.5%1.2%

-0.4%

2.5%

■ The most recent data suggests a modest upturn in retail and wholesale combined after a challenging start to 2018

■ But retail data suggests tough trading conditions, with many high-profile names on the high street struggling

■ Rising wages could give some respite to a sector going through significant structural change

■ Modest growth over the year, but some fall-back in the most recent quarter

■ Like retail, many eating establishments are facing challenges. Changes in how households consume entertainment is impacting many business models

■ Tourist facing elements of sector continue to do well

■ Sector has seen strong growth recently after a tough 2017

■ Unlike other sectors directly exposed to the financial crisis – such as professional services and real estate – financial services has taken much longer to get back on its feet and remains below pre-crisis highs

Production

Manufacturing

Food and drink

17%

11%

3%

2.0%

1.6%

-0.8%

0.3%

0.8%

3.8%

■ Confidence and growth has returned recently. In particular, growth in computer products, food and drink, and textiles

■ Exporters continue to benefit from weak pound. But fall in oil price, and slow down in export markets is a challenge. At risk from dislocation of UK-EU trade

Key issues/trends

6%

1%

4.4%

4.6%

1.9%

-1.4%

■ Sector continues to grow strongly – and is now at its highest ever level

■ Growth potential is high, although boosting productivity in sector will be key for sustainability

■ Future post-Brexit challenges could include ‘just-in-time’ deliveries and access to migrant workers


Chart 28: Services and financial services since the 2008 financial crisis, 2000 = 100

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Chart 29: Performance of average real wages across the G7 since the financial crisis, 2007 = 100

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Source: ONS & OECD

Chart 30: Relative poverty in Scotland (before and after housing costs)

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Relative poverty (before housing costs) (LHS)Relative poverty (after housing costs) (LHS)Number of people in relative poverty (before housing costs) (RHS)Number of people in relative poverty (after housing costs) (RHS)


The housing market has also yet to fully recover to pre-financial crisis levels of activity. Chart 27.

Overall, services fared better. Output only fell by 1.6 per cent. Unsurprisingly, financial services output fell sharply (by around 12%). It is still over 7% smaller than its pre-crisis level. Chart 28.

Interestingly however, it has adjusted to a more ‘normal’ size which perhaps reflects how unsustainable the ‘good’ times were but also the underlying resilience of the (non-banking) sector since.

A key concern from past recessions was that unemployment could rise significantly. However, whilst unemployment did rise (peaking at 8.9% in 2010), it has since fallen back.

But earnings have lagged behind for much of the decade. Indeed, earnings growth in the UK has been the weakest in the G7 since the financial crisis. Chart 29.

According to the Scottish Fiscal Commission, real household incomes per head are on track to remain below their pre-financial crisis levels even by 2023.

Poverty levels in Scotland have, as a result, remained stubbornly high. Chart 30. around 1 million people are estimated to be living in households classified as in ‘relative poverty’ – including 1 in 4 children.

The key reason for weak earnings growth has undoubtedly been the poor performance of productivity.

Had the pre-2006 trend continued, productivity in Scotland would be around 15% higher than it is today. Chart 31.

Chart 31: Scotland’s long-term productivity performance

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Scottish Productivity (Output per hour)

Pre-financial crisis trend productivity



Chart 32: Scottish employment & unemployment rate

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Employment rate 16-64 (RHS)

Source: ONS, LFS

Chart 33: Unemployment rate by different part of the UK

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Source: ONS, LFS

Chart 34: Scottish employment & self-employment

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Total Employment (LHS)

Employees (LHS)

Self Employed (RHS)

Source: ONS, LFS

Scottish labour market

Scotland’s labour market continues to experience a period of historically low unemployment and high employment.

Scotland’s headline unemployment rate is now 3.8%, its lowest recorded rate, with an employment rate of 75%. Chart 32.

Overall, Scotland’s unemployment rate is one of the lowest in the UK. Chart 33. However, unlike in the rest of the UK, inactivity has risen in Scotland over the last year – up 0.4% points compared to a fall of 0.4% points in the UK.

This might not all be bad news however, as the largest increase has been amongst those aged 16–24, with some of this likely to reflect increased student numbers.

In contrast to the past couple of years, the balance of employment in Scotland between self-employment and employee jobs appears to be shifting back towards employees.

This suggests that the substantial rises in self-employment witnessed since the Great Recession may have eased somewhat. Chart 34.

At the same time, the number of people in part-time work who are seeking – but cannot find – full-time work continues to fall. Chart 35.

The ageing of Scotland’s labour force continues apace.

Chart 35: Percentage of part-time workers who cannot find full-time work, Jan-Dec 2004 up to Jul 2017 - Jun 2018

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Source: ONS, LFS


Chart 36: Employment levels by age in Scotland since 2008-09

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Jan

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16-24

25 - 34

35 - 49

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65+

Source: ONS, LFS

Chart 37: Youth (16-24) employment and unemployment in Scotland since 2008-09

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16-24 employment rate LHS 16-24 Unemployment rate RHS

Source: ONS, APS

Chart 38: Median real earnings in Scotland and UK CPI inflation

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Source: ONS, ASHE

Employment amongst those aged 65+ continues to rise. In contrast, there are fewer young people employed now than 10 years ago.

Some of this reflects fewer young people in the general population, but it also reflects a lower youth employment rate. Chart 36.

Whilst the headline measures of labour market performance might appear robust, challenges remain. In particular, real earnings growth (i.e. after adjusting for inflation) in Scotland has been – at best – barely positive over the last few years. Chart 38.

Much has been written about productivity since the financial crisis. Many hypothesis have been formulated, yet little appears to be changing in the headline data. Chart 39.

In Scotland, while there has been some improvement in ‘catching up’ with the UK over the last decade, this reflects more the failure of UK productivity than any particularly turnaround in Scotland.

The last few quarters have produced better rates of productivity growth, but overall, productivity has barely moved since 2010/11.

A recent report from Deloitte UK on productivity in UK’s Nations and Regions concludes that Scotland needs more businesses of scale that are competitively positioned across international markets as well as support in the development of leadership skills and confidence to enter and succeed in export.

Chart 39: Scottish GVA per hour

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) Out

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Growth rate of productivity (RHS)

Labour productivity (LHS)

Source: ONS, Scottish Government

https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/regions/deloitte-uk-power-up-uk-wide-growth.pdf


Chart 40: Scottish hours worked, GDP and labour productivity

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Source: ONS, APS

Chart 41: Productivity across countries, Denmark = 100, purchasing power adjusted GDP per hour, 2014

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Chart 42: Scotland’s relative productivity performance, by key driver, Denmark = 100, 2014

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Source: Mitchell and Zymek (2018)

The pre-financial crisis trend of sustained productivity growth is no longer a given – temporary periods of growth have been eroded by stronger growth in the number of hours worked. Chart 40.

New research by Edinburgh University academics Robert Zymek and Mark Mitchell offers new insights on Scotland’s recent productivity performance. Chart 41.

Using novel methods, they show that the productivity gap with the OECD’s top performers can be attributed to a low capital stock per worker, and low “Total Factor Productivity”. Chart 42.

The former refers to the level of investment in machinery, equipment and infrastructure. The latter to the efficiency with which an economy combines its productive resources to grow its economy.

Whilst Scotland benefits from relatively high workforce skills and relatively terms of trade, this is insufficient to offset this weaker performance elsewhere.

This suggests that solutions for Scotland should focus upon boosting investment – both public and private – and focussing upon the quality of management within firms, the need to tackle the prevalence of small and less efficient firms and demographic factors (such as population age) which may be possible culprits for Scotland’s low TFP.


Chart 43: FAI/RBS Business Activity Index, 2008 - Expected Q4 2018

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Source: FAI - RBS Business Monitor

Table 4: FAI/RBS Business Monitor key indicators, Q3 2018

Q3 2018

Quarterly change

12 month change

3 year average

Business volume (net balance)

New business +16% +7 +4 +17

Repeat business +10% +10 +9 +2

Business concerns (%)

Weakening demand - important 77% -5 -1 -4

Exchange rates - important 53% +1 -3 +3

Investment (net balance)

Capital investment -11% -5 -3 -8

Leasing -24% 0 0 -20

Source: FAI-RBS Business Monitor

Chart 44: RBS UK regional PMI, Jan 2016 - Oct 2018

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Other UK regions and devolved nationsUK

Source: RBS

Latest Scottish indicators

Business Sentiment indicators for Scotland continue to show a generally positive picture.

Our FAI/RBS Business Activity Index shows the expectations for Q4 to be fairly buoyant, following a strong Q3 – Chart 43. The main areas of concern remain around investment, as decisions are delayed due to wider economic uncertainty. Table 4.

The RBS regional PMI shows that the sentiment in Scotland is in positive territory, on a par with the UK as a whole. Chart 44.

The retail sector in Scotland has had a difficult period over the last year or so, with quarterly growth lagging the UK. Chart 45.

Indeed, the volume of retail activity over the last year in Scotland has grown by 1.3%, compared to 3.4% in the UK.

It is large retailers (those with 250+ employees) in Scotland that seem to be suffering the most. Volume of business in retail has remained flat over the last year for these larger retailers, and has in fact contracted in the latest quarter.

This compares with healthy growth for smaller retailers that is more similar to the overall UK picture.

Chart 45: Quarterly retail sales growth in Scotland and GB since 2016

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Chart 46: Scottish Government Consumer Sentiment Index current conditions, Q2 2013 - Q3 2018

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Chart 47: Scottish Government Consumer Sentiment Index expectations of the Scottish economy, Q2 2013 - Q3 2018

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Chart 48: GfK Scottish Consumer Confidence Index, Jan 1997 - Nov 2018

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In contrast to business sentiment, the confidence of consumers is much more subdued. The outlook for the Scottish Economy, household spending and finances are all in negative territory. Chart 46.

Looking in detail at consumer expectations for the Scottish economy, the trend since 2015 has been that fewer people think the economy is getting better, and more people think the economy is getting worse overall. Chart 47.

This would chime with the official data on the Scottish economy, insofar as the gap between Scottish and UK GDP per head has widened and then persisted over recent years.

The UK Consumer Confidence Barometer is conducted by GfK on behalf of the EU, with similar surveys being conducted in each European country.

The current survey was carried out in early November 2018. This collects views on personal finances, general economic conditions, views on major purchases and how good a time it is to save.

The most recent figure for Scotland is both low in historical terms and compared to the UK. Indeed, this is the lowest value in over 4 years. Chart 48.

The outlook for the labour market remains positive.

Most indicators - such as the RBS Jobs Barometer - all point to the labour market in Scotland operating at near capacity. Chart 49.

Chart 49: RBS Scottish Jobs Barometer index: continued high demand for jobs

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Source: RBS and IHS Markit


Table 5: Latest GDP growth forecasts and outturn

2017/18 2018/19 2019/20 2020/21

SFC (Dec 2017) 0.7% 0.8% 0.9% 0.6%

SFC (May 2018) 0.7% 0.8% 0.8% 0.9%

SG (Sep 2018) 1.3% - - -

2017 2018 2019 2020

FAI (Sept 2017) 1.2% 1.4% 1.7% -

FAI (Sept 2018) - 1.3% 1.4% 1.4%

Source: Scottish Fiscal Commission, Scottish Government & FAI analysis

Chart 50: Employment rate (16+) in Scotland and the UK

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61%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

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UK

Source: ONS APS

Chart 51: Annual growth in earnings (outturn) and SFC & OBR forecasts

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Source: ASHE, SFC & OBR

Scottish Fiscal Commission’s forecasts

Alongside the Scottish Government’s Draft Budget, the Scottish Fiscal Commission (SFC) will publish their revised forecasts for the Scottish economy.

We discuss the wider budget context in the Policy section of the Commentary.

The SFC forecast a number of variables around their now twice yearly reports. This is all underpinned by an ‘overall’ view of how they think the Scottish economy is faring and the outlook.

The SFC have been cautious, forecasting growth of less than 1% until 2022. Table 5.

So what is worth watching out for?

The first thing that the SFC will have to do is reflect upon how their forecasts compare with the most recent data on Scottish GDP (in particular, the major revisions to the Scottish construction series).

It is highly likely that the SFC will revise up their growth forecasts. However, we see little evidence that they will take a much more positive outlook than in their first two sets of forecasts.

The second key element that they will have to consider is how ‘tax rich’ this growth is likely to be.

For income tax, the most significant devolved revenue by far, the two most important elements are employment and earnings.

Mirroring the trend in economic performance, Scotland’s employment rate fell in 2016. Since then, employment in Scotland is now growing at the same rate as in the UK. Chart 50.

What about earnings?

Chart 51 compares outturn data on average annual earnings in Scotland and the UK, alongside two recent forecasts of earnings growth from the SFC and OBR.

The latest data has confirmed somewhat slower growth in Scotland, consistent with the SFC’s assessment in May. However, the good news is that the gap between Scotland and the UK may not be as large as perhaps thought. However, it seems likely that the SFC will continue to forecast weaker earnings growth in Scotland relative to the UK as a whole.


Table 6: Latest growth forecasts for the UK economy

2018 2019 2020

Bank of England 1.5% 1.8% 1.7%

OBR 1.3% 1.6% 1.4%

NIESR 1.4% 1.9% 1.6%

European Commission 1.3% 1.2% -

IMF 1.4% 1.5% 1.5%

Oxford Economics 1.3% 1.7% 2.0%

ITEM Club 1.3% 1.5% 1.7%

CBI 1.4% 1.3% -

Source: HM Treasury, Bank of England, OBR

Table 7: Bank of England projections - what could they mean for Scotland? (compared to the financial crisis)

GDP Unemployment House prices

2008-09 Financial Crisis

-4% +131,000 -16%

Disorderly -8% +100,000 -30%

Disruptive -3% +52,000 -14%

Economic partnership

-0.75% to + 1.75%

+/- 2,000 N/A

Source: Bank of England, Fraser of Allander Institute

Table 8: FAI Nowcasts for Scotland’s GDP in Q3 and Q4 2018

Q3 Q4

Quarterly Growth 0.35% 0.39%

Annualised Growth 1.42% 1.57%


Chart 52: FAI forecast Scottish economic growth range

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Annu

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Forecast


* Actual data to Q2 2018. Central forecast with forecast uncertainty for 2018 – 2020. Uncertainty bands sourced from accuracy of past forecasts at different forecast horizons.

Our forecastsEconomic forecasting in the current climate is fraught with difficulty.

Even in ‘normal’ times, forecasting is not an exact science. An economy – particularly a small open one like Scotland – is constantly subject to events out with its control. This is why we are clear about the sensitivities of our forecasts and encourage readers to focus on the range of estimates.

The unpredictability of short-term outcomes, also highlights why it is important – particularly from a policy perspective – to focus upon the long-term drivers of growth and prosperity.

But the debate in Scotland on such questions remains weak. We have through the year pointed to the weaknesses in strategy and economic thinking within policymaking. We see little evidence of things having changed for the better.

In terms of immediate prospects, Brexit remains the key risk factor.

Firstly, no-one can predict with confidence what might happen next – particularly if Parliament votes against the proposed withdrawal agreement.

