Policy blow

UK growth to outpace Scotland for 50 years

independence march Edinburgh October 2018
Scotland faces a declining population and tax base (pic: Terry Murden)

Scotland’s policy makers face some stark long-term choices after new data from a key government forecaster said economic growth will lag behind the UK average for the next 50 years.

The population and those of working age are expected to shrink, putting pressure on the tax base to grow the economy and support a rise in older people.

According to the Scottish Fiscal Commission (SFC), which provides data for government ministers, Scotland’s population will fall by 900,000 or 16% to 4.6 million by 2072

Over the same period, the UK population will decline by 2%, from 67.1 million to 65.9 million.

By 2072, the proportion of the Scottish population in the 16 to 64 age bracket will fall from 64% to 56%.

The falls, which are due to a predicted lower birthrate and a decrease in net migration, will mean a lower tax take and will put more pressure on policy makers, says the SFC.

In particular, the shrinking working age group will need to support an increasing number of older people. Those aged 65 will rise from 20% to 32% of the population.

The birthrate is projected to shrink by more than a third (36%), equivalent to 17,100 fewer births. Net international migration is likely to remain at about 4,100 a year.

These demographic changes will mean Scottish gross domestic product (GDP) will average about 0.9%, compared with 1.4% for the UK.

Professor Graeme Roy, chairman of the SFC, said: “While Scotland is no different from most high-income economies in facing demographic pressures, those facing Scotland are particularly acute.

“Our fiscal sustainability report next year will explore how these will affect the Scottish budget in the future.

Graeme Roy
Graeme Roy: fiscal pressures (pic: Terry Murden)

“Politicians and those delivering public services will need to consider how to respond to these future fiscal pressures.”

In its short-term calculations, the SFC found that Scottish income tax revenues for 2020-21 were £417 million lower than forecast when the Scottish Budget was set in February 2020, before COVID-19 was declared a global pandemic, an error of 3.4%.

However, income tax revenues in the rest of the UK were also lower than forecast by the OBR, so the net effect will be a positive reconciliation of £50 million, applied to the 2023‑24 Scottish Budget.

When the 2021-22 Budget was set, revenue from Land and Buildings Transaction Tax was forecast at £586 million. With record revenues of £807 million the forecast error was £221 million or 38%.

House prices grew faster than expected and the share of residential properties paying the top two tax bands increased. Devolved social security payments in 2021-22 were £136 million or 4% higher than when the Budget was set. Both these out-turn figures are included in the final position for the 2021-22 Budget.

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