Public sector: economic overview

Concluding comments

The analysis has highlighted that the public sector in Scotland is on average larger, whether measured by employment, a share of GVA, or public spending as a share of the economy. It is also better paid than the public sector in the rest of UK. It also notes that the size of the public sector and the gap between public and private sector pay has increased in recent years, and considers how pay varies by gender and between high and low earners. Public sector productivity has been broadly flat in Scotland over the last two decades.

The paper is an economic overview, drawing on National Accounts and other economic statistics, and as such does not consider the level or quality of public services that are provided in Scotland, and how these are changing over time with public sector pay. It also does not comment on whether the current size of the public sector in Scotland is optimal from the perspective of delivering public services or supporting the economy.

The public sector is a significant part of the economy for both Scotland and the UK. In both Scotland and the UK, it has been growing in size in recent years, and in general is slightly larger in Scotland than other parts of the UK. Public sector pay is also higher on average in Scotland when measured after tax.

Given the current fiscal context, this presents a challenge to budgets, and productivity growth will be essential for both the private and public sector in Scotland. The public and private sectors are often closely linked. The public sector can set direction and formal or informal norms for the economy, the sectors provide services to one another, and in some areas they compete for similar staff. However, there is no strong evidence that the public sector acts as drag on private sector activity. Instead, the composition of the public sector is key for ensuring public services are efficient, and support innovation across the economy.

Within public sector budgets, at the aggregate level, there is a need to allocate public expenditure between different, linked, priorities, such as increasing pay settlements or improving workforce and service delivery. Funding pressures for Scotland and the UK are making this more challenging, and to maintain services there is likely to be a need for higher productivity or service re-design.

Office of the Chief Economic Adviser