Light at the end of the fiscal tunnel? Scotland's public spending pressures

In our accompanying report, Light at the end of the fiscal tunnel?, we highlighted the challenges the Westminster government is facing in providing good quality public services for the people of the United Kingdom at a time of spending reductions. Despite over eight years of austerity, these challenges do not appear to be getting any easier.

The sustainability of Scottish public finances: a Generational Accounting approach

This paper analyses the long-term sustainability and intergenerational equity of the Scottish public finances by employing a generational accounting model. This represents a novel approach to analysing these issues in the case of Scotland, while having the advantage of capturing policy-relevant intergenerational aspects. We find that, under the baseline scenario, assuming that Scotland has “full fiscal autonomy”, large intertemporal and intergenerational fiscal gaps open up.

Evidence to Scottish Parliament by Dr Angus Armstrong, April 2015

The National Institute of Economic and Social Research (NIESR) continues to put public debt at the centre of its analysis on the constitutional options for devolving further powers within the UK. This was at the heart of our analysis of Scotland’s currency options. We are concerned that the Smith Commission, the Treasury and emerging proposals for ‘Full Fiscal Autonomy’ (FFA) or ‘Full Financial Responsibility’ underestimate the importance of Scotland’s borrowing capacity and the misalignment of incentives in the tiers of UK government.

Policy Scotland

Speech given at Glasgow University on 4th December 2014

Real Devolution: The Power to Borrow - Reply

In our recent paper on devolution we argue that real power requires granting UK regions the ability to borrow in addition to tax and spending powers. In a blog post, Tony Yates suggested that this would in fact create the same mess as the Euro zone.

Scotland's Lender of Last Resort Options

Scotland’s lender of last resort options depends on its choice of currency. If Scotland becomes independent, there is no question that it could use sterling. But this looks likely to be without the backing of the UK government and therefore without the Bank of England. Using sterling in these circumstances would constitute an informal currency union or ‘dollarization’.

Scotland’s Currency Options

This paper considers which currency option would be best for an independent Scotland. We examine three currency options: being part of a sterling currency union, adopting the euro, or having an independent currency. No currency option is the best when considered against all criteria. Therefore, making the decision requires deciding which criteria are most important. Recent events around the world, particularly in Europe, have shown that fiscal sustainability and currency arrangements cannot be considered in isolation.

The Expenditure Impacts of Individual Higher Education Institutions (HEIs) and their Students on the Scottish Economy under Devolution: Homogeneity or Heterogeneity

Comparing each of the higher education institutions (HEIs) as a separate sector in the Scottish input–output table suggests that their expenditure patterns are homogenous and that any apparent heterogeneity in their conventional demand impacts depends primarily on scale. However, a disaggregation of their income by source reveals a disparity in their degree of dependence upon funding from the devolved Scottish Government.

‘Policy Scepticism’ and the Impact of Scottish Higher Education Institutions (HEIs) on their Host Region: Accounting for Regional Budget Constraints under Devolution

A ‘policy scepticism’ has emerged that challenges the results of conventional regional higher education institution (HEI) impact analyses. This paper provides a systematic critique of such scepticism. While rejecting its extreme form, the limiting effect of the binding public-sector expenditure constraints under devolution is noted and it is shown how conventional impact analyses can be augmented to accommodate these constraints.