Scotland is thriving

The latest version of Regional economic performance indicators (REPI) published on 21 September by the Department of Business Innovation and Skills (BIS) is a fascinating source of data on the economies of UK countries and regions.

If we ignore the implied insult that brands Scotland as a 'region' there is much in the database to inform our understanding of the absolute and relative performance of the Scottish economy. I shall be returning to some of these data in later blogs.

For this first blog using these data, I want to contribute to the debate that has emerged between myself, George Kerevan and Tom Miers on the absolute and relative overall performance of the Scottish economy. I plan to provide a more detailed response to Kerevan's piece in a later post. But today I want to focus on the Scottish economy's performance and the income of Scottish households in the noughties, the devolution years.

George Kerevan argues that

the relative underperformance of Scotland grew worse in recent years. Between 1998 and 2006, the UK economy grew at 2.7 per cent while the Scottish economy grew at only 2 per cent, a gap of 35 per cent.

I don't think this is accurate in itself and it certainly is at variance with the evidence on the performance of the Scottish economy in the period of devolution.

The Scottish economy performed more strongly in the period of devolution from 1999 to 2007 when the Great Recession started. Over this period GVA in the Scottish economy grew at 2.6 per cent while the UK economy grew at 2.7 per cent.

Moreover, when one looks at GVA per head, which allows for population change, the Scottish economy improved its relative GVA position as this chart shows

So, I'm afraid Tom Miers can't cleverly use the Scottish GVA performance data under devolution to argue against both devolution and independence!

What these data show is that the gap between Scotland and the UK almost closed over the devolution years. In contrast, in both Northern Ireland and Wales their relative GVA per head position deteriorated and in Northern Ireland markedly so. The disproportionate impact of the Great Recession may account for the recent deterioration in Northern Ireland's GVA performance and perhaps even for the recent improve in the Scotland-UK relative. It will be remembered that the depth of the recession was a little less here.

Also for technical reasons, the inclusion of total north sea oil GVA in UK data but not in Scottish data can distort the Scottish UK relative. This seems to have happened recently to flatter relative Scottish performance because of the weakness of North Sea oil production - see my post here.

So we need to look at the income of Scottish households relative to the UK. The REPI data from BIS allow us to plot what happened to household disposable income (GHDI) over the period. The chart is here

The chart is interesting because it shows that when we look at household incomes, the improvement in the Scottish relative is still clearly present. But now Wales and Northern Ireland are seen to have improved their relative position, all be it marginally.

Why should this be?

The answer, in part, is because of the UK union. In the union, Scotland, Wales and Northern Ireland can draw on, and contribute to, the risk pooling arrangements that exist through UK government transfer payments. These affect household incomes, that is GDHI.

These data might be interpreted as offering some support for the UK union, especially for Northern Ireland and Wales. The data also show that Scotland is thriving.

And it is thriving under devolution.

Comments

[Dick Winchester]

With respect I think the REPI is interesting but ultimately not a lot of use. The comparisons I want to see are with countries such as Norway which has roughly the same size population and of course like Scotland, has significant oil and gas reserves. These countries are our real competitors in the global market.