More on the Bookies Odds of BREXIT

My estimates of the implied probability of a “leave” outcome in the EU referendum using the bookies odds from Oddschecker.com have attracted much comment. Some critics seem to have a weak understanding of the nature of prediction markets. For example, the argument is put that probabilities derived from the betting odds are of no value because punters are not a representative sample of the population. However, it should be obvious that those betting on the outcome of an event do not need to be a representative sample of the population – they are predicting, not voting.

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Who will be affected by Scotland’s new welfare powers?

As a result of the Scotland Act 2016, the Scottish Government will take over a range of disability benefits and the regulated social fund. Together these benefits cost around £2.5 billion in 2013-14. Total spending on benefits, tax credits and pensions in Scotland by the Department for Work and Pensions (DWP) was around £17.8 billion in 2013-14, so those being devolved cover less than one sixth of total DWP expenditure in Scotland. The largest single component of DWP spending will remain the state pension, which cost £7.1 billion in 2013-14. Tax credits cost £2.2bn. They are not included in the analsys of benefits that follows. Continue reading

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The higher rate threshold: to increase or not to increase?

In last week’s budget, the Chancellor announced his intention to increase the personal allowance for income tax from £11,000 in 2016-17 to £11,500 in 2017-18. He also intends to increase the higher rate threshold from £43,000 in 2016-17 to £45,000 in 2017-18. The increase in the higher rate threshold has attracted particular criticism because it will principally benefit middle to high income earners.

The Scottish Government will have the power to set tax rates and thresholds for Scotland from 2017-18 now that the Scotland Act 2016 has been passed. The Scottish Government can therefore choose to implement the increase in the higher rate allowance. The SNP, Labour and Lib-Dem parties have suggested that, if elected, they would not follow this above-inflation increase in the higher rate threshold. Continue reading

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Scottish Labour’s tax proposals: distributional consequences

In the first of a series of analyses of the Scottish parties’ manifesto proposals from the University of Stirling and Centre on Constitutional Change, David Bell and David Eiser consider the Labour proposals for income tax announced earlier this week.

After years of silence on the tax powers which Scotland already had, the Labour Party has put forward proposals to increase the Scottish Rate of Income Tax (SRIT) – which comes into force in 2016/17 – by 1p. The SRIT is effectively a flat rate of tax of 10p on all non-savings, non-dividend income above the personal allowance. Therefore, if SRIT is raised by 1p, the basic rate of income tax in Scotland is raised from 20p to 21p, the higher rate from 40p to 41p, and the additional rate from 45p to 46p.

The advantages and disadvantages of raising the SRIT to 11p have been hotly debated in the Scottish Parliament and elsewhere. A 1p increase would raise about £470m revenue for the Scottish Government. But where would the burden of paying for this increase fall? Continue reading

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Prospects for Growth in Scottish GDP

The latest GDP figures were released today. They show the Scottish economy grew by 0.1% in 2015 Q3. This is a fairly weak performance. The UK economy as a whole grew by 0.4% in the same quarter; it grew by 2.1% over the previous year compared to Scotland’s growth of 1.7%.

The slowdown has been concentrated in the production sector, with some contribution from weakening output in government and other services.

Given this relatively poor performance in 2015, what are the prospects for 2016? We have been constructing a small statistical model based on interactions between the Scottish and UK goods and labour markets. Later in this blog, we describe forecasts for Scotland based on this model. Continue reading

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Scotland’s Labour Market Lags Behind the UK’s

It is relatively easy to slip into the belief that the Scottish labour market has performed as well as the rest of the UK since the beginning of the Great Recession in 2008. Scotland’s unemployment rate, like that in the rest of the UK, is close to its pre-recession level of around 5% (see Figure 1). By international, and particularly European, standards, this is a very low rate.

Figure 1: Unemployment Rates in Scotland and the UK 2008-2015

Unemployment_Rates

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Scotland’s Labour Market Lags Behind the UK’s

It is relatively easy to slip into the belief that the Scottish labour market has performed as well as the rest of the UK since the beginning of the Great Recession in 2008. Scotland’s unemployment rate, like that in the rest of the UK, is close to its pre-recession level of around 5% (see Figure 1). By international, and particularly European, standards, this is a very low rate.

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BUDGET 2015: A Scottish alternative to austerity?

We knew a lot of the context before John Swinney stood up to deliver his Draft Budget on Wednesday. The Scottish Government’s grant from Westminster for day-to-day spending would be 1 per cent smaller in 2016/17 as it was 2015/16. Its grant for capital spending on the other hand would increase by almost 5 per cent.

Looking slightly longer term, the block grant from Westminster to the Scottish Government for resource spending will fall by 5% in real terms over the period to 2019/20. So the next few years will continue to be about austerity.

However, rather than set detailed spending priorities for the next few years, the Budget that Swinney delivered on Wednesday sets detailed spending priorities for 2016/17 only. With elections to Holyrood in May next year, setting longer term priorities in detail would be inappropriate. Continue reading

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Spending Review: quick summary

In headline terms, the Spending Review looks little different from the public finance forecasts in the summer budget.  The Government will achieve a fiscal surplus by the end of this parliament (the first time that this has been achieved since 2001). And total public spending as a percentage of GDP will fall from 40% currently to 36%.

But Osborne has managed to achieve this whilst simultaneously being more generous on the spending side. Continue reading

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The politics & economics of Council Tax reform

The Council Tax was introduced throughout Great Britain in 1993 to replace the Poll Tax, which had obtained a high degree of political unpopularity. The reason for the Poll Tax’s unpopularity was obvious: as a lump sum tax, it taxed everyone with no regard for their ability to pay; relative to the domestic rates it replaced, it was a regressive change with, on average, increases in the tax burden for those on low incomes, and reductions for those on high incomes. The political economy of the Poll Tax was all wrong.

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