Secondly, there is simply no precedent for a ‘no deal’ outcome to use as a benchmark for forecasting. In Box 1 we discuss the channels through which the economy could be impacted.

So without any hard evidence about what might happen next politically, we have based our analysis upon a smooth transition deal. This is the approach taken by most other forecasters. Table 6.

The Bank of England has provided some thoughts. In November, they set out a series of scenarios covering how the UK economy may evolve in the event of a no deal. Table 7.

In this ‘worst case’ scenario – one of a disorderly Brexit – the Bank believe that the UK economy could shrink by 8%.

To put this in context, the Scottish economy contracted by just under 4% during the financial crisis.

Table 8 shows our latest nowcasts.


Table 9: FAI forecast Scottish GDP growth (%) 2018 to 2021

2018 2019 2020 2021

GDP 1.3% 1.4% 1.5% 1.4%

Production 1.5% 1.6% 1.7% 1.6%

Construction 1.0% 1.1% 1.1% 1.1%

Services 1.2% 1.4% 1.4% 1.4%Source: Fraser of Allander Institute

Table 10: FAI Labour Market forecasts to 2021

2018 2019 2020 2021

Employee jobs 2,495,250 2,521,800 2,550,400 2,577,700

% employee job growth over year 1.0% 1.1% 1.1% 1.1%

ILO unemployment

98,000 103,500 104,400 112,500

Rate (%)1 3.7% 3.9% 3.9% 4.1%


Absolute numbers are rounded to the nearest 50.1 Rate calculated as total ILO unemployment divided by total of economically active population aged 16 and over.

Chart 53: FAI GDP forecasts by sector, 2018 – 2021

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The results are consistent with our expectations for growth in 2018 first made in 2017. On balance, we believe that – setting aside any risks from the Brexit negotiations going awry – Scotland should be on track to grow at a broadly similar rate to last year (if not slightly faster). Table 9.

Turning to our forecasts for the next three years, as in the past, we report a central forecast but also uncertainty bands that set out a likely range within which we predict Scottish economic growth will lie.

It is important to note that such bands are based upon historical variations in our ‘normal’ forecasting performance. The potential for a ‘no deal’ Brexit outcome is clearly not a ‘normal’ event and would significantly lower our outlook for growth. We do think that the worst case scenario put forward by the Bank is highly unlikely, though accept growth will slow sharply.

A technical recession – i.e. two or more consecutive quarters of falling output – whilst by no means a certainty, cannot be ruled out.

With nominal earnings growth expected to pick-up, and provided that this outpaces inflation, household spending should see some modest gains.

Investment activity is likely to remain under pressure as Brexit-uncertainty continues to cast a shadow over growth ambition. But it could also be the element that bounces back most strongly in the event of a positive outcome (from the perspective of maintaining close ties to the EU).

Net exports and tourism are on track to continue to benefit from the low value of Sterling. However, the softening in global growth might mean that 2019 is not as healthy as 2018. As in recent years, services should make the greatest contribution to growth. There is a renewed risk in manufacturing however, with the downturn in the price of oil likely to test the resilience of the oil and gas supply chain. Most indications are that the sector is better prepared than four years ago. Chart 53.

With major new public investment in the pipeline, the construction sector should continue to see a more sustained outlook.

We expect unemployment to rise slightly toward a level consistent with more medium-term trends. Table 10.


Box 1. ‘No deal’

Clearly the greatest risk to our forecast is the possibility of ‘no deal’.

Our own estimates suggest that – over the long-run – such an outcome would act as a significant drag on Scotland’s long-term growth potential.

These estimates were obtained from what is known as a general equilibrium model of the Scottish economy. This however tells us little about the short-term impact of ‘no deal’.

The challenge with forecasting what a ‘no deal’ might mean is the lack of any precedent to fall back on.

So whilst we can be confident that a breakdown of the UK’s economic relationship with the EU will have significant economic implications, it is difficult to attach an exact number.

The OBR and most independent forecasters have stuck to assuming that the UK and the EU will secure some form of deal, with a transition period. We follow that approach.

The Bank of England in contrast, has set out a series of scenarios for what ‘might’ happen, with the aim of stress-testing the banking system.

Up to March 2019, if a ‘no deal’ increases in probability, there are likely to be two forces at work.

Firstly, there is a series of factors that may slow the economy even further. Sterling is likely to fall, pushing up inflation and reducing real wages.

Financial markets are likely to be volatile. Some have suggested that the UK’s Credit Rating may be downgraded. All of this could lead to a further fall in business and consumer confidence, reducing investment and spending.

Secondly, however, there are some forces that could boost growth. In particular, businesses and government may start to prepare – e.g. stockpiling and contingency planning – and this will help boost spending in the short-term.

One thing that can be guaranteed is that economic activity is likely to be choppy.

Post-March 2019, the outlook in the case of a ‘no deal’ outcome is likely to be more negative.

Firstly, any boost from stockpiling and contingency will gradually be eroded: items stockpiled prior to ‘no deal’ cannot be used more than once.

Secondly, uncertainty over how long a ‘no deal’ outcome could last might further dampen investment and spending.

Thirdly, and of course most significantly, the actual barriers that a ‘no deal’ outcome would create – in terms of tariffs, customs controls and regulations – would come into immediate effect. The disruption to export markets and supply chains – for some – could be significant.

Whilst it is important to remember that most UK businesses are one-step removed from international markets, the knock-on effects from weaker growth through supply chains is likely to be the key avenue through which growth slows. Analysis by the Fraser of Allander Institute showed that around 130,000 jobs are supported by EU export demand in Scotland.

Much will depend upon how the government and Bank of England respond. It is also possible that the UK and EU authorities (at least in the short run) would try to mitigate some of the most disruptive consequences of a disorderly Brexit.


Box 1. ‘No deal’ - continued

Over the next year, there are a number of planned (regular) statistical releases which will cover activity in the Scottish economy. These will be likely watched carefully by commentators for evidence of an impact of the short-term impacts of Brexit.

In the table below, we note these, and the period of time to which these relate.

Date Data Period covered Geography

1 December 2018 GDP 2018 Q3 Scotland

2 January 2019 Retail Sales Index 2018 Q4 Scotland

3 February 2019 GDP first estimate 2018 Q4 UK

4 March 2019 GDP 2018 Q4 Scotland

5 May 2019 Retail Sales Index 2019 Q1 Scotland

6 May 2019 GDP first estimate 2019 Q1 UK

7 June 2019 GDP 2019 Q1 Scotland

8 August 2019 Retail Sales Index 2019 Q2 Scotland

9 August 2019 GDP first estimate 2019 Q2 UK

10 September 2019 GDP 2019 Q2 Scotland

11 November 2019 GDP first estimate 2019 Q3 UK

12 November 2019 Retail Sales Index 2019 Q3 Scotland

13 December 2019 GDP 2019 Q3 Scotland

It is worth noting that official data on the period that Brexit actually occurs will not be available until August/September; and that data released in March will be referring to the period we are currently in now.

With the departure of the UK from the EU set at the 29th of March 2019, this equates to the end of the first quarter.

This means that the first release of economic statistics covering the period when the UK is no longer in the EU wil be in August 2019 – with the first estimate of UK GDP for the 2nd quarter of the year, and the Retail Sales Index for Scotland.

The data for Scotland in 2019 Q2 will be available the following month. Only at that point will we have ‘hard’ statistical measures of the impact on short term economic variables.

This distance between the time period and the data relating to that period means that all eyes will focus upon regular business surveys – such as our FAI Scottish Business Monitor – as well as “flash” estimates of economic activity, such as our monthly nowcasts.


Policy contextBudget 2019/20

The Scottish budget 2019/20, which Derek MacKay will present to Holyrood on 12th December, will be the third budget of this parliamentary session.

The ‘story’ of the previous two budgets has been the use by the Scottish Government of its new income tax powers to raise additional revenues from those with higher than average incomes. Income tax policy has also been the conduit through which the minority SNP government has leveraged political support for its budget from the Scottish Greens – with the Greens securing additional revenue raising measures in each of the past two budgets compared to those the government had initially proposed.

Back at the start of the current parliamentary session, 2019/20 looked like it would be a particularly tough budget year. At the time, the resource block grant was due to decline by 1.4% in real terms, having fallen by 1.6% the previous year.

Since then, additional spending by the UK Government as a result of both better than forecast revenues and some relaxation of fiscal policy, means that the outlook for the block grant has improved. The block grant will now in fact increase very slightly in 2019/20, and be marginally higher than it was at the end of the last parliament (2016/17). Chart 54.

But the block grant is now only one part of the picture when it comes to the Scottish budget. The government’s exact spending envelope in 2019/20 will also hinge on the tax forecasts of the Scottish Fiscal Commission (SFC) which will be published on budget day (most importantly for income tax, but also for LBTT, Landfill Tax and Non-Domestic Rates).

Critically, what matters is the difference between the revenue forecasts and the forecasts of the so-called ‘block grant adjustments’ – the counterfactual estimates of the revenues that the UK Government has foregone as a result of transferring each revenue stream to Scotland. Where Scottish revenues are forecast to be higher than the corresponding BGAs (perhaps because of a higher tax rate in Scotland, or faster growth in determinants of the Scottish tax base, such as wages), then the Scottish budget is better off to the extent of this difference.

Chart 54: Scotland’s resource block grant, 2016/17 - 2019/20

£25,500

£26,000

£26,500

£27,000

£27,500

£28,000

2016/17 2017/18 2018/19 2019/20

Res

ourc

e bl

ock

gran

t (£

m, 2

018/

19 p

rices

)Autumn Statement 2016

Autumn Statement 2017

Budget 2018

Source: HM Treasury

In the 2018/19 budget this gap between revenues and BGAs was £428m in the Scottish Government’s favour, largely because of the decisions taken on income tax. How different might this number be in 2019/20?

On the one hand, the income tax gap might be less significantly in Scotland’s favour this year, given that the SFC now appears to be taking a slightly dimmer view about the prospects for Scottish wage growth than it had done last December (as indicated by its mid-year forecasts published in May).

On the other hand, this somewhat less optimistic outlook could be offset by Phillip Hammond’s 2018 Budget announcement of a significant increase in the Higher Rate Threshold in rUK. This tax cut for higher rate taxpayers will reduce the size of the income tax BGA, the counterfactual estimate that is deducted from the Scottish Government’s block grant. Assuming the Scottish Government chooses not to increase the Scottish higher rate threshold to the same extent, it may be able to retain the gap between Scottish income tax revenues and the BGA at a similar level as last year.

Depending on which of these scenarios plays out, the Scottish budget could end up being about the same in 19/20 compared to last year, or increase slightly - perhaps by around 1% in real terms.


Tax policy and the budget deal

As well as the SFC’s assessment about the future growth of the Scottish economy and the factors determining Scottish revenues (such as wages, employment, house prices, and so on), the Scottish budget will be influenced by tax policy choices.

On income tax, Derek Mackay has indicated that the current five-band tax structure will remain in place, but has not ruled out changes to rates or thresholds within this structure. Theoretically this still leaves a wide range of policy options (Table 11), depending on how the government seeks to balance its desire to raise additional revenues with a preference for avoiding too many negative headlines about the size of tax liability differential between Scotland and rUK.

These choices are likely to be most acute in relation to the higher rate threshold. Compared to a policy of increasing the threshold by inflation:

■ Matching the UK threshold of £50,000 would cost around £280 million;

■ Increasing the threshold by the same percentage as the rUK increase in 2019/20 would take the threshold to £46,850 and cost around £130 million;

■ Freezing the threshold in cash terms at £43,430 would raise an additional £60 million for spending on public services, but mean that some Scottish income taxpayers would face an average tax rate of 1.5% higher than rUK counterparts.

Table 11: Summary of income tax policy options

Static effect

Dynamic effect (including

behavioural response)

1p on Basic Rate (BR) £174m £167m

1p on Intermediate Rate (IR) £133m £128m

1p on Higher Rate (HR) £83m £64m

1p on Additional Rate (AR) £22m £2m

Freeze IR threshold rather than increasing in line with inflation

£7m £6m

Freeze HR threshold rather than increase in line with inflation

£70m £64m

Increase HR threshold to £46,850

-£145m -£132m

Increase HR threshold to £50,000

-£306m -£280m

Source: FAI income tax model

As in the previous two years, parliamentary arithmetic means that the government will need to do a deal with another party to ensure it can pass the budget bill. If, as in the previous two years, the Scottish Greens are budget kingmakers, large increases in the higher rate threshold seem unlikely in practice. One hypothesis is that the draft budget will propose a moderate real terms increase in the threshold, in anticipation of it being negotiated back towards the existing level as part of the budget deal.

Alternatively, perhaps 2019/20 will be the year that the higher rate threshold ceases to be the cornerstone of the budget deal. Earlier this year the leader of the Scottish Greens Patrick Harvie wrote to Nicola Sturgeon to point out that progress on local tax reform would be the party’s next area of ‘constructive challenge’ when it came to negotiating a budget deal in 2019/20.

In this context, ‘progress on local tax reform’ could be seen to encompass a range of possibilities, including moves toward reform of council tax and non-domestic rates, and allowing local authorities to have greater fiscal autonomy in a range of existing and new areas, potentially including through the enabling of new taxes at local level – such as visitor taxes or environmental levies.

Spending choices

So whilst there remains some uncertainty around the size of the budget and the Scottish Government’s tax policies, there is perhaps a little more certainty on the broad direction of the spending choices that the government is likely to take.

We know for example that the Scottish Government will ‘pass on’ recently announced health consequentials from UK Government spending increases in England into the Scottish health budget. We know that the police budget will be protected in real terms. And we know the broad size of funding allocations for some of the government’s key spending commitments on educational attainment, early learning and childcare, and higher education.

These commitments on their own account for almost 60% of the government’s resource budget. Real terms increases in health spending, which are likely to be around 2.4% in 2019/20, constrain other parts of the budget given the dominance of health


spending as a share of the budget. Even if the total budget increases by one or even two per cent, most other portfolios that account for the remaining 40% of spending are likely to see declining real terms settlements.

Even during the course of the first two budgets of this parliament, substantial variation in the financial fortunes of different public bodies can be observed. The core local government settlement has fallen by almost 3% between 2016/17 (the last budget set by the previous parliament) and 2018/19. The budget allocation to higher education has fallen by almost 4%, despite it being one of the government’s spending ‘commitments’. Environmental organisations such as SEPA, SNH and Zero Waste Scotland have seen budget reductions between 2016/17 and 2018/19 of 6.7%, 8%, and 3.6% respectively.

Over time, the Scottish budget is undergoing a radical change in its make-up. The prioritisation of the health budget in particular represents the continuation of a longer term trend. Spending on health, which was 38% as a share of the Scottish budget in 1999 had reached 47% by 2018/19, and could feasibly account for half of government resource spending by the time Holyrood debates the final budget of this parliamentary session. Chart 55.

Chart 55: Health spending in Scotland

0%

10%

20%

30%

40%

50%

60%

Hea

lth s

hare

of r

esou

rce

budg

et

Forecast

Source: Fraser of Allander analysis

Local government has seen its core resource settlement from government fall by around 8% in real terms between 2010/11 and 2018/19. Its response has been to prioritise spending on statutory areas of social work and education. As a consequence, spending on these areas has fallen

only slightly, whilst spending on some non-statutory areas including cultural and recreational services, and planning and economic development, has fallen by over 20%. Chart 56.

