Maths revision for Holyrood Douglas Fraser

Business/economy editor, Scotland Published duration 18 August 2018

Economic growth has been stronger than we thought, and that may change the turf for political debate at Holyrood.

Government statistics are being updated, and tell a different story about the economy in recent years.

Total output for the economy has topped £170bn, and total tax revenue was last year above £60bn for the first time.

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It's the first day of school term, and already, we're talking about revision. Lots and lots of revision.

This is the revising of figures by Scottish government statisticians.

Once a year, they open up their back catalogue of numbers, and check them against any new data they've amassed: any changes to their assumptions about the way the economy works: and to try to make older numbers consistent with the way newer numbers are crunched.

No, wait. Please stay. Don't flip to the next thing. I share your pain at this stuff. But this is important. Well, moderately important, anyway. And it has fairly big implications for Holyrood politics. So I'll try to limit the stat-speak.

Here's the important thing. The numbers published by these statisticians (independent of ministerial interference) give us many of our best guesses at how the economy is performing.

As any school pupil should be able to tell you, you should check your answers against common sense. Some of the numbers for economic activity have jarred with what we can see around us.

Hardly any growth in financial services as it headed towards the crash? Hardly any growth in tourism while you could see the tourist spots were heaving? A huge surge and then improbable slump in construction over recent years? Yes, the first take on government figures can be a bit unreliable.

Revisions have tried to reconcile economic modelling, survey data, different ways of adding up, and common sense.

There are, for instance, three ways of measuring Gross Domestic Product, which should in theory reach the same end result for total output from the economy. In practice, they don't, so they also have to be reconciled.

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A new element of this is the need to feed data into decisions about Holyrood budgets, now that Holyrood controls income tax.

Income tax revenue is hard to predict and linked to the wider economy. It's important to get the earliest possible estimate on how the economy is performing.

So the Scottish government has just started publishing its economic growth figures in three stages, each one gaining in accuracy. And in the case of the January to March quarter, the second draft tells us a very different story from the first, published in June.

Back then, the figure was a very weak 0.2%. It now looks more like 0.4%. A third take will be published in October.

The 0.4% figure is below long-term trend. The UK figure for that quarter is 0.2%, rising to 0.4% in the second quarter. And taking the year to March, the annual growth rate, at 1.3%, looks a notch stronger than the UK figure.

(I hesitate to say this, for fear of confusing even myself, but if, instead, you add up the last four quarters with the preceding four quarters, which ought to iron out blips, you get the reverse result, of Scottish growth being just behind the UK number.)

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This is where politics comes in. Opposition parties at Holyrood have been demanding to know how the Scottish government will boost the growth rate, at least to meet the UK figure.

Well, it just did. Not by improving productivity or building new infrastructure, but by re-running the numbers. Hence, the political debate, when MSPs return to Holyrood, is likely to take a change of direction.

The reason for the big revision recently was that something has been a long way out of kilter with the reality of construction. It hasn't slumped in recent quarters as much as thought.

But looking further back, public sector spending on big projects did not push it up as much as thought. And without the construction figures previously thought for 2015, the overall economic growth figures look worse.

Growth across 2015 was an anaemic 0.4%. In 2016, it was only 0.6%, before rising to 1.3%. In healthier days, it was closer to 2%.

Deficit

The other numbers we get with this are for national accounts in Scotland. They show that the total output from the Scottish economy in the past year was £156.5bn. Add in a geographical share of offshore oil and gas, and for the first time, the total tops £170bn.

(So offshore oil and gas, by this measure, is worth more than £13bn. Please note: that's not the tax take. That's the value added in the economy, and most of the benefit goes to workers and private shareholders.)

We also get a measure of government revenue in and for Scotland. The total looks like £58.6bn, up 3.6% on 2016-17. Add in that geographical element of oil and gas tax revenue and we get to £60bn. That's up 5.6%, reflecting the growth in offshore revenue from £266m to £1.327m, as the oil price, output and profits rose.

You may find those a useful starting point for a discussion next week, when the annual Government Expenditure and Revenue Scotland is published.

The notional deficit for standalone government finances for Scotland is likely to be smaller than last year's, but still big enough to awaken Holyrood's politicians from their summer somnolence.