Council of Economic Advisers teleconference minutes: October 2019

Attendees and apologies

Attendees

• Crawford Beveridge – Chair
• Julia Unwin
• Craig Clark
• Harry Burns
• Gary Gillespie, Chief Economist, Scottish Government
• Joanne Briggs, Senior Economic Adviser, Scottish Government

Apologies

• Jim McColl
• Marianna Mazzucato
• Joseph Stiglitz
• Anton Muscatelli
• Sara Carter

Items and actions

Welcome and introduction

The Chair of the Council thanked members for participating in the call and for their flexibility with regards to the changes made to the meeting times and format, due to the current political uncertainty and availability of Ministers in light of Brexit. The Chief Economist reiterated the Chair’s comments.

Update on developments

Recent engagements

The Chief Economist provided members with an update on recent engagements including a meeting with Professor Marianna Mazzucatto in July. The Chief Economist highlighted that the main focus within the Scottish Government in recent months has been Brexit, noting that the Scottish Government published an overview of no-deal preparations in Scotland earlier this week. The Chief Economist has been participating in regular meetings focusing in Brexit preparations.

Inclusive Growth and Wellbeing Symposium

The Chief Economist highlighted to Council members that he attended an Inclusive Growth and Wellbeing Symposium in Iceland alongside the Cabinet Secretary for Finance, Economy and Fair Work, as part of WEGo. The purpose of the conference was to hold an international event to discuss their work and understand how Iceland’s work sits in the international context.

The Cabinet Secretary presented on Scotland’s approach to wellbeing and inclusive growth, and drew on experience from the National Performance Framework. The conference included participation from the Prime Minister of Iceland, the Icelandic Minister of Finance, the OECD Secretary General, and Climate Change expert. The audience includes actors from the business community, the third sector, the public, the civil service, and Icelandic parliament. 

OECD Conference

The Chief Economist updated members on his recent participation in an OECD Conference which explored how the uptake of wellbeing, inclusiveness and sustainability indicators are influencing how policy decisions are made. The Cabinet Secretary for Finance, Economy and Fair Work and the Scottish Government Permanent Secretary also took part. The Chief Economist highlighted the Scottish Governments contributions and noted that the interesting conversations about the role of economic growth, given the current environmental challenges.

• Members noted related work on inclusion from a public health and social perspective, and how to target those who have previously been excluded. This included looking at small international projects which are designed to promote inclusion, including a Washing DC organisation called ‘Democracy Collaborative’ which looks at community enterprise and how it can transform left behind communities by keeping capital and finance in the community. Members commented on the potential to use such evidence in Scotland.
• Members also discussed the differences in approach between charities and social enterprise, and the importance of actively engaging people and communities. The Chief Economist noted the parallels with the Scottish Governments approach to inclusive growth.
• The Chief Economist also noted the debate on the link between inclusive growth and wellbeing, noting the Scottish Government’s approach that these are mutually reinforcing goals. Members reiterated this, noting that a lack of wellbeing is economically damaging.
• Members also noted the breadth of potential policies to promote wellbeing and inclusive growth, and the importance of experimenting with these.

Anton Muscatelli Review

The Chief Economist noted the work Professor Anton Muscatelli was commissioned to do by the Cabinet Secretary for Finance, Economy and Fair Work on the economic impact of Higher Education institutions in Scotland. This work is being supported by the Office of the Chief Economic Adviser. To carry out this work, Professor Muscatelli has met with stakeholders across the higher education, public and private sectors, including Higher Education Institutions. The Chief Economist noted a report is due to be published on this area of work in October 2019. 

The report highlights the strength of Scotland’s Higher Education Sector, the economic impact it currently has through research and innovation activities and collaboration with industry. It also addresses where improvements could be made to further boost this impact, leverage additional external funding for research and innovation activities and improve the impact of business collaboration. It was noted that many of the recommendations of the report touch upon issues discussed previously by the Council. The Chief Economist also noted that Professor Muscatelli continues to chair the First Minister’s Standing Council on Europe. 

• Members commented on how valuable this work is and expressed interest in the city and town based institutional aspect of the impact of higher education.

Refreshed Scottish Business Pledge

The Chief Economist provided members with an update on the refreshed Scottish Business Pledge, and provided background on the initiative for newer members. The Business Pledge is a valued-led partnership between Government and business which has grown steadily since 2015 and involved over 600 businesses. Following a review in 2018, a refreshed Business Pledge was launched in Oct 2019.

The Chief Economist highlighted the key new core elements: action to tackle the gender pay gap (proportionate to the size of the company); avoidance of inappropriate use of zero-hours contracts; and paying the real Living Wage. It was also noted that the Business Pledge has also introduced a new environmental impact  commitment and a menu approach that enables businesses to tailor the elements that best suit their company and sector. A business to business learning network, supported and directed by a Business Leadership Group for the Business Pledge will help to build capacity and impact. The Business Pledge is an example of a Scottish Government policy to designed to promote and achieve inclusive growth.

• Members commented that this is a valuable initiative which is important for retaining and recruiting staff and which encourages and incentivises businesses to contribute to inclusive growth. The Chief Economist reiterated this and noted that the performance of companies who make their commitment is tracked.
• Members also noted the lack of gender diversity in some industries such as engineering and commented that research has shown that gender diversity can have a very positive impact on business performance. It was noted that such initiatives are important for promoting gender diversity.