Chart 56: Index of real terms changes in local government outturn expenditure by service area, 2010/11 – 2017/18

0

20

40

60

80

100

120

2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Loca

l Gov

ernm

ent

expe

nditu

re I

ndex

(20

10/1

1=10

0)

Roads and Transport

Education

Social Work

Environmental Services

Planning and Development Services

Culture and Related Services

Source: Provisional Outturn and Budget Estimate Statistics,

As ever, it remains unclear to what extent these spending changes might affect outcomes, whether economic, environmental or social. But the long-term concentration of public sector spending towards health, social care and (to a lesser extent) education – at the expense of many areas of cultural, economic and environmental areas - is clear.

Looking beyond 2019/20

It is worth briefly looking beyond 2019/20 to consider the challenges lurking ahead for the final two budgets of the parliament.

Budget 2020/21 looks ominously complicated compared to budget 2019/20. In principal, 2020/21 will see assigned VAT start to contribute to the Scottish budget, and around £1bn of social security spending will be added to the budget. At the same time, 2020/21 will be the first year of income tax ‘reconciliation’ – where the budget will be adjusted to account for any forecast error in relation to the 2017/18 income tax forecast.

Budget 2021/22 will be the last budget set in this parliament before the Holyrood elections in May 2021. A further £2bn of social security spending will come on stream.


Parliamentary debates on this budget will potentially straddle the period during which the UK exits its transitionary arrangement with the EU.

In some ways therefore, compared to the likely backdrop to the next two years’ budgets, the 2019/20 budget looks relatively unexciting; arguably a typical backdrop to a mid-term budget.

But the 2019/20 budget could yet be blown off course. Westminster is expected to have its ‘meaningful vote’ on the Withdrawal Agreement on the 11th December, the day before the Scottish budget is presented.

If MPs back the Agreement, the UK will in principle slide smoothly out of the EU at the end of March 2019 straight into a transitionary period. In principle this should leave Mr Mackay’s spending plans (and the SFC forecasts) relatively unscathed, and lay the way for the UK Government to go forward with its planned spending review later in 2019.

If however parliament rejects the proposed Withdrawal Agreement – which is arguably the more likely outcome as things stand – then the possible scenarios range from the UK exiting the EU with no agreement in March next year, through to some combination of Article 50 extension, renegotiation of the Withdrawal Agreement, a general election and/or a second EU referendum.

Quite how the 2019/20 budget might be affected by such events is unclear, but there could be implications for the UK fiscal plans (influencing the Scottish budget via the Barnett formula), and potentially substantial changes in tax forecasts.

One thing that is clear is that, during the next two months of budget debate and negotiations, the Scottish budget will no doubt play second fiddle to Brexit as a news story.

But we should not forget the importance of the budget statement, not only because it determines how much income and council tax we pay next year, but more fundamentally because of what it will tell us about the long term trends of public spending in different spheres of public policy intervention in Scotland.


Competition policy and economic governance in an

independent Scotland

Ewan Sutherland

Abstract

The SNP’s Sustainable Growth Commission updated an economic case for Scottish

independence, based on strong future economic growth over many years, however without any

discussion of the many institutions that would be required for economic governance and

oversight to help meet such enhanced growth. An independent Scotland would require a new

set of regulatory bodies – plus a system of appeals and sufficient democratic oversight by the

Scottish Parliament. The Sustainable Growth Commission report draws heavily on the examples

of Denmark, Finland and New Zealand whose models of economic governance and oversight

vary considerably. This article reviews the constraints and freedoms that an independent

Scotland would face in developing its future competition policy and economic governance.

Keywords: Scotland, Independence, Governance, Competition, European Union, Economic

Governance.

I Introduction

The report of the Sustainable Growth Commission (2018) (SGC) to the Scottish National Party

(SNP) proposed selecting and adapting economic policies and practices from small advanced

nations − principally Denmark, Finland and New Zealand − to deliver a decade of economic

growth at 2.5 per cent annually, then fifteen years at 3.5 per cent annually. However, the report

does not discuss whether there would be the necessary institutional capacity. One key area is

competition policy, encompassing the regulation of markets in general (e.g., abuse of

dominance and merger control) and of specific sectors (e.g., energy and telecommunications),

plus oversight of state aid. The report is vague on the general governance of the economy,

concerning the institutions that would be required to draft, consult upon, refine, and oversee

implementation of the various policies, aside from two notable exceptions: the creation of a

Scottish Central Bank (SCB) and Scottish Financial Authority (SFA). This paper reviews the

constraints and freedoms that an independent Scotland would face in developing its future

competition policy and economic governance.

Economic Commentary, December 2018 30

The importance of institutions to economic growth was set out by North (1989), noting the

importance of the ability to create institutions and the significance of path dependency. In Africa

and Latin America, the lack of experience in the creation and maintenance of institutions

hindered growth, in contrast to the successes of governments in the Asian tiger economies and

China. The European Union has developed considerable capacity to devise institutions and to

link them in governance networks, with regular revisions, arguably with excessive complexity.

Whereas in the US, the pendulum swings between institutional development and efforts to roll

it back. Current concerns focus on the types of institutions and policies need to regulate

competition with two-sided and platform-based markets.

Section II reviews issues around competition policy in an independent Scotland. Section III

analyses the economic governance of the SGC’s three exemplar countries. Section IV examines

the options for economic governance and competition policy in an independent Scotland. In

Section V, conclusions are drawn and issues identified for further research.

II Competition policy

The European Commission (EC) explains that:

Competition policy cannot shape a fairer economy on its own, but it can make an

important difference: enforcing competition law ensures that there is a voice for the

consumers. Competition policy contributes towards a society that gives people

choice, stimulates innovation, prevents abuses by dominant players, and drives

companies to make the most of scarce resources thus contributing to addressing

global challenges like climate change. (EC, 2017a)

Competition policy has been a feature of the European project from the Treaty of Paris (1951),

to the current Treaty on the Functioning of the European Union (TFEU, 2007). The relevant articles

address:

Antitrust and cartels;

Merger control; and

State aid control.

The EC is a competition authority, promoting a competition culture and handling cases that have

a European dimension, or relate to state aid (EC, 2018b), supplemented by the work of European

regulatory networks (ERNs) (Maggetti & Gilardi, 2011). Competition experts from the member


states (MSs) sit on an advisory committee that discusses draft EC decisions and some cases

being decided by national competition authorities (NCAs) (EC, 2003). The EC and the NCAs also

cooperate through the European Competition Network (ECN), for example, publishing a report

on online hotel bookings (EC, 2017b).

Figure 1 State aid as a percentage of GDP (excluding railways) (EC, 2017c)

MSs are required to have an independent NCA and a system of appeals, plus regulators for a

number of economic sectors, each linked through ERNs, for example, for electricity. There is no

standardised model; rather each MS has the freedom to design its own governance structures.

For example, in Estonia the Konkurentsiamet combines the NCA and the regulation of all

economic sectors, whereas a majority of MSs keep at least their competition authority separate.

The United Kingdom has combined broadcasting, posts and telecommunications into a single

0.0 0.5 1.0 1.5 2.0 2.5

Ireland

Italy

Spain

Luxembourg

Netherlands

Portugal

Greece

Slovakia

United Kingdom

Malta

Austria

Belgium

Romania

France

Cyprus

Bulgaria

Slovenia

Sweden

Estonia

Lithuania

Finland

Poland

Croatia

Germany

Czech Rep.

Latvia

Denmark

Hungary


body, the Office of Communications (OFCOM),1 plus a range of other ‘offices’ (i.e., non-

ministerial departments). In 2014, the United Kingdom merged the Office of Fair Trading (OFT)

and Competition Commission to create the Competition and Markets Authority (CMA).

State aid involves a company receiving government support that gives it an advantage over its

competitors, consequently being prohibited under EU treaties, unless justified for economic

development. Such exemptions are controlled by the EC and the ECJ to avoid distortions of the

single market, reviewing funds to be provided by any level of government, from municipalities

up to the European Investment Bank (EIB). The extent of state aid varies greatly (see Figure 1).

Despite claims by the Labour Party that EU membership would constrain a putative UK Labour

Government, it could, at least, double the level of state aid and remain within the framework.

However, it would be more difficult to nationalise industries or to provide them with special

status, given EU limits on golden shares and special rights (Putek, 2004; Werner, 2017).

An independent Scotland would certainly become a member of the Organisation for Economic

Cooperation and Development (OECD)2 observing its various recommendations, including its

present economic strategy Going for growth (OECD, 2018). It would become a signatory to its

various legal instruments, notably the Convention on Combating Bribery of Foreign Public

Officials in International Business Transactions.3 Implementation of anti-corruption policies and

treaties would require creation of a unit comparable to the Serious Fraud Office (SFO).4 There

has been concern about money laundering through limited partnerships registered in Scotland

(Leask & Smith, 2018; BBC, 2018a). OECD membership includes participation in its many

committees and working parties, effectively governance networks, discussing policy issues and

measures to improve outcomes, including peer reviews. A Scottish NCA would be expected to

participate in:

1 OFCOM also has sectoral competition law powers. 2 There is a complex legal argument over whether an independent Scotland must join or, as a successor state, it

acquires some or all of the United Kingdom treaty obligations. 3 Economic crimes would require the retention of the Bribery Act, with the capacity to enforce it, presently reliant on

the Serious Fraud Office (SFO). 4 Scotland would also be expected to ratify and implement the UN Convention against Corruption (UNCAC) and the

Criminal and Civil Conventions on Corruption of the Council of Europe, cooperating in the work of the Group of

States against Corruption (GRECO).


OECD Competition Committee (and its working parties); and

Global Forum on Competition.

As an independent state, Scotland would have to adopt a framework for competition policy,

indicating some level of intervention in the economy and to create institutions covering the role

of the current UK regulators:

Competition Appeal Tribunal (CAT);

United Kingdom Regulators Network;

Civil Aviation Authority (CAA);

Financial Conduct Authority (FCA);

Payment Systems Regulator (PSR);

Office of Communications (OFCOM);

Office of Gas and Electricity Markets (OFGEM);

Water Services Regulation Authority (OFWAT);

Office of Rail and Road (ORR);

Single Source Regulations Office (SSRO); and

Financial Reporting Council (FRC).

The Water Industry Commission for Scotland (WICS) is the sole regulatory body that presently

serves only Scotland, though some United Kingdom bodies have representative offices. While

the Scottish courts can hear competition law cases, there has been remarkably little litigation

before the Court of Session, partly because the geographical definition of markets is generally

either the United Kingdom or Europe. The success of the CAT would favour the creation of a

similar specialist tribunal in Scotland, from where cases could proceed to the Inner House of the

Court of Session and, potentially, to a Scottish Supreme Court.

Independence, in the sense of institutions rather than the state, is essential in economic

regulation to protect decision-making from political interference, an issue avoided both by the

SGC and by the SNP in its 2014 independence referendum campaign. Nonetheless, there are EU

acquis obligations requiring the institutional independence of a number of agencies and widely

accepted evidence that economic performance and the quality of governance are improved

thereby (Gilardi, 2002; 2005; 2007; Guidi, 2015; Maggetti, 2009). A challenge faced by the EU


has been to convince some accession countries of the benefits of making institutions genuinely

distinct and separate from government, freeing their decision-making from ministerial influence,

especially media regulators. In smaller countries, institutional independence can be

problematic, given that many individuals know each other from school, university, work or

socially.

Regulatory capture is an extreme form of influence, in which agencies act for regulated firms

rather than for citizens and the economy. To prevent this, measures to typically address include

(Laffont & Tirole, 1991; Dal Bó, 2006; Hong & Kim, 2017):

Clarity of legal powers;

Appellate systems;

Collegiate boards with staggered renewal dates for commissioners; and

Delays on individuals taking up posts in regulated firms.5

More challenging than the design of the future competition policy and institutions would be the

transition from the current United Kingdom governance to a future Scottish governance. The

simplest option would be to roll-over a list of relevant statutes and statutory instruments, adding

“Scottish” to the names of the current institutions and legislation to avoid confusion, and to

begin recruiting qualified and experienced people for the various agencies. Licences could be

split at the border, ‘grandfathering’ the existing conditions and made subject to Scottish

regulators and courts. However, this could not wait for independence, but would require

agencies, licences, policies and parliamentary oversight arrangements to be operational much

earlier. It would be necessary to draft legislation during a referendum campaign, so that in the

event of a vote for independence, the Scottish Parliament could immediately be given the

powers to scrutinise and enact essential legislation, in order that agencies could be brought into

existence in good time. To ensure a smooth transition the agencies could then rent offices,

recruit staff, develop computer systems, and begin to consult on their policies and on the

adaptation of licences. An area of concern could be Scotland’s small market size, the sometimes

challenging geography and low population density, which operators could claim justified higher

retail or wholesale tariffs, to compensate for their inability to spread the costs over a larger

5 To avoid the ‘revolving doors’ problem.


population.6 The new agencies would have to create coordination mechanisms with each other

and with their counterparts in the rest of the United Kingdom and the EU, notably where market

definitions included both Scotland and the rest of the United Kingdom or had a European

dimension.

The transition would require input from business users and consumers to the many

consultations, activities that are presently concentrated in Brussels and London. This would be

likely to require additional funding, training for existing organisations and the creation of new

organisations. For example, Scottish Ministers have rarely published regulatory impact

assessments (RIAs), which are commonly used by regulators in their consultations, requiring

sufficient understanding by parties planning to respond. Good governance relies on informed

responses to consultations and periodic appeals to the courts, which require engagement,

funding, and skills.

In addition to the headline agencies, there is a wide range of other bodies presently involved in

market governance. For example, Table 1 shows the array of bodies in and around the

telecommunications sector, the functions of which, if not their structures would have to be

replicated.

The issues of competition and regulatory policy in an independent Scotland are unavoidable.

They are not especially contentious, since in the first instance they would entail rolling over

existing UK institutions and policies, making only essential changes and then organising regular

reviews of laws, policies and institutions. The metagovernance priority would be to ensure a

smooth transition and parliamentary oversight of institutions.

6 Presumably London-based regulators would try to reduce prices and tariffs for the same reason.


Table 1 UK regulatory institutions in the ICT sector (Sutherland, 2017)

Name Status Functions

Advertising Standards

Authority (ASA) Independent

Regulator of advertising across all media, including marketing on

websites

Competition and Markets

Authority Non-ministerial

department

The CMA is the UK national competition authority (e.g., merger

control). Handles some appeals from OFCOM

Office of Communications

(OFCOM)

Non-ministerial

department‡

OFCOM is sector and competition law regulator for broadcasting,

posts, and telecommunications

Communications and Internet

Services Adjudication Scheme Independent*

CISAS provides customers of communications companies (e.g.,

telephone and broadband) with free, independent dispute

resolution

Ombudsman Services –

Communications Independent*

Resolves complaints from consumers about phone and broadband

companies

Telephone Preference Service

(TPS) Independent*

An opt-out service for customers wishing not receive to unsolicited

sales or marketing calls

Office of Telecommunication

Adjudicator (OTA2) Independent*

Oversees co-operation between communications providers and

enables a competitive environment

Broadband Stakeholder Group Independent‡ UK government’s advisory forum for telecommunications

Network Interoperability (NICC) Independent

Technical forum that develops interoperability standards for public

communications networks and services

Competition Appeal Tribunal

(CAT) Judicial

Specialist judicial body with expertise in law, economics, business

and accountancy, that hears and decides cases involving

competition or economic regulatory issues

General Communications

Headquarters (GCHQ) Government

department

Works with other intelligence agencies, other departments, law

enforcement and industry to defend government systems from

cyber threats and strives to keep the public safe, in real life and

online.

