The Scottish Fiscal Commission has published its latest report ‘Scotland’s Economic and Fiscal Forecasts – May 2018’ in which it describes the outlook for the Scottish economy as “subdued” for the next five years.
The Commission is responsible for producing independent forecasts for Scotland — including forecasts of tax revenues, expenditure on social security and on-shore gross domestic product (GDP).
The Commission said GDP growth is expected to remain at almost 1% a year over the forecast period.
Despite what it called “slow” economic growth, the Commission said Scottish unemployment is expected to remain low, with employment continuing to increase over the next five years.
Susan Rice, chair of the Fiscal Commission, said: “Our view of the Scottish economy has not fundamentally changed since December – the outlook is for subdued growth in Scotland over the next five years.
“The drivers of this are modest population and productivity growth; with productivity forecast to improve slowly from the weak performance experienced over 2016 and 2017.
“We have reduced our expectations for wage growth which feed through to a reduction in income tax revenues throughout our five year forecast.”
New analysis by the Commission shows a continuing “weakness” in wage growth, which has consequences for the Commission’s forecasts of income tax receipts.
The Commission said “real” wage growth has been “weak” in Scotland over recent years — contending that “real” wages are lower now than they were a decade ago.
“As a result of new analysis, the Commission has revised down its outlook for real wage growth in Scotland,” said the Commission.
“Real wages are now anticipated to fall by 0.5 per cent during 2018, before levelling off in 2019 and starting to grow slowly from 2020 onwards.
“This outlook for wages feeds through to the income tax forecast, which has been revised down from the Commission’s previous forecast by £209 million (or 1.7 per cent) in 2018-19.
“Income tax is expected to raise £12.0 billion in 2018-19, increasing to £14.5 billion by 2023-24.
“The Commission forecasts Scottish tax revenues of £15.8 billion in 2018-19; forecasts of social security expenditure amount to £428 million in the same year.”