Yesterday the Financial Times published an article on the widening "north-south divide" and growing regional disparities in the UK since the financial crisis began in 2007. Specifically,
London has opened a wider gap in economic output with the rest of the UK amid growing regional disparities since the financial crisis began more than three years ago.
But the FT notes that
Scotland remains the most prosperous region outside London and south-east England, with output 99 per cent of the average, up 1.9 points over three years.
This was followed up today by an article in the Daily Express with the headline "Economic boost puts Scotland on a par with wealthy south east." The article as might be expected contained quotes from John Swinney including
This is a welcome and important analysis, confirming Scotland's economic potential with the powers of financial responsibility and independence.
I find it hard to see what the data have to do with the case for, or against, independence. It is true that Scotland's GDP per head relative to the UK, using the ONS Regional Accounts data has been rising. We can unambiguously welcome this. However, the picture is much more complicated than both the FT and Express articles allow. Nor do the data support the view that Scotland's relative economic performance has improved under an SNP government, which would be even better if Scotland was independent - if that is what we are meant to take from John Swinney's statement.
In the June Economic Commentary last year we published an analysis of the ONS Regional Economic activity data to 2009 that was published at the end of 2010. In that piece we noted the rising Scottish GDP per head relative but after further analysis concluded that
The evidence of an appreciably higher Scottish GDP per head relative to the UK by the end of the first decade of the new millennium is the result of both the differential effects of large cyclical movements and slower (Scottish) population growth on the relative. It does not appear to be explained by an improvement in Scotland's relative competitiveness, or underlying economic performance.
We showed in the Commentary that, when the Regional Accounts (RA) data were substituted by the GDP growth rates drawn from the Scottish government's own GVA dataset, the increase in the Scottish relative was lower and was even lower still when allowance was made for the weaker Scottish population growth. The chart below shows the differences
Using the Scottish governments (SG) GDP growth data and applying UK population growth to Scotland the Scottish GDP per head relative would have fallen over the ten years between 1999 and 2009. But a rise in the relative to 2007 is evident across all estimates, which was probably due to the strong growth of financial services in Scotland prior to the credit crunch and recession.
There is no doubt that Scottish GDP held up better than UK GDP during the financial crisis and recession, falling by -5.9% compared to a UK fall of -7.2%. This appears to have been due to the public sector having a bigger share of Scottish GDP and because manufacturing despite contracting held up much better in Scotland than the UK. Financial services also boosted its GDP share in both Scotland and UK as I noted in this post. This may through supply linkages have helped Scotland to hold up better.
The view, if that is what it is, that Scotland's relative economic performance has improved under an SNP government needs to be heavily qualified. First, the FT has used data from the ONS Regional Accounts, which is presented in terms of five year moving averages. This is to smooth out annual fluctuations. However, if you want to analyse change under different governments then it seems more appropriate to use the unsmoothed data. This is available in Table 1.11 in the latest ONS Regional Economic Activity data. The data are graphed below
The rise in the relative is clearly evident on both series, for the reasons discussed above. We see from the unadjusted series that the rise in the relative still occurs post 2007 but is less at 1.4 percentage points rather than the 1.9 points reported in the FT. Moreover, when we look at the growth of the Scottish GDP per head relative over the period we get the following chart
Most of the growth occurs before 2007 and indeed the growth is lower after 2007 even though the level of the GDP per head relative is higher.
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