National Cyber Security Centre

(NCSC) Part of GCHQ

Helps protect critical services, managing major incidents and

improving the security of the UK Internet through technology and

advice to citizens and organisations

Interception of

Communications

Commissioner’s Office (IOCCO)

Non-ministerial

department

Reviews the interception of communications and the acquisition

and disclosure of communications data by intelligence agencies,

police forces and other public authorities

Investigatory Powers Tribunal

(IPT) Judicial

Investigates & determines complaints alleging that public

authorities or law enforcement agencies have unlawfully used

covert techniques and infringed our right to privacy

Gambling Commission Non-departmental

public body‡

Regulates commercial gambling and the National Lottery

Information Commissioner’s

Office (ICO) Independent

Upholds information rights in the public interest, promoting

openness by public bodies and data privacy for individuals

Internet Watch Foundation

(IWF) Independent

Maintains UK hotline for reporting criminal online content

UK Council for Child Internet

Safety (UKCCIS) Government led

body

A group of more than 200 organisations including government,

industry, law, academia and charity sectors that works to help keep

children safe online

UK Safer Internet Centre Partnership

SWGfL, Childnet International and IWF - promoting the safe and

responsible use of technology for young people

Child Exploitation and Online

Protection Centre (CEOP) Police

Dedicated to eradicating the sexual abuse of children

* Approved by OFCOM

‡ sponsored by the Department for Digital, Culture, Media and Sport (DCMS).


III Regulatory landscapes in three small nations

The SGC drew on experiences from three advanced small states:

Denmark;

Finland; and

New Zealand

The first two are EU member states which helped produce and are in full compliance with the

EU acquis, and are deeply embedded in EU institutions. While Finland is in the Eurozone, the

Danish Krona is only pegged to the Euro. Both follow the ‘Nordic model’, being small, open

economies delivering stable and sustainable growth, with ambitious welfare systems and

comprehensive public sectors financed by high taxes. New Zealand is quite different being a

group of rather remote Pacific islands that was formerly in the British Empire.

The three differ greatly in their economic, physical and political geographies (see Table 2);

Denmark has a much higher population density, while New Zealand has markedly lower

government revenues and taxes. Picking elements of their competition, economic and regulatory

policies would require very detailed analysis, identifying particular circumstances and path

dependencies, then judicious adaptation. Figure 2 shows the GDP growth of the three, together

with that of the United Kingdom, while Figure 3 shows GDP per capita, neither of which suggests

that the three smaller nations have outperformed the United Kingdom to any significant extent.


Table 2 Demark, Finland, New Zealand and the UK compared

Indicator Units Denmark Finland New

Zealand

United

Kingdom

Population millions 5.8 5.5 4.8 66.6

Population density per km2 136 16 18 276

Life expectancy years 79.5 81.0 81.3 81.8

GDP per capita (current prices) USD 53,730 43,339 40,233 40,249

Real GDP growth % pa 2.0 2.6 3.1 1.4

Government revenue % of GDP 53.1 54.4 39.2 38.0

GINI co-efficient score 28.2 27.1 - 33.2

Doing Business rank 3 11 1 7

FDI – Net inflows USD millions -2,266 10,851 3,237 64,685

FDI – Net outflows USD millions 13,309 11,155 486 147,078

Human Development Index score 0.929 0.920 0.917 0.922

rank 11th 15th 16th 14th

Sources: CIA, IMF, OECD, UNDP and World Bank

Figure 2 Real GDP annual growth (IMF, 2018a)

-10

-8

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Denmark

Finland

New Zealand

United Kingdom


Figure 3 GDP per capita, current prices PPP USD (IMF, 2018b

(i) Demark

Denmark is a member of networks of competition authorities in the Nordic region, EU and OECD.

It is also a member of the International Monetary Fund (IMF), which analyses its policies

annually, observing that: “Competition in the services sector could be improved further by

enhancing the powers of the Competition Council in relation to companies breaching regulations

and exploiting their dominant market position” (IMF, 2018c). Its competition policy has been

peer reviewed by OECD countries (OECD, 2015). Its government established a Productivity

Commission (Produktivitetskommissionen, 2014) that identified steps to be taken to improve

productivity that had been lagging other economies, especially larger economies.

In 2010, the Danish Competition Authority and the Danish Consumer Agency (itself the result of

a previous merger of the Danish Consumer Complaints Board and the Danish Consumer

Ombudsman) were merged to become the Danish Competition and Consumer Authority (DCCA),

activities which the government argued were closely related. Unusually, the DCCA lies within the

Ministry of Business and Growth, rather than being an independent executive agency. In matters

of the enforcement of the Competition Act, the Competition Council and the DCCA are

independent of the minister. However, enforcement of the Competition Act is split between the

0

10,000

20,000

30,000

40,000

50,000

60,000

70,00019

80

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Denmark

Finland

New Zealand

United Kingdom


DCCA and the public prosecutor, only the latter can initiate prosecutions for the imposition of

fines. Legislative amendments from 2015 provided greater independence from the Ministry and

a more streamlined and expert Competition Council, its decision-making body.

(ii) Finland

Finland is also a member of the networks of the IMF, EU, OECD, and Nordic countries, with the

corresponding analyses, reports and statistics. Its economy is presently considered to be

performing well:

Robust output growth is projected on the back of a rebound in exports and continued

strength in domestic demand. Private consumption will keep growing steadily in

2018, thanks to a rise in earnings and employment. (OECD, 2018, p. 139)

In the second half of the 20th century, economic and social development of Finland was a

success, the result of continuous investment in education, research and innovation, enabling

the transition from a largely resource-based to a knowledge-based economy, adopting high-

technology manufacturing and knowledge-based services. However, it was hit hard by the 2007

global financial crisis and by technological disruptions that almost destroyed the mobile

handset business of Nokia (Doz & Wilson, 2017), leading to a sharp drop in ICT exports and

business enterprise R&D (BERD). It also lost ground in terms of productivity and

competitiveness. Nonetheless, Finland retains substantial innovation capabilities and is

considered able to diversify from the relatively narrow range of industries in which it has enjoyed

comparative advantage. A review of innovation policy suggested strengthening the focus and

level of spending both on established industries and on building new export strengths (OECD,

2017).

In 2013, the Finnish Competition Authority and Finnish Consumer Agency were merged to form

the Kilpailu- ja kuluttajavirastosta (KKV, 2018) or Finnish Competition and Consumer Authority.

The EC noted it had increased competition in services, in response to its country-specific

recommendation (EC, 2018c). A peer review found regulatory agencies had limited

independence, reporting to and being closely tied to parent ministries, unlike many other EU

countries (OECD, 2010). Reforms to the constitution had strengthened the role of parliament in

public governance and enhanced the role of the courts. A previous review noted the need to


continue to improve the regulatory framework and reduce the administrative burden to increase

competition in services and to promote investment (OECD, 2003).

(iii) New Zealand

Geographically, New Zealand is remote. Entry into its market is more difficult than is the case in

Demark or Finland, since it is not part of a larger single market and there are few ways for

businesses to share costs with operations in its neighbours, such as Australia, Chile, Hawaii or

the Pacific island states. Politically, it has undergone major policy innovations, enabled by first-

past-the-post rather than proportional voting system combined with its unicameral parliament

that allows governments an unusually free hand to effect change. In 1984 New Zealand:

…embarked on what evolved into one of the most comprehensive programs of

economic reform of any OECD country in recent decades (Evans, Grimes, Wilkinson,

& Teece, 1996, p. 1860).

Government departments that provided services were converted into state-owned enterprises

(SOEs), many were privatised, stripped of any provision of policy advice and the administration

of government programmes. Industry and competition policies focused on developing a

competitive environment, with markets determining commercial outcomes, without support for

any economic sector (Bridgman & Barry, 2002). What had been one of the most interventionist

of the OECD economies became one of the most open and market-based. Under the Commerce

Act of 1986, competition policy aimed to minimise governmental and regulatory interventions,

relying instead on actual and potential competition to regulate prices and monopoly behaviour.

New Zealand has a productivity problem, partly attributed to firms not learning from global

leaders in their sectors, the weak diffusion of technology and the survival of poorer performing

firms in the absence of market entry due to geographic isolation (Conway, 2018). Firms generally

have weak international connections and do not participate in global value chains (GVCs), while

there is limited inward and low outward FDI. As much as 40 per cent of the productivity gap

compared with the OECD average reflected weak investment in knowledge-based assets (Serres,

Yashiro, & Boulhol, 2014). Its economic growth has been achieved by increased participation in

the workforce.


(iv) All three country examples considered

The three examples highlight the complexities of path dependencies, institutional histories, and

political constraints that influence regulatory design and practice. At one extreme lies New

Zealand, with its low taxation and avoidance of state aid, made possible by its unicameral

majoritarianism, while Denmark and Finland are tied into multi-level governance networks of the

Nordic states and the EU. While these limit their freedom to innovate or differentiate in policies,

they also provide reinforcement for the advocacy of pro-competitive policies and practices. It is

likely that an independent Scotland would lie somewhat closer to that of Denmark and Finland

than to New Zealand though if it remained a unicameral parliament it would have the potential

for quite rapid change.

IV Good governance in an independent Scotland

The SGC had little to say about governance or the design of institutions and systems. Insofar as

it described policy-making and implementation in its hypothetical independent Scotland it was

as a collective process, in which many parties would be subject to Gramscian co-optation to

arrive at a broad consensus (Cox, 1983). While there would be yet more non-departmental public

bodies (NDPBs) to advise government, there was no discussion of the scrutiny of their creation,

appointment of officials, processes or outputs, or the roles that might be played by citizen juries,

media, or town hall meetings. Nor was the issue of judicial review in the Court of Session

addressed nor a possible supreme court, though this would surely become more frequent,

requiring the applicable criteria to be weighed carefully (Auburn, Moffett, & Sharland, 2013;

Knight, 2018). The emphasis was on answers, rather than on discussing the creation of high

quality institutions and processes that would ensure the long-term decision-making needed to

maintain rapid growth.

The Scottish Parliament

Perhaps the most critical issue of all is the role of the Scottish Parliament, which would

undoubtedly have a major role in the negotiations for and transition to independence, then a

continuing role to ensure accountability and transparency of government and agencies, with its

members in turn being held accountable in elections. Independence would greatly increase the

powers of Scottish Ministers and, presumably, their numbers, requiring a comparable increase

in the range of committees and the time for questioning ministers in the Scottish Parliament.


The present arrangements for committees reflect an ever-changing and ephemeral composition

of ministerial portfolios, which limits the capacity of committee members to develop subject

expertise and thus reduces their effectiveness (Arter, 2004; Cairney, 2006; Halpin, MacLeod, &

McLaverty, 2012). Minimally, there would need to be more committees to oversee additional

ministers and agencies, ideally with portfolios decided by the Scottish Parliament − rather than

the First Minister − and with elected rather than appointed convenors. The committees need to

be reinforced with more staff and the hiring of more experts to support specific studies. In

addition, the issue of conflicts of interest would have to be explicitly addressed.

A second chamber?

An argument could be made for a second or deliberative chamber, representing the diverse

geography of Scotland, comparable to the German Bundesrat or the US Senate. (Diermeier &

Myerson, 1999; Rogers, 2003; Benz, 2018). However, the three small countries referenced in

the SGC report all have unicameral legislatures. The challenges would be decide if and how to

create a second chamber or senate, a body better able to deliberate and to take a longer term

and wider geographic view of legislation and policies. It would be vastly smaller and more

democratic than the House of Lords, but perform similar functions.

Think Tanks

A further gap is in the capacity of think tanks and similar organisations, which have typically

been located in London and in Brussels. While these have grown over the years of devolution,

they would need to be boosted in capacity, geographic coverage and numbers, while ensuring

they remained independent. The value of critical voices should not be understated.

Mergers

At present, the acquisition of companies listed on the London Stock Exchange (LSE) is handled

by The Takeover Panel using its code, an arrangement that would presumably continue.7 These

arrangements would seem likely to remain in place. A somewhat similar arrangement applies

with the Advertising Standards Authority (ASA) with its codes, though logically this should be

7 http://www.thetakeoverpanel.org.uk/


replicated. It could be argued that such governance activities ought to be brought under a

statutory agency directly responsible to the Scottish Parliament.

Press regulation

A contentious area of regulation would be the press, where there are no easy solutions and

regulation is presently asymmetric with broadcasting and the Internet. By Royal Charter, HMG

created a meta-regulator, the Press Recognition Panel (PRP), to determine whether press

regulators meet the criteria recommended by the Leveson Inquiry. There are two regulators, the

Independent Press Standards Organisation (IPSO) covering most national newspapers, and

IMPRESS for a smaller number of outlets, only the latter has been recognised by the PRP. In

addition to questions about the form of media regulation, a question arises about the Privy

Council, which approves Royal Charters, not only for the PRP but also for universities and many

other bodies. The Scottish Privy Council has apparently not met since 1706 and its revival could

be considered anachronistic, opening the question of more modern processes and

organisations.

Infrastructure: housing and transport

The high levels of economic growth call from continuous work on building houses and

infrastructure. This would need to avoid unnecessary blockages of NIMBY-ism, such as

opposition to the construction of new housing, railways and roads. Clearly, there are lessons to

be learned from careful analysis of the failures of the Edinburgh tram scheme, the delays in the

Network Rail electrification of the Edinburgh-Glasgow rail link and the interminable discussions

of a rail link to Glasgow Airport.

The digital economy and data protection

Given the importance assigned to digitalisation of the economy in the SGC report and talk of a

‘Fourth industrial evolution’ (4IR), data protection would be critical. The present framework is

the General Data Protection Regulation (GDPR) 2016/679,8 transposed as the Data Protection

Act 2018,9 enforced by the Information Commissioner’s Office (ICO) in the United Kingdom, with

coordination through the European Data Protection Board (EDPB).10 Brexit takes the ICO out of

8 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32016R0679 9 http://www.legislation.gov.uk/ukpga/2018/12/contents 10 Formerly the Article 29 Working Party.


the EDPB and removes from citizens the unique protection of Article 8 of the European Union

Charter of Fundamental Rights, a unique right to data protection.11 The EU combination of laws

and institutions represents the highest level of data protection. Independence would require

Scotland to replicate the ICO, the Data Protection Act 2018, and, if an EU MS, to sign up to the

Charter of Fundamental Rights. A Scottish ICO would have to ensure organisations complied with

the GDPR.

Rather than try to answer questions definitively, it would have been useful had the SGC

recognised the importance of the systems that would be used to govern the economy of its

independent Scotland. Delivery of high levels of growth and of improved productivity would

require the development of institutions fitted to the communities of interest in Scotland.