Scottish National Investment Bank

The Chief Economist provided members with an update on the progress of the Scottish National Investment Bank. In particular, it was noted that the Bank Bill passed stage 1 of the Parliamentary process with MSPs voting unanimously to agree the general principles of the Bill. The debate and subsequent vote in Parliament was informed by extensive scrutiny of the Bill and wider Bank Programme by the Economy, Energy and Fair Work Committee over a six week period. 

It was noted that there are some remaining issues to be resolved including HMT and State Aid Dispensation and the recruitment of a Chair who will subsequently play a leading role in recruiting the Bank’s Executive and Non-Executive directors. It was also noted that the primary mission of the Bank will be climate change.

• Members endorsed the progress of the Bank and noted the scale of financial products which will move to the Bank after it is launched.

Update on State of the Economy and Brexit

The Chief Economist provided members with an update on the state of the economy and Brexit, noting that the State of the economy report was published in September. The Chief Economist commented that Brexit uncertainty has continued to have an impact on Scotland but that the external environment has softened and this is also having an impact. Unemployment has risen in recent months, but still remains low. Output fell in Q2 which may have been impacted by stockpiling in Q1. The Chief Economist also noted that there is an estimated cost to the economy of £2bn of investment due to Brexit and that sector specific impacts will depend on regulation and the level of internationalisation.

• Members noted that to date there has been minimal impact on the engineering sector. The weak pound has had a positive impact on exports in this sector, and imports have not been negatively impacted. The Chief Economist noted that a no-deal Brexit would have a disproportionate impact on some sectors and smaller companies which are unprepared, which will impact on non-traded businesses through lower spending.
• Members commented on the potential scale of impacts on the workforce and the importance of these impacts being monitored. The Chief Economist reiterated this as a concern and noted the Scottish Government’s on-gong work in providing support to EU nationals and initiatives to encourage EU nationals to stay and continue to migrate to Scotland.

Update on income tax analysis

The Chief Economist provided members with an update on the latest analysis on taxpayers’ behavioural responses to differences in income tax policy between Scotland and the rest of the UK, which the Council were last updated on in May. 

The Chief Economist noted that the analysis now considers the potential impact of different income tax policies across the whole of the taxpayer population, rather than just Top Rate taxpayers. He also noted that there is lack of complete data on impact at present since outturn data for 2018-19 and 2019-20 will not be available until 2020 and 2021 respectively. 

The main updates since May relate to 2017-18 outturn data published in July 2019, analysis of the characteristics of Scottish taxpayers using the latest available micro data for the financial year 2016-17, and new empirical studies.

It was noted that any such revenue risks would likely be cushioned to a degree by the social contract which offers a range of benefits not available elsewhere in the UK. Scottish Government analysis finds that just over half of households with Higher Rate and Additional Rate taxpayers are either pensioners or live in a household with children. Therefore they may be more likely to benefit from the social contract through affordable childcare and free personal care, for example. This implies that they may be less likely to respond to a small differential in tax policies in Scotland and the rUK – something that is not factored in by all academic studies on taxpayers’ responsiveness. 

The Chief Economist noted that it is important to continue monitoring the revenue risks, in particular as more data becomes available in the coming years. However, on balance, the evidence to date seems to suggest that the risk is too small to offset the additional revenues from the Scottish Government’s policy decisions. 

Transitioning to net-zero emissions

At the end of April 2019, the First Minister declared a climate emergency and in May 2019, the UK Committee on Climate Change (CCC) advised that Scotland could achieve net-zero emissions by 2045, and the UK by 2050, targets which have now been legislated for by the Scottish and UK Government’s respectively. At the last Council of Economic Advisers meeting on 2nd May 2019, the Director General Economy requested the CEA to consider the transition to a net-zero emissions economy going forward.

The Chief Economist provided members with background in this area and the Office of the Chief Economic Adviser’s role in modelling, noting that the transition to net-zero emissions is a significant challenge but will also present opportunities for building new supply chain markets and exports. 

It was noted that transition costs are split between areas that are devolved and reserved, and there will be costs to mitigating impacts on other areas that occur from emissions reduction activities.

The Chief Economist highlighted a range of challenges that transitioning to a net-zero emissions economy creates for Scottish businesses including technological, economic, financial, environmental and skills challenges.

The Chief Economist also highlighted that the transition to net-zero emissions also presents a number of opportunities for the Scottish economy including innovation and developing new products, renewable energy development, exports, and the potential to reduce the variability in energy costs. 

It was noted that the Scottish Government’s Programme for Government has committed to a number of actions to tackle climate change.

• Members commented that it would be valuable to integrate what is happening at a regional and local/city level on carbon reductions, noting that the climate emergency requires at all levels of Government. Members further commented that the community and private sector are also important actors in this regard.
• Members noted the implications of tackling the climate emergency on buildings and the need for buildings to be sustainable.

Forward look: role of council

The Chief Economist and the Chair of the Council met earlier the same day to discuss how the Council can evolve going forward. The Chief Economist updated members on what was to discussed, including a potential change to the Council’s current operating model and membership. They discussed how the Council model and meetings had evolved over time and the fact that many Members are also involved in other Government business. There was discussion of the focus of the Council and breadth of Council expertise – noting whether additional expertise is required given recent changes to membership. It was agreed that the Chief Economist would speak with Council members and that the Chair would speak with Mr Mackay in November following that consultation.

Any Other Business

The Chief Economist thanked members for their time.

Council of Economic Advisers teleconference minutes: October 2019

File type

Word document

File size

18.5 kB