“Politicians need to be honest about spending constraints” say business and economy experts

Professor Mairi Spowage, director of the Fraser of Allander Institute at the University of Strathclyde, and Douglas Fraser, the outgoing business and economy editor at BBC Scotland, joined Prosper members at an event in Inverness to discuss the main economic and political issues ahead of the Scottish Parliament elections on May 7.

The two leading commentators on economic and financial issues agreed that Scotland was rapidly heading towards an unsustainable fiscal position. Prof Spowage highlighted that recent public sector pay deals struck by the Scottish Government are ‘unaffordable’. With both public sector employment and pay being higher in Scotland compared to the rest of the UK, this would lead to a ‘really tough’ spending review in the first year of the new parliamentary term, especially for the justice system and local government.

Mr Fraser added that the next intake of MSPs would need to review what as he described as “sacred cows” – spending commitments that could no longer be provided for. The sustainability of universities and local authorities are particular concerns with spending pressures rising significantly.

Both speakers said that although economic issues are top of lists of voter priorities, along with concerns around the NHS, this does not necessarily incentivise politicians to focus on growing the economy. Issues like housing and the cost of living often feel more pertinent in the eyes of voters, encouraging governments to pass well-meaning but often costly regulations designed to address social issues. Prof Spowage argued that candidates standing for election need better understanding of the trade-offs required in government.

Reflecting on nearly 20 years of reporting on the Scottish economy and businesses on BBC Scotland, Mr Fraser commented that journalists have a tendency to cover more negative stories even where there are significant positive economic opportunities. Mr Fraser highlighted the strong potential of renewable energy in the Moray Firth area which could bring many skilled jobs to the region.

Income tax has attracted significant political and media attention in the opening days of the Holyrood campaign. Citing recent polling from the BBC, Mr Fraser noted surprise at the number of Scottish voters who wanted income tax equalisation with England, which contradicts the often-held assumption that Scots are more egalitarian compared to their English counterparts.

Prof Spowage cautioned on making conclusions as to the impact on the economy from divergence in income tax rates and bands with data only available until 2022/23. However, anecdotal insights from businesses suggested that recruitment of middle-ranking and senior jobs had been more challenging. In particular, the next Scottish Government would have to address the threshold for the higher rate of income tax, which kicks in at around £43,000 – left unchanged, 25 per cent of taxpayers would be on the higher rate by the end of the decade, up from five per cent when the threshold was set in 2018/19.