V Conclusions

The report by the Sustainable Growth Commission gives insufficient weight to the importance of

metagovernance for a democratic society. The very high targets for growth necessitate careful

formulation of economic policies, detailed planning, thoughtful implementation and scrupulous

oversight, rather than calling for everyone to put their shoulders to the wheel in some kind of

Stakhanovite endeavour. The design of institutions and processes, must aim for systems that

achieve and maintain high levels of growth, and ensure equally high levels of accountability and

transparency. It would be necessary to avoid problems of economic overheating, by pre-

emptively addressing bottlenecks, such as in the supply of skilled labour, housing and

transport, requiring coordination across a wide range of government directorates and agencies,

some of them newly created, at a time of considerable disruption. Overheating could increase

inflation, putting pressure on a future Scottish Central Bank, which itself would be constrained

by the SGC’s choice of sterlingisation.

A key omission is any discussion of the role the Scottish Parliament, creating massive gaps in

oversight and a potentially large democratic deficit, at a time when Scotland would need to

overcome deep divisions. Parliamentary scrutiny would require a substantially strengthened set

of committees with functional specialisations to hold ministers, officials and the burgeoning

agencies to account. This would be true in the medium term, but also in the short term,

11 Other treaties are limited to privacy, from which data protection has to be inferred.


especially in overseeing the transition to independence and scrutinising the voluminous

legislation. Independence necessitates new structures, new processes and, potentially, a

second chamber to reflect Scotland’s geographical diversity and to enhance deliberation and

scrutiny. Equally, a new constitutional or supreme court might be needed.

Aside from banking, there is a need to discuss the institutions that would be required in a

putatively independent Scotland. One answer is to simply replicate or roll over existing UK laws

and institutions – and this could be a short term response to not scare the horses. However,

further consideration is needed of how such institutions would be created, and (crucially) be

made independent of Scottish Ministers. It raises the medium term question of how coalitions

of interest might wish to shape those institutions in ways different from today – towards a co-

ordinated market economy (CME) or a liberal market economy (LME) and, more importantly, how

is that to be decided?

If nothing else has been learned from Brexit, it is the importance of customs agreements in a

globalised economy. Given centuries of integration in a customs union with England, Wales and

Northern Ireland, the negotiation of a replacement agreement between an independent Scotland

and rUK would seem likely to be difficult, especially if Brexit had gone wrong. The omission of

the difficulties of negotiations and the likely economic costs of the different scenarios needs to

remedied

Having lived through Brexit, it is unstainable to now simply ignore the potentially difficult

transition from the present day institutions and policies of the United Kingdom to those of an

independent Scotland. Unsuccessful management of any transition could result in the loss of

firms and the consolidation of markets in ways that would diminish growth, hurt consumers,

constrain wages and limit future options. Companies presently engage with and understand the

rules of the United Kingdom, admittedly confused by the very significant uncertainties of various

“hardnesses” of Brexit. They would have to learn about the new institutions and policies of an

independent Scotland, and create new capacity for lobbying and litigation. Some firms might

view this as unwelcome, with additional costs and the need to coordinate with their United

Kingdom activities, consequently preferring to sell to a local firm or individuals with greater

expertise in and knowledge of Scotland’s courts, politics, public administration and regulations.

None of the institutional requirements is especially difficult, given sufficient planning, nor need

they be contentious. It would be possible to expand some existing institutions, while replicating


United Kingdom models for others, in some cases building on their limited operations in

Scotland. In time, it would be appropriate to conduct reviews and to revise the structures,

requiring formal mechanisms, perhaps aided by the proposed Productivity Commission. It would

also be necessary to be ready to take part in - and learn from - international governance networks

such as the OECD and, perhaps, the EU. In the area of competition policy, it would be essential

to establish relationships with the pre-existing bodies in the United Kingdom, in order to be able

to consider jointly mergers and cross-border issues, such as physical distribution and transport.

Denying the administrative challenges in creating institutions and cross-border arrangements

would be to repeat the grave errors of the Brexiteers.

None of the issues are insurmountable, indeed many may not be. However, in any future

prospectus for an independent Scotland – especially given the painful UK and Scottish

experience of Brexit – it is vital that issues of economic governance, including competition

policy, are addressed to ensure a smooth and successful transition to a high growth

independent Scotland.

Author details:

Ewan Sutherland Visiting Adjunct Professor at LINK Centre University of the Witwatersrand, South Africa [email protected]

mailto:[email protected]


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Water as an economic resource and the impacts of

climate change on the hydrosphere, regional economies

and Scotland

Scott J. McGrane†, Grant J. Allan and Graeme Roy

Abstract

There is increasing evidence that the global climate is changing and that this will have

implications for the future of water resources. The impacts of climate change will be transmitted

primarily via the global hydrosphere, whereby changes in rainfall patterns and the frequency

and magnitude of extreme weather conditions (e.g., flood and drought) will result in significant

challenges, including for the way we access, manage and use freshwater resources. In addition,

water demand will continue to rise to support a growing global population and its resultant

increases in food and energy needs. There are likely to be variations across the globe in climate

change impacts and these will further exacerbate existing spatial disparities in water

availability. Water is a critical component for all aspects of life, and is particularly significant in

many economic activities (e.g. agriculture, energy etc.). Changes in water availability and

hydrological extremes will impact at regional and global scales on economic activity, supply

chains, key industries and migration. While all regions of the world will be impacted by climate-

induced water stress, regions with robust water policies and water management strategies, or

at the leading edge of water-technologies may see opportunities. Here, we discuss the projected

impacts of climate change on water resources, and the challenges and opportunities this poses

for economic activities in Scotland, including Scotland’s readiness to adapt to changes in water

availability.

Keywords: Climate change, water resources, economic growth, water policy, Scottish economy

Corresponding author: †[email protected]

I Introduction

Water is the most critical natural resource available to humanity. However, water resources are

currently threatened by systemic global changes as a consequence of climate change,

population growth and urbanisation, and represents one of the world’s most critical challenges

(World Economic Forum, 2018). As a resource, water is vital to the emergence and survival of

societies, ecosystems and economies, and has played a critical role in the development,

advance and collapse of civilisations (Sivapalan, Savenije, & Blöschl, 2012). Of the total global


water supply (some 70% of the Earth’s surface), 97.5% is saltwater (oceans), with only 2.5%

freshwater. However of that potable resource, 70% is locked in polar ice-caps, and a further 29%

is located in deep groundwater stores, which are too deep or expensive to access and use.

Globally, the potable water supply comes from the remaining 0.01% of freshwater that is readily

accessible in lakes, shallow groundwater and rivers, which in turn present a range of

accessibility challenges globally. Spatial and temporal disparity occurs globally, with around

one-third of the global population lacking access to clean, safely managed water supplies

(United Nations, 2018).

Today, as the global population grows toward 9 billion, global water resources are under

increasing pressure, not just for drinking water itself, but also for food and energy production,

which are significant end-users of water (Kummu et al., 2016; Sušnik, 2015). Increases in

demand for water, energy and food are occurring simultaneously with the impacts of climate

change, altering the spatial and temporal reliability of existing freshwater resources. The

hydrosphere12 represents a key medium through which the impacts of climate change will be

transmitted to all aspects of society, the environment and global economy (Barnett, Adam, &

Lettenmaier, 2005).

Climate change presents two vital water-centric challenges: (i) ensuring the global population

has access to critical water resources, (ii) mitigating against the risks posed by an increase in

frequency and magnitude of environmental hazards such as floods, droughts, storm surges and

sea-level rise (Kundzewicz et al., 2018). Although our understanding of the mechanisms of

climate change have advanced considerably in recent decades, our readiness to deal with these

changes remains a major challenge for politicians, policy makers, water managers and utility

providers alike (Azhoni, Jude, & Holman, 2018; Eisenreich, 2005).

The impacts of environmental change will have a profound effect on global and regional

economies. Changing resource availability, changing weather patterns, migration of people, and

changing patterns of demand for particular goods and services will affect the nature and

structure of economic activities in a water stressed future. Many of these changes are already

evident. Prolonged periods of drought have significantly reduced available water supplies in

12 The hydrosphere, also known as the water cycle, is the movement of water around the Earth’s surface, and includes

evaporation from oceans, precipitation, water storage (as snowpacks, in lakes, in soils, in groundwater) and runoff

from the land and rivers, back to the oceans.


Cape Town, and promoted mass migrations to Europe and North America (Missirian & Schlenker,

2017)), while record-setting weather events and destructive climatic extremes - such as the

wildfires in California, the floods in Southern Europe and devastating typhoon and hurricane

systems in parts of Asia, the Caribbean and North America - are occurring with increasing

frequency and magnitude.

In this paper, we explore the consequences of environmental change for the hydrosphere, and

explore what this means for national and regional economic activities. The paper addresses

what such changes could mean for the Scottish economy, and provides a series of observations

on current trends of water-use within the Scottish economy before concluding with

recommendations on how Scotland can best prepare for changing patterns of water availability

as a consequence of the future changes to this critical element of the global natural

environment.

II Water and the economy

Water has played a critical role in the growth and collapse of ancient economies and is a critical

component of contemporary economic activity. According to the World Bank, globally, about

92% of freshwater withdrawals support agricultural activities (including irrigation, drinking

water for livestock and cleaning of equipment) (World Bank, 2018). Water is also an integral

component of energy generation, especially electricity production where water is used for both

steam generation and cooling, as well as directly in hydroelectric power schemes.

The effects of climate change on the hydrosphere has resulted in regional disparity in the

availability and uses of freshwater resources, impacting regional economies as a result.

Episodic events, such as the prolonged drought in Cape Town earlier this year, highlight the

fragility of a disrupted resource on a whole urban economy whose impact was ultimately

observed in the macroeconomy (Gallie, 2018). Loss of revenues from water charges, loss of

tourism, and significant output reductions in agriculture and horticulture (-33.6% Q1), mining (-

9.9% Q1), and manufacturing (-6.4% Q1) resulted in a contraction of the South African economy

by -2.6% 2018 Q2 and -0.7% in 2018 Q2 (Figure 1).


Figure 1 South African economic growth rates (quarter on quarter, seasonally adjusted and

annualised) from 2014 (Q1) to 2018 (Q2), emphasising the effects of the 2017/18 drought on

GDP.

Source (Stats South Africa, www.statssa.gov.za)

Regions that experience chronic periods of drought and low rainfall, while continuing to

maintain economic activity, provide useful examples of resilience and adaptive economic

behaviours. For example, California is the fifth largest economy in the world ahead of the United

Kingdom and France. While its $2.7 trillion economy is bolstered by a thriving tech and

entertainment industries, California also boasts significant agriculture, viticulture, tourism and

manufacturing industries that are intensive users of water, often resulting in California’s exports

having an embedded high water footprint13 (Fulton et al., 2012). Improvements in water

management, improved water-use efficiency technologies, the development of water cap and

trade markets14 and enhanced underground water storage facilities have equipped California to

weather prolonged droughts while continuing to supply competing economic demands for

13 A water footprint is the cumulative volume of water consumed across the entire supply chain of a particular product.

For a business, individual, region or country, it represents the total water embedded in the goods that are imported

or consumed. A water footprint is a multidimensional indicator and captures the type of water used (i.e. “blue water”

is from surface or subsurface stores such as lakes, reservoirs or rivers; “green water” is precipitation that is stored in

soils, and “grey water” accounts for wastewater and a measure of the pollution associated with a particular activity)

in addition to the location and timing of water use. 14 These markets operate in a similar fashion to carbon trading markets, whereby caps are set on water usage (and

pollution levels), and regions with high consumption rates can buy credits from other regions where consumption

rates are much lower to offset their own use.


water. An on-going programme of investment in infrastructure and technological development

has enabled California to sustain successful economic output in light of challenging

environmental conditions (Hanak et al., 2003).

A country’s water footprint measures the amount of water use globally which is implicit in the

consumption of goods and services at a national level, and includes the water footprint of

imported goods (and services). Take the example of coffee, one of the most traded commodities

in the world (behind crude oil and derivative products) which is worth $100 billion (US) to the

global economy. Coffee beans are grown in over 60 countries across Asia, Africa, Central and

South America, and the Caribbean, where a particular narrow climatic range facilitates their ideal

growing conditions (Figure 2). As rainfall patterns shift and changing global temperatures impact

the migration of pests and diseases, the cultivated area of coffee production could reduce by

half (Bunn et al, 2015). The change to rainfall patterns will also reduce the availability of water

for crop irrigation, hindering crop yield and quality. This will not only impact the near 100 million

people that are sustained by the agro-industry and supply chains of coffee production, but will

also result in significant exports of water-intensive products from water stressed regions,

impacting on domestic water security. Demand is likely to remain high even as the resource

abundance diminishes, and as a result, trade in products like coffee will result in significantly

high water footprints for importing countries with high consumption of such produce, in addition

to sustaining elevated demands in water marginal countries.

Similar impacts will be experienced across a number of industries that rely on seasonal rainfall

or runoff from melting glaciers and snowpacks. For example, agricultural irrigation in California

relies on regular melt from snowpacks in the Sierra Nevada mountain range, which have seen

both annual reductions in accumulated snow mass, and earlier spring runoff rates due to

increased temperatures (Schwartz et al., 2017). Similarly, areas of the South American Andes

rely on tropical glaciers15 as a buffer against highly seasonable rainfall patterns. Climate change

has resulted in significant loss of glacial mass in this region, resulting in significant challenges

for socioeconomic activities that rely on a regular water supply. Buytaert et al., (2017) estimate

that the cities of La Paz (Bolivia) and Huaraz (Peru) rely on glacial melt for around 15% and 19%

15 Tropical glaciers are located high in the equatorial mountain ranges of the Andes (South America), East Africa and

Papua Indonesia


of their annual total water supply, respectively. During drought years, these contributions can

increase to 16% and 27%, with significant increases in monthly contributions during peak

drought months reaching 86% and 91%, as more local sources are depleted. While these urban

conurbations have large water storage capacity in interconnected lakes and reservoirs, rural

areas rely on runoff from montane regions and are particularly vulnerable to changing climatic

regimes. These are often important agricultural communities, as well as home to large

hydroelectric production schemes, meaning that changes in reliable water resources can

additionally affect food and energy security for the broader nation as a whole.

Figure 1: External agricultural water footprint of the UK (million m3/year) and degree of water

stress within that country16.

Source: (Hoekstra & Chapagain, 2006

16 Group A has a high export footprint to the UK but low water withdrawal compared to available water. Group B

countries have low export footprint to the UK and low water withdrawal compared to available water. Group C

countries have a low export footprint to the UK but significant water stress, and Group D countries have high export

footprints to the UK with significant water stress


Figure 3: Top: Major coffee growing regions of the world (Source: NOAA) and Bottom: project

impacts of climate change on crop yields by 2050

Source: World Resources Institute

III Scotland’s economy and climate change

Scotland has abundant water resources as a result of its wet maritime climate.17 Annual rainfall

in Scotland averages 1.4 metres per annum. However, total rainfall varies across Scotland as a

consequence of the changing elevation gradient from West to East. In Western Scotland, where

many rainfall systems arrive from the Atlantic Ocean, annual rainfall in the upland West

17 In the Köppen climate classification, Scotland as a Western European country experiences a temperate, oceanic

climate (cfb)


Highlands can be in excess of 3 metres per annum, while the flatter and more densely populated

East Coast can be markedly drier, with around 0.6 metres of rain per annum (Figure 3). As a

result, water distribution is distinctly uneven, and many areas experience a small margin

between supply and demand. In addition, there is limited infrastructure to move water from

the west (where the majority of the resource is located) to the east (where there is highest

demand for the resource) (Scottish Water, 2015). Scotland’s overall rainfall has increased since

the 1970s, with current volumes around 13% higher than the average values observed during

the early 20th century (The Scottish Government, 2014). Furthermore, increasing temperatures

during the winter months have resulted in reductions of low altitude snow cover in Scotland

(Trivedi et al., 2007), with precipitation falling as rainfall rather than as snow. During the winter

and spring, increased temperatures have resulted in both reduced snow accumulation and

accelerated rates of snowmelt, resulting in soil moisture deficits into the later spring months

when agricultural activities intensify. Warmer temperatures combined with drier summer

conditions will result in enhanced rates of evapotranspiration, resulting in water resource

deficits occurring during the summer and autumn months (Brown et al., 2012).

Scotland’s economic water usage is somewhat atypical compared to other developed countries

in that agriculture and energy manufacturing have relatively low water-footprints. In Scotland,

most agricultural crops are rain-fed, with irrigation being limited to the East to support potato

farming. In the energy sector, the Scottish Government’s ambitions to reduce carbon emissions

and expand the use of renewable technologies have also had significant consequences for water

use. The closure of Cockenzie and Longannet power stations as part of the shift toward

renewable energy resources (onshore wind, offshore wind, hydro and wave, which provide 68%

of total electricity demand in Scotland) have significantly reduced the volumes of water used in

electricity generation in Scotland (Allan et al., forthcoming). The decommissioning of nuclear

facilities at Hunterston in Ayrshire (2024), and Torness in East Lothian (2030) will further reduce

water intensity in the energy sector.

The abundance of freshwater in Scotland has resulted in a number of economic opportunities

for Scotland, with many of our emblematic industrial sectors and brands reliant on freshwater

as a critical input. One such emerging and increasingly successful sector is the craft gin industry,

of which 70% of UK production is located in Scotland and is worth £1.76 billion to the UK

economy (BBC, 2017). The emblematic whisky industry is worth an estimated £4.4 billion to the


UK economy, contributing to around 3% of all UK trade. It is also a significant user of water, with

each distillery across Scotland using water from streams, lochs, groundwater or piped supply

for production and cooling processes. The UK Waste Resources & Action Programme (2011)

estimates that the whisky industry uses around 61 billion litres of water per annum, 75-85% of

which is used in the cooling process (representing water that is not “consumed”, but returned

to the environment under strict quality regulations). This means for every 1 litre of whisky

produced, 46.9 litres are used in production and cooling processes.

Figure 4: Rainfall map of the United Kingdom (1980-2010 average) in millimetres.

Source: United Kingdom Met Office

.


As a water-intensive product, whisky production is especially vulnerable to periods of dry

weather conditions. In 2008, several weeks of dry conditions resulted in production at five major

distilleries in Islay being stopped due to water scarcity on the island (Kelbie, 2008). Similarly,

dry conditions earlier in 2018 resulted in production being stopped at half of Islay’s ten

distilleries. Additionally, the Blair Atholl and Edradour distilleries in Perthshire had to stop

production as water flows in the Allt Dour burn dropped to insufficient levels (The Courier, 2018)

Disruption to production is not restricted to changing water availability; dry weather and drought

conditions also impact on the growth of crops crucial in the whisky process including barley and

maize. The “footprint” of whisky extends globally through its use of imported (non-water)

ingredients. For example, some grain used in whisky production originates from outwith the

United Kingdom, and so shocks across the supply chain in other parts of Europe can impact on

production here in Scotland. While increased temperatures have demonstrably lead to

increasing barley yields in parts of the United Kingdom (Yawson et al., 2016), reductions in soil

moisture and reduced recharge of groundwater conditions present significant challenges to

distilleries across the country. The water intensity of the whisky production process is a major

focus for enhanced sustainability within the industry, and both the Scottish Environmental

Protection Agency (SEPA) and Scotch Whisky Association (SWA) are committed to improving the

water efficiency of distilleries by 10% by 2020 (Scottish Environmental Protection Agency,

2018).

Climate change induced future water-stress will challenge water-intensive economic sectors,

either directly (as domestic water resources are impacted) or indirectly (via the impacts of water-

stress in regions from where inputs are sourced via global supply chains). The atypical

prolonged dry weather that Scotland experienced in the summer of 2018 had a demonstrable

impact on the rural economy with soil moisture deficits and limited irrigation capacity hindering

crop yields and impacting farm gate prices for crops and livestock (Scottish Government, 2018).

Spring barley was particularly badly affected, with yields anticipated to be 10% lower than in

previous years, with overall cereal yields forecast to be 6% lower than in 2017, an estimated

loss of production of c. 2.6 million tonnes (Scottish Government, 2018). Such conditions are

likely to become increasingly familiar in Scotland, with hotter and drier summer conditions,

increased heatwaves and drought events, and an increase in the frequency and magnitude of


extreme precipitation events being projected by UKCP18’s future climate scenarios (UK Met

Office, 2018).

The increasing frequency and magnitude of extreme hydrological events (e.g., drought, pluvial

flooding and fluvial flooding) present a significant risk of economic damage to land, property

and critical infrastructure. As water scarcity during the summer months becomes increasingly

prevalent, there will be a need for end-users and water utility providers to ensure a preparedness

for spatial and temporal disparity in water resource availability. For some industries, these

projected changes present very real challenges that will disrupt economic output. Natural

irrigation via precipitation may significantly diminish and there may be a need for agroindustry

to utilise larger volumes of water to irrigate critical crops and provide drinking water for livestock.

The whisky industry will increasingly be at risk from the dry summer conditions, with a growing

number of distilleries being impacted by water shortages. Finally, the growth in seasonal tourism

may place a significant strain on service industries at a time of the year when water availability

is at greatest risk.

Global water scarcity is uneven, with certain regions being particularly adversely impacted by

future changes in water availability. Water as a resource is too heavy to ship internationally as a

manner of addressing this scarcity. In order to reduce the impacts of water scarcity, the

mobilisation of labour, economic productivity and international trade away from water-stressed

regions to water abundant areas are viable solutions (Debaere, 2014). This would permit water-

scarce nations to focus on the most economically profitable activities and import water-

intensive products from more water-rich regions when continued production becomes

increasingly difficult as water becomes less readily available.

As a result, while there are potential major consequences of climate change for the Scottish

economy, current water abundance suggests that there may be economic opportunities with

careful management and sustainable practices around our current water resources. The Scottish

Government’s drive toward carbon reductions and a focus on renewable energy technologies

have secured some of our water resources for alternative uses that support other aspects of

economic activity. In addition to pioneering green policies, the increase in renewable energy

generation represents an opportunity for increased renewable energy exports to the rest of the

UK. As the climate of Scotland becomes warmer, there is scope for the expansion of agricultural


production into new crops that may currently be primarily imported from much warmer regions.

An awareness of the impending changes to our water resources also presents an opportunity for

Scotland to pioneer behaviours that would futureproof our water resource infrastructure,

upgrading many of the inefficient and dated systems that supply water to end-users to be

resilient to future climate change. Finally, water provides Scotland with a comparative

advantage to attract new industries that are intensive water users, and are perhaps

geographically located within water-stressed areas where the availability or cost of water can

restrict particular activities. A 2007 report from WaterWise (a UK NGO aiming to reduce water

consumption) highlighted the water intensity associated with some critical manufacturing

industries: the production of a single computer microchip can use 32 litres of water, whilst the

manufacture of a car can use up to 400,000 litres of water (Zygmunt, 2007). Scotland already

has a number of successful technology firms, with the sector concentrated in Edinburgh,

Glasgow and Dundee contributing c.£2.8 billion GVA in 2017 (Tech Nation, 2018). The ability to

attract water-intensive manufacturing industries (both traditional and advanced) to Scotland

presents a significant opportunity to expand the technology sector in Scotland and provide

opportunities to create an expanded, highly-skilled workforce across these areas.

IV Preparing for a water-scarce future: next steps

Climate change is already having a profound global impact, and national governments are

increasingly taking action to reduce the impacts of changes on critical freshwater resources. To

tackle this, and “future-proof” our socioeconomic reliance upon Scotland’s apparently

abundant water resources, there is a pressing need to better understand our relationship with

water, and identify key ways we can improve efficiency. This final section assesses the role of

policy, technology and behavioural change can have to help socioeconomic actors better

prepare for a water-scarce future.

Policy

A major focus for the development of a water-resilient society is the creation and implementation

of policies at both the government and institutional levels (including environmental regulators,

utility companies and private businesses) that seek to reduce unnecessary losses through

inefficient use of water or leakage. Maximising the benefits presented to Scotland from water

resources is a key aspect of the Hydro Nation strategy, established by the Scottish Government


in 2012. The policy promotes sustainable practices across the economy to lower water

intensities, builds pioneering water research and knowledge-building amongst Scottish

institutions around water-centric themes, and provides funding for initiatives and facilities that

can improve Scotland’s domestic water landscape. As the sole water provider in Scotland,

Scottish Water loses c. 500 megalitres per day (Ml/d) from its distribution network; this

represents around a third of its total water resource. Identifying and managing leakage from the

network is a key strategy for Scottish Water and a critical part of its infrastructure repair policy.

A key part of Scotland’s resource preservation strategy has been the development of the Scottish

Environmental Protection Agency’s One Planet Prosperity regulatory strategy, that seeks to both

help Scottish businesses reduce their water, carbon and material resource consumption and

limit their pollution and waste generation (Scottish Environmental Protection Agency, 2016).

Indeed, a critical part of most company strategies is the reduction of emissions, material

consumption and water consumption (particularly in water-intensive industries, such as the

whisky manufacturing sector).

Floodwater often results in devastating economic losses through damage to property and

infrastructure, and there is a significant need to consider the expansion of existing floodplain

planning legislation to account for increasing climate change impacts on fluvial flood

magnitudes and frequencies.

Non-water policies can also impact significantly on the consumption of water resources. For

example, as part of achieving their Climate Change (Scotland) Act 2009, the Scottish

Government has already taken significant steps to preparing Scotland for a water-scarce future,

by moving toward ambitious renewable technology goals that has resulted in “drying” the

energy sector. Systematically replacing water-intensive fossil fuel and nuclear energy power

plants with renewable technologies such as onshore and offshore wind turbines, wave and

hydropower energy has achieved significant water reductions, as well as carbon emissions

(Allan et al., forthcoming).

Technology

Reducing the water that is used unnecessarily in domestic and non-domestic activities is critical

to conserving overall water resource for future uses, and technological innovation is integral to

achieving this. Simple adaptations such as low-flush toilets and sensor-based low-flow taps


reduce water use volumes both at home and in workplace and leisure settings, and both are

increasingly replacing traditional bathroom fittings (particularly in new developments).

Furthermore, certain industries are investing in new technologies that reduce water

consumption in traditional, water-intense activities. For example, laundry services have

increasingly adopted low (or zero) water washing machines that rely on polymer-based systems,

something that could significantly reduce the water consumption associated with critical

economic sectors such as hotels and accommodation, restaurants and industrial cleaning.

The development of environmental sensor technology is vital to future-proofing our future water

resources. While space and airborne earth observation (e.g. remote sensing satellites, radar,

LiDAR) technologies can provide oversight of our natural resources at a world region and

national scale, increasingly “individual” technologies can help to monitor and reduce water

waste at a household, or site-level. The increasing deployment of “smart” water meters, which

enable the monitoring of water distribution and consumption efficiency have been successful in

reducing water consumption in households. For water utility companies, the development of a

smart grid network of meters connected to the Internet of Things (IoT) enables real-time

monitoring of consumption, facilitating easier billing of customers and faster identification of

leaks and hot spots for water waste. However, the overall uptake of smart water metering in the

UK has been slow, in spite of the growing evidence of savings that such devices can achieve.

This highlights that technology alone is an insufficient strategy to reducing water use, and that

a focus on behaviour change is necessary. Paradoxically, water efficiency and savings strategies

can result in an increase in consumption, where reductions in water costs via more efficient

technologies can result in a rebound effect as users end up using more water in new areas. This

has been reported in agriculture where more efficient irrigation technology has resulted in the

expansion of cropped areas, ultimately resulting in an increase in overall water usage (Sears et

al., 2018).

The development and installation of leakage detection systems are powerful strategies for water

operators in maintaining efficient systems that supply entire towns and cities. Technological

advances have reduced costs, enabled widespread deployment and “live” monitoring, and

increasingly resulted in “non-destructive” technologies that can remotely detect failures without

disrupting operations and necessitating large-scale disruption in digging up mains supply pipes

(Liu & Kleiner, 2013). These types of technologies and applications are particularly important in


older urban areas – such as in Scotland - where water and drainage infrastructure are often

centuries old and not designed to sustain contemporary demand patterns or rainfall dynamics.

With markedly wet winter months that often result in persistent rainfall and consequent

flooding, there is scope to explore using permeable areas of land for intentional flooding,

allowing groundwater recharge and subsurface storage of water (i.e., “groundwater banking”,

which is common practice in places like California), ensuring that floodwater can be viewed as

a resource, rather than an economic cost.

Finding ways to reuse wastewater (‘grey water’) is increasingly a focus for water utility, local

authority and national governments (e.g., toilets at the Scottish Parliament use greywater

harvested from the building’s roof). Wastewater is a sustainable freshwater resource, and

treatment and reuse is increasingly being applied across a number of industries and

increasingly, to meet domestic demand. In Turkey, pressures on finite resources from climate

change, urbanisation and population growth have already placed a significant stress on

renewable freshwater resources, and Maryam and Büyükgüngör, (2017) highlight that by 2025,

expected demand will be 183% of current consumption. Wastewater recycling is an option for

many countries (particularly where scarcity and looming demand growth is an immediate

reality), but existing treatment infrastructure and – crucially - public acceptance are often

insufficient to justify the significant overheads associated with creating recycled potable water.

Behaviour change

Technological options only represent one part of the challenge to meet future water demand.

Two key issues remain: a “true(r)” valuation of our water resources and facilitating large-scale

consumer behaviour change. Valuation of water is a long-standing challenge for water resource

managers and utility companies, and necessitates robust monitoring of water resources to

identify where, how much, how efficiently water is being used. From the consumer’s perspective,

smart meters can facilitate behaviour change and reduce bills. For example, a natural field

experiment in Sydney, Australia highlighted a c.7% reduction in water consumption amongst

smart meter households (Davies et al., 2014).

Garrick et al., (2017) outline a number of challenges for valuing water resources “appropriately”,

i.e. in a way that encompasses contrasting socioeconomic, environmental and cultural values


attached to water. In Scotland, water charges are included as part of domestic Council Tax bills

along with wastewater services and there is often a perception that water in Scotland is “free”

(as well as plentiful). This free water dialogue dominated recent consultations around the

provision of drinking water from business premises across the United Kingdom (Keep Britain

Tidy & Centre for Social Innovation, 2017). The abundance of water in Scotland, combined with

the lack of separate water and wastewater billing services (unlike in the rest of the United

Kingdom) can result in complacency around how we value and use our water resources, though

the attitude of water as a “free economic good” is widely held across the UK. A YouGov survey

in 2014 highlighted that 33% of respondents in the UK admit to leaving the tap running while

brushing their teeth, while the figure in Scotland is significantly higher at 47%. In contrast, in

California, advertisement campaigns and school programmes during the 1980s that continually

reinforced the message of unsustainable freshwater household practices, including turning off

taps whilst brushing teeth, has resulted in the practice almost disappearing, while it remains

alarmingly common in Scotland.

Implementing behavioural change is a complex area, yet recent policies in the UK have

transformed some day-to-day activities. Perhaps the biggest success story is the introduction of

the 5p charge for plastic carrier bags introduced by most supermarkets and retail outlets. This

has resulted in a significant reduction (80% in Scotland) in the use of disposable plastic bags

since its introduction in 2014. Similarly, the coffee chain Starbucks recently introduced a coffee

cup levy of 5p per disposable cup, introduced after a trial period in its London stores resulted in

a 126% increase in the number of customers using reusable cups (Starbucks, 2018). Price

elasticities associated with water tariffs have a demonstrable impact on overall rates of water

consumption (Veck & Bill, 2000). Increases in water tariffs are often viewed as socially unjust

(hitting poorer households hardest) and with questionable effectiveness, as international

results have demonstrated that a 10% increase in the price of water will result in a 1-1.8%

reduction in water consumption (Brick et al., 2017). By contrast, using “green nudges” in the

form of social norm18 messaging that informs users of their consumption of a resource compared

to others in their neighbourhood, results in an increasing awareness and lowering of

18 Social norm messaging provides users with an overview of their own consumption of a particular resource, often

via a smart meter system or SMS messaging system, providing a comparison to the average use within their

neighbourhood, driving pro-social and cooperative behaviour, particularly when positive behaviour is socially

recognised (Brick et al., 2017).


consumption (Brick et al., 2017), and evidence from the United States has shown a 4.8%

reduction in overall water consumption (Ferraro & Price, 2011). Using price signals to nudge

consumer behaviour may have some impact in altering perceptions about water and its value in

society, however the use of environmental nudges may also have significant impacts without

potentially increasing the cost to low-income consumers. Indeed, emphasising the benefits of

water-conservation to a population that views water as a bountiful resource represents a unique

challenge, but one that may enhance sustainability over time and preserve our most critical of

resources for future generations.

V Conclusions

The growing pressures on freshwater resources presents a significant challenge to water utility

companies, national governments and river catchment managers. As climate change alters the

volume and spatial regularity of water availability, an increased demand from households and

non-domestic users presents a perfect storm not just for water resources, but also energy and

food security. Water is the most critical natural resource in economic activities, and sensible

management is needed both locally and globally to reduce the vast transfers of embedded water

between countries and ensure local water security is maintained, particularly in water-scarce

regions. Scotland’s wet, maritime climate and abundant water resources places it in a uniquely

secure position to prepare for future changes in water resource availability. As a result,

economic opportunities will emerge for Scotland, yet as the summer months of 2018

demonstrated, negative economic consequences still feature when water resources are

impacted by climatic shortfalls in typical water availability. It is imperative that utility managers,

policy makers and end-users of water take steps to protect these resources against future

environmental change. This challenge requires a combination of robust climate and water

policies from national and regional governance and the adoption of new technology to better

monitor water supply and demand. However, there is also a challenge for end-users; to modify

their own behaviour around water consumption, particularly in regions like Scotland where

water is evidently abundant currently. Behaviour change represents a key challenge for

Scotland, especially as water is too often undervalued or taken for granted by users who have

rarely encountered scarcity during their lifetime. Changes in price tariffs can positively influence

consumption of resources such as water, but research also demonstrates that social norm


nudges can also positively influence consumptive behaviour. This combination of policy-

technology-behaviour change presents an opportunity to ensure that Scotland has a secure

water-future, but also one that yields economic opportunities for new industries and supply

chains accordingly and sets Scotland up as an example of a water-rich nation with progressive

policies that seek to both utilise and conserve our water resources.


Corresponding author details:

Scott J. McGrane

Research Fellow, Fraser of Allander Institute

Department of Economics, Strathclyde Business School

University of Strathclyde

199 Cathedral Street, Glasgow G4 0QU

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The emergence and evolution of City Deals in Scotland

David Waite, Duncan Maclennan, Graeme Roy, Des McNulty

Abstract

There is a resurgent policy emphasis on the role of city-regions as drivers of economic growth.

Officials and leaders in such metropolitan areas, however, are confronted with challenges

relating to administrative fragmentation, achieving alignment with national policy objectives,

and demonstrating the capabilities to plan, finance and deliver effective policy interventions

and investments. As a response to these challenges, policymakers are fashioning new

governance arrangements, attached to experimental policy mechanisms, to develop urban

policy. Of note, City Deals have recently emerged in the UK, and this paper charts their evolution

across the UK, with a focus on the devolved administrations in particular. The paper ends with

some reflections and questions about their roll out in Scotland.

Acknowledgements

The authors are members of or provide research support for the Glasgow Economic Commission,

which is linked to, but independent of, the Glasgow City-region City Deal. This paper reflects the

views of the authors only, writing in their academic capacities, and not the views of the

Commission or any other body.

I The UK context

Changing institutional arrangements have been a persistent feature of the urban policy

landscape in the UK, as the challenge of addressing uneven economic performance across and

within UK city-regions remains (Centre for Cities, 2015; Tyler et al., 2017; McCann, 2016). It is

clear that there has been both churn over time in the tools, strategies and approaches set out to

address this issue (Jones, 2010; Pike et al., 2015) as well as marked contrasts between England

and the now devolved administrations of the UK (Maclennan et al., 2017). A reasoned growth-

role for infrastructure projects and programmes has seldom been at the core of national policies

for cities, and the fitful nature of infrastructure planning and provision, coupled with questions

about prioritisation approaches, reflect long standing policy challenges (NAO, 2016a). However,

infrastructure investment, city-region growth and devolution are converging as key policy

interests within UK City Deals.


City Deals reflect a novel policy response to issues of sub-national economic development and

hinge on the notion that local leaders are in the best position to determine interventions for their

areas. Since 2012 – and across two waves, starting with the major cities outside of London –

urban areas in England have been signing deals with the UK Government to secure funding

packages to support economic growth (Ward, 2017; O’Brien and Pike, 2018). City Deals which

are set out across periods up to 30 years, cover a suite of policy areas – including infrastructure

investment, business support, employment and welfare interventions (Centre for Cities, 2014)

– and have been developed alongside the dismantling of the prior architecture for sub-national

economic development in England (the Regional Development Agencies (RDAs))19. City Deals cut

across political differences to some degree, as numerous Labour-led localities in England have

now agreed deals with the Conservative-led government in Westminster (Jenkins, 2015).

City Deals, unlike more traditional urban and regional initiatives in the UK, have a distinctive

one by one form where localities form agreements with the UK government (and, in some

instances, a devolved administration). Proponents see progress on localism through such an

incremental approach - where powers and capacities are decentralised in modest steps - as a

major attribute. Though evidence for the link between devolution and economic growth is

unclear (Pike et al., 2012), the arguments for localism in the UK have gained ground as the

impact of central policy orchestration and control on uneven development has been seen to be

limited (Travers, 2015; McCann, 2016). Deal-making, in this context, represents a pragmatic

stance given the different starting points of localities to take on further responsibilities. It is

logical, some have suggested, that cities at the vanguard with demonstrable capacities and

competencies should take what opportunities there are to agree decentralising arrangements

(Cox et al., 2014). The UK is highly centralised in terms of where revenue and spending powers

reside, therefore it is claimed, localities need to exploit the openings for greater local policy

design and influence (Harrison, 2015).

The piecemeal nature of the deal-making approach raises interesting questions, however,

regarding the nature of policymaking processes; both across the policy system (that spurs deal-

making) and within individual deals. Indeed, reflecting an opportunity to firm up the clarity and

guidance provided to localities negotiating a deal, some have recommended that an

independent body should be formed to set out a clear path for localities to follow (RSA, 2015;

19 There were eight RDAs in England prior to 2012 (plus the London Development Agency), covering geographies in

England such as the North West and East Midlands.


Pike et al., 2016; Blond and Morrin, 2015; Ayres et al., 2016). The UK Government has recently

committed to developing a “devolution framework” which may provide some response to this

issue (Jeffrey, 2018). At an individual deal-making level, furthermore, others have questioned

the manner by which deals are struck, and, more particularly, the nature and extent of citizen

and community participation (Prosser et al., 2018).

A series of principles underpin the roll out of City Deals. First, City Deals hinge on a rejection of

“one-size-fits-all” policymaking (HM Government, 2016a). The economies of Newcastle and

Bristol, for example, differ in terms of the pressures and opportunities they confront, and thus

policies need to be tailored to local contexts. Additional housing may be the capital investment

priority in one city, whilst in another, a new rail link to open up access to employment sites may

be the primary concern. Though individual deals vary in how bespoke they appear - with central

government seen to strongly determine the shape and nature of deal development (O’Brien and

Pike, 2018; Pike et al., 2016) - one can point to a number of examples, such as proposals for an

oil and gas innovation centre in Aberdeen (a city highly dependent on the natural resources

sector) that reflect context-sensitive responses (HM Government, 2016b). In our view, the aim

to develop bespoke agreements – giving some scope for innovation in policy design - is arguably

the strongest feature of the City Deal approach (Cheshire et al., 2014).

Second, robust local governance is central to deal-making, as the UK Government seeks to

ensure localities have sufficient structures in place to manage the obligations and risks. A

number of City Deals, for example, present an incentivising logic by inserting a payment-by-

results mechanism. This requires localities to demonstrate progress on growth objectives at

fixed intervals (“gateway” periods) in order to release further capital funding within an

infrastructure fund (HM Government, 2014). Forms of governance vary across the deals –

depending on the nature and magnitude of the deals at stake, as well as enabling legislation –

yet common themes can be identified. In this respect, a requirement for mayors in England has

emerged based on more recent devolution deals. Drawing on in-vogue urban public

management perspectives (Barber, 2013) - but with their efficacy disputed by others (Pike,

2017) - the impulse for mayors has yet to spread to Scotland or Wales. Additionally, business

interests are often closely coupled to governance arrangements, whether formally secured

through local enterprise partnership (LEP) associations in England, or new organisations (e.g.

Cardiff; HM Government, 2016d) or “regional enterprise councils” (e.g. Edinburgh; City of

Edinburgh Council, 2018) being formed in the devolved nation contexts.


Third, devising policy at functional economic geographies reflects a key technical consideration

for deal-makers. Central to this idea is that urban policy needs to be shaped to respond to the

dominant flows that make up urban systems, notably commuting and transport patterns. For

cities such as Glasgow and Manchester, where the central local authority area significantly

under-bounds its commuting geography, it is seen to be problematic that urban policy and

investment strategies focus solely on the administrative area. In this way, City Deals have given

some support to an emergent city-regionalism in the UK (with local authorities working together,

and, for follow-on deals in England, mayoral combined authorities being formed) (Beel et al.,

2016). Some, however, point to the clamour to cut a deal overriding the coherent demarcation

of functional economic geographies (e.g. the North of Tyne devolution deal that excludes

Gateshead (Tomaney, 2018)).

Alongside City Deal mechanisms, moreover, there are policy themes linked to the UK’s sub-

national economic development challenges. Most prominently, spatial rebalancing – and the

still widening gap between London and the south-east, and the rest of the UK - is a key focus for

the UK Government (Martin et al., 2016). Indeed, processes of industrial restructuring and the

clustering of high-growth sectors in the south-east of England present questions, now long-

running, about how the economic bases in the rest of the UK can be rejuvenated. Whilst the

north-south divide is not explicitly mentioned in City Deal documentation, think-tanks have

framed the issue as central to urban policy (Centre for Cities, 2015). Related to this are debates

in England about inequalities in infrastructure spending (Overman, 2014; IPPR North, 2017) and

the advantages London is seen to enjoy (McCann, 2016). The Northern Powerhouse which

broadly seeks to improve linkages across major urban centres in the north of England (Overman

et al., 2009), can be seen as a political response to the spatial divide in economic outcomes

(MacKinnon, forthcoming). The “Powerhouse” agenda was influenced by the RSA City Growth

Commission (2014) and a UK Government strategy has recently been released to give it impetus

(HM Government, 2016c). Though clarity is emerging in some respects, others have questioned

whether the policy reflects more brand than strategy, and whether aspects of funding are re-

packaged rather than new (Lee, 2017; MacKinnon, forthcoming). This new push for pan-Northern

co-operation in England (Parr, 2017) – which has yet to spur comparator initiatives in the

devolved administrations20 - sits at a cross-regional level going beyond individual, typically city-

region focused deals.

20 There have been initial discussions about a “western powerhouse” linking Cardiff to Bristol.

Table 1 – City Deals and the wider evolution of deal-based policymaking in the UK 2011 2012 2013 2014 2015 2016 2017 2018

City Deals

(incl. head of

terms)

Proposal for City

Deals introduced in

“Unlocking growth in

cities”

Wave 1 – 8 English

Core Cities

Wave 2 begins Wave 2 – agreements

for a further 18

English cities

Glasgow

Cardiff

Inverness

Aberdeen

Swansea

Edinburgh

Stirling; Tay Cities

(Discussions in

progress for Belfast

and Derry City)

Growth Deals First Growth Deals

(giving funding for

LEPs in England)

Announcement of

expansion to deals

Further funding in

Budget and then

Autumn Statement

Negotiations for

North Wales and

Scottish Borderlands

(in the Autumn

statement)

(Ayrshire

commitment; Moray

negotiation; Mid-

Wales discussions)

Devolution Deals

Devolution Deal for

Greater Manchester

Devolution deals for

Sheffield; North East;

Tees Valley;

West Midlands; and

Liverpool City Region

Devolution deal for

Cornwall

Devolution deals for

East Anglia; Greater

Lincolnshire; and

West of England

Five updates/

iterations to the

Greater Manchester

devolution

arrangement by

2017. Second

devolution deal for

the West Midlands.

North of Tyne

Mayoral

elections

Held in May for

Greater Manchester;

Liverpool City Region;

Cambridgeshire /

Peterborough; West

Midlands; West of

England; Tees Valley

Sheffield City Region

(held in May)

Legislation

Localism Act Cities and Local

Government

Devolution Act

Major

strategies/

advocacy

positions

Scottish Government

– Agenda for Cities

Welsh Government –

Haywood task and

finish group report on

city-regions

RSA City Growth

Commission (noting

“powerhouses")

UK Government -

Northern Powerhouse

Strategy

Scottish Government

– updated Agenda for

Cities

UK Government -

Industrial Strategy

white paper

(references City

Deals; notes

Transforming Cities

Fund for transport in

England)

Local industrial

strategies being

prepared in England

Sources: Ward (2017): Sandford (2017); NAO (2015; 2016b); Gray et al. (2018); authors’ own elaboration


III City Deals in the devolved administrations

Starting with the Glasgow City Deal agreed in the summer of 2014, City Deals have gradually

been rolling out across the devolved administrations and are now the preferred mechanisms, it

would appear, for supporting sub-national economic development (Table 2 sets out the features

of the Scottish deals to date). Writing in this publication previously, the cities policy advocate

Greg Clark has suggested that “[city leaders] need to be empowered”, and that, in the Scottish

context, City Deals “could have an important impact in increasing urban productivity” (Clark et

al., 2016: 7). Coupled with the apparent enthusiasm for deal-making in the Scottish and

devolved administration contexts – with deals contributing to what some have described as a

“cluttered” economic policy context (Fraser of Allander Institute, 2018: 4) - new political

dynamics have emerged.

Deals in Scotland and Wales present a tripartite politics whereby the UK government, the

devolved administration and the relevant set of local authorities (for the particular city-region)

are bound into negotiation and eventual commitments. Here, local alongside national

devolution claims emerge. The former leader of Cardiff Council argued, for example, for greater

support and autonomy from the Welsh Government – arguing that Councils have been “held

back” and need to “receive a sufficient level of funding and be given the powers [needed] …”

(Bale cited in Silk, 2016). Meanwhile the Secretary of State for Scotland (representing the UK

Government) has argued, in criticising the Scottish Government:

“There is a revolution going on in local government across the rest of the United

Kingdom, with local areas regaining power and responsibility at an

unprecedented rate. Scotland cannot afford to be left behind … There is now real

risk that Glasgow, Edinburgh, Aberdeen, Dundee, and indeed the towns and

counties of Scotland as a whole, will be left behind – stuck in a 1990s time-warp

of centralised, Holyrood-dominance.” (BBC, 2015)

The Scottish Government’s commitment to further deals across Scotland – indeed coverage

across the country is sought (Scottish Government, 2018) – coupled, perhaps, with wider

localist developments through the Community Empowerment (Scotland) Act and the ongoing

Local Governance Review, may provide alternative perspectives. Of course, debates over

funding commitments, through the deal-making negotiations, bring the competing claims on

deal-making commitments into sharp relief. The apparently differential UK Government and


Scottish Government commitments for the Tay Cities reflects this (see table 2))(Buchan, 2018);

additionally, the Scottish Government point out their £254 million contribution over and above

the £125 million match commitment to the Aberdeen deal (Scottish Government, 2016).

A further political consideration is the potential for conflicting, or incommensurable, policy

agendas to interface within a deal. In Wales, for example, the Welsh Government’s commitment

to well-being - given the Well-being of Future Generations (Wales) Act - presents emphases not

shared in the same way by the UK Government, where deals are framed as economic growth

drivers principally (Waite and Bristow, 2018). As the Welsh Assembly committee into City Deals

observed in its final report:

“… there is a clear tension between the GDP-focus of City Deals, and the Welsh

Government’s broader definitions of prosperity, and wider aspirations set out in

the Well-being and Future Generations legislation. While all partners in both the

Cardiff City Region and Swansea Bay claim that both can be achieved, it is not

100% clear at this stage whether or how that will be done” (National Assembly

for Wales Economy, Infrastructure and Skills Committee, 2017: 19).

A similar position is presented in Scotland given apparent commitments by the Scottish

Government to “inclusive growth”21, which the Enterprise and Skills review links to City Deals

expressly (Scottish Government, 2017: 8). Indeed, testimony to a Scottish Parliament committee

enquiry highlights the tension between UK and Scottish government positions (Scottish

Parliament Local Government and Communities Committee, 2018: 20).

Politics in a horizontal form is also evident across different regions and localities within a

nation. As in England, deal-making has privileged, at least initially, major cities (with cities seen

as “engines of growth” (HM Government, 2011)). However, such an approach is meeting

resistance from those outwith metropolitan areas. Falkirk Council (2017), in their submission to

the Scottish Parliament committee on city-region deals, pointed to the “need to avoid an over-

emphasis on the role of cities” while the submission from the Ayrshire Growth Deal (2017) notes

the need for non-city-region areas to receive the “same level of attention”. These perspectives,

in intimating a city-centrism in policymaking, raise questions of consistency and coherence in

spatial policy within the devolved administrations (and it is interesting to observe Fife’s position

within two City Deals agreed (Edinburgh and Tay Cities)).

21 http://www.inclusivegrowth.scot/about-us/ [retrieved 3/12/2018]

http://www.inclusivegrowth.scot/about-us/


Underlying such political and strategic concerns, at an operational level, a Scottish City-region

deal delivery board - which is jointly convened by the Scottish and UK Governments - seeks to:

provide guidance on business case development, monitor implementation, and agree “as far as

possible, common negotiating positions” for new deals.22 With respect to the latter, it will be

interesting to track how and whether this body aligns with, or is steered by, the UK Government’s

“devolution framework” which is due to be released in late-2018. Moreover, with “regional

economic partnerships” emerging from the Scottish Government’s Enterprise and Skills review

(2017), their alignment with new governance arrangements for City Deals may reflect key

institutional developments for urban and regional policy.

22 https://www.gov.scot/groups/scottish-city-region-deal-delivery-board/ [retrieved 3/12/2018]

https://www.gov.scot/groups/scottish-city-region-deal-delivery-board/

Table 2 – Overview of City Deals in Scotland

City core

Name of deal

Glasgow (1)

Glasgow City-region City Deal

Inverness (2)

Inverness and Highland City-

region Deal

Aberdeen (3)

Aberdeen City Region Deal

Edinburgh (4)

Edinburgh and South East

Scotland City Region Deal

Stirling (5)

Stirling & Clackmannanshire

City Region Deal

Perth and Dundee (6)

Tay Cities Region Deal

Local

authority

partners

Glasgow City, Inverclyde, East

Dunbartonshire, West

Dunbartonshire, East

Renfrewshire,

Renfrewshire, North

Lanarkshire, South Lanarkshire

Highland Aberdeen City,

Aberdeenshire

Edinburgh, East Lothian,

Fife, Midlothian, Scottish

Borders, West Lothian

Stirling and

Clackmannanshire

Dundee, Angus, Fife and Perth and

Kinross

Funding

(maximum

amounts)

£1.13 billion investment fund –

£500 million each from the UK

and Scottish governments, plus

£130 million from local

authorities. 20 year period.

“… the Scottish Government

will commit up to £135

million. The United Kingdom

Government will commit up to

£53 million and the Highland

Council and regional partners

have committed up to £127

million over 10 years”.

“Over the next 10 years,

both Governments are

committed to jointly

investing up to £250

million. Aberdeen City

Council and Aberdeenshire

Council and regional

partners are committed to

investing up to £44 million.”

£300 million each from the

Scottish and UK

governments. Additionally

“regional partners will

contribute up to a maximum

of £730m” over a 15 year

timeline.

£45.1 million each from the

UK and Scottish

governments (UK

government capital

contributions will spread

over 15 years). “Regional

partners will match this

investment with up to

£123.8 million”.

£150 million each from the Scottish

and UK governments (over 10-15

years).

Discussion of a further £50 million

from the Scottish Government; and

calls for a like additional

commitment from the UK

Government.

Notable

initiatives

(some subject

to business

case

approval); not

an exhaustive

list

Infrastructure projects

including: Canal and North

Gateway; Clyde Waterfront and

Renfrew Riverside; Glasgow

airport investment area. In

innovation, the City Deal

supports MediCity and an

Imaging Centre of Excellence.

Northern Innovation Hub;

Science Skills Academy;

assisted living; investment in

Inverness Castle for tourism;

housing; West Link transport;

“land

remediation to the east of the

A9/A82 Longman junction”.

Oli and Gas Technology

Centre; innovation hubs for

the food and life sciences

sectors; digital

infrastructure fund;

expansion of Aberdeen

harbour.

Data driven innovation (DDI)

research; Integrated

Regional Employability and

Skills (IRES) programme;

A720 city bypass; IMPACT

centre.

International Environment

Centre; Aquaculture Hub;

international visitor centre;

digital hub; improved

transport connections

between Stirling and Alloa.

Skills and Employability

Development Programme support;

Tay biomedical cluster;

International Barley Hub; Advanced

Plant Growth Centre; Cyber Security

Centre of Excellence; Forensic

Science Research Centre; advanced

plastic reprocessing facility.

Sources:

(1) HM Government (2014), http://www.glasgowcityregion.co.uk/article/7626/Projects;

(2) HM Government (2017), https://www.gov.scot/policies/cities-regions/city-region-deals/;

(3) HM Government (2016b);

(4) City of Edinburgh Council (2018);

(5) HM Government (2018b);

(6) HM Government (2018c); Buchan (2018).

http://www.glasgowcityregion.co.uk/article/7626/Projects

https://www.gov.scot/policies/cities-regions/city-region-deals/


IV Future considerations

City Deals across the UK are now beginning to attract international interest and application. In

Australia, City Deals have emerged through the Federal Government’s Smart Cities Plan

(Australian Government, 2016). Broadly following the UK model, City Deals in Australia have

been struck for Townsville (Queensland), Launceston (Tasmania), Darwin (Northern Territory)

and Western Sydney (NSW); and plans are underway for Geelong23 (Department of Prime Minister

and Cabinet, 2017)). In the Netherlands, stemming from the Dutch Urban Agenda, City Deals

reflect thematic policy areas agreed by a number of cities. As exemplified with eight cities

signing the “circular economy” City Deal (Circular Economy, 2016), “co-operation within and

between urban areas” [italicised for emphasis] (Agenda Stad, 2015) marks a distinct difference

with the UK variant. Such Dutch deals reflect: “agreements between public and/or private

parties to help cities and urban regions address problems and achieve their ambitions … Cities

and other stakeholders determine the form the City Deals take, with central government acting

as partner and facilitator” (Government of the Netherlands, 2015). Elsewhere support for City

Deals has come from the former head of the US-based Brookings Metropolitan Policy Program.

Katz (2014) – who previously pointed to the greater potential for metro-led economic

development policy given apparent policy stagnation at the federal level (Katz and Bradley,

2013) - remarks that deals would be usefully considered in the US context:

“… the United States should consider adopting some of the specific vehicles by

which the U.K. is devolving power. Central government in Britain is in the process

of negotiating a series of “city deals” with eight major metro areas that will grant

specific powers and funding to local actors. Manchester provides a shining

example of what is possible when a national government places itself in the

service of the natural economic geography, the metropolis.”

Such international examples illustrate the appeal of the deal-making approach to urban

policymakers (courtesy of the promotional work of policy transfer agents (Burton, 2016)). Where

tripartite arrangements are in place - such as in Australia - useful opportunities for learning and

cross-national communities of practice may emerge (formalised dialogue with officials involved

in Welsh deals may also warrant consideration).

23 https://www.premier.vic.gov.au/geelong-city-deal-on-the-move-with-key-players-outlining-the-path-forward/

[retrieved 3/12/2018]

https://www.premier.vic.gov.au/geelong-city-deal-on-the-move-with-key-players-outlining-the-path-forward/


City Deals in Scotland also exhibit interesting evolutions as reflected in the varying content of

the deals agreed. The Glasgow City Deal - the first deal in any of the devolved administrations -

is comprised largely of an infrastructure fund of 20 projects spread across seven local authority

areas.24 Transport, land remediation, site assembly and amenity improvements are dominant

features within the fund. In contrast, the deal for Edinburgh - which was agreed in full in mid-

2018 - places much greater emphasis on innovation activities connected to universities (with

the universities engaged at an early point).25 This raises some interesting questions: do the

variations in emphasis across the two deals reflect the differences between the economic

structures and bases of the cities, and thus effectively prioritise the interventions that will spur

growth? Do the different tools and approaches taken to model the urban economies have a

bearing? Indeed, whilst Glasgow’s infrastructure fund hinged on project prioritisation based on

the use of a land use transport integration model26, Edinburgh’s deal was informed by the use

of a labour market model (Maclennan, 2015). It is intriguing to consider the dimensions of the

urban economy that each approach privileges and how that may shape the projects incorporated

within City Deals. Additionally, the data-driven innovation initiative which features strongly in

the Edinburgh City Deal, follows from a UK Government/BEIS-led Science and Innovation Audit

which emphasised the potential of such economic functions (BEIS, 2016). In summary, some

consideration of how deal-making cities have arrived at project prioritisation – through technical

tools, local economic knowledge bases and partnership formation – may be useful to highlight,

and this may reflect, to some degree, the evolution of deal-making as a learning by doing

process.

Questions also exist about how new policy initiatives, such as the UK Government’s Industrial

Strategy, may shape or compel future deal-making. If bidding for funding to higher orders of

government is the form through which regional and urban policy is destined to take, cities in

Scotland will need to learn to play the game (indeed, will we see local industrial strategies

emerge in the devolved administrations? (HM Government, 2018a: 3)). Whilst recognising the

Scottish Government’s desire for complete spatial coverage, policymakers in some of Scotland’s

city-regions already with a City Deal – looking at major city-regions in England that boast

multiple growth and devolution deals, covering wider investment and service delivery areas –

24 http://www.glasgowcityregion.co.uk/article/7626/Projects [retrieved 3/12/2018] 25 http://www.acceleratinggrowth.org.uk/about-us/ [retrieved 3/12/2018] 26 www.glasgow.gov.uk/Councillorsandcommittees/viewSelectedDocument.asp?c=P62AFQDNT1DXZ3810G [retrieved 3/12/2018]

http://www.glasgowcityregion.co.uk/article/7626/Projects

http://www.acceleratinggrowth.org.uk/about-us/

http://www.glasgow.gov.uk/Councillorsandcommittees/viewSelectedDocument.asp?c=P62AFQDNT1DXZ3810G


might understandably question what deal should come next. Indeed, the idea of a follow up deal

has been proposed for Aberdeen (Hebditch, 2018). This reflects deal-making as an iterative

process that may further deepen asymmetric policy arrangements.

In summary, City Deals contain a number of useful policy innovations and may present a useful

channel to consider where policy levers and responsibilities should be located (deal-making as

a process not as a “one-off” event (HM Government, 2016)). Questions can nevertheless be

raised as to whether this piecemeal approach to policymaking is sustainable in the long run with

consequent spatial divides in terms of funding allocations and outcomes likely (Pike et al.,

2016: O’Brien and Pike, 2018). Furthermore, the context of Brexit and ongoing local authority

budget constraints present challenges for achieving outcomes – beyond the control of local

authorities - for even the most well prioritised and implemented deal. At the individual city-level,

two additional questions exist: one, will City Deals be able to withstand political change?; two,

can we distinguish between the direct economic growth effects attributable to City Deals from

longer-term institution and capacity building possibly brought about by deal-making? In terms

of the latter, in other words, is it the economic impacts of the deal itself, or, in the long run, the

new ways of working that deal-making may bring about that will prove to be most critical?

Author Details

David Waite

Research Fellow,

Policy Scotland and Urban Studies

School of Social and Political Sciences

University of Glasgow

Room 403,

Adam Smith Building

Glasgow G12 8RS

[email protected]

mailto:[email protected]


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