Macroeconomics: UK economy, IB Economics

Lord knows what the founding father of Economics, Adam Smith, would make of today's changes to the Scottish income tax system. A new 45% band for those earning between £75,000 and £125,140, and an even higher 49% band for those earning above £125,000, meaning Scotland now has 6 tax bands whereas the rest of the UK has three. I'm not sure how comfortably that sits with the notion of Smith's canons of taxation.

However, the Finance Secretary, Shona Robison, has introduced the bands to help fund a £1.5bn shortfall in the Scottish budget, alongside a series of spending cuts. 

And surprise, surprise, the SNP has followed the UK government in freezing tax bands, meaning a Christmas-time dose of fiscal drag. 

Did you know that Scotland has a different income tax system to the rest of the UK? You do now, if only because Deputy First Minister, John Swinney, announced tax changes in his Budget today. The tax rises are explicitly meant to increase NHS funding in Scotland.

The top rate of tax, has been increased from 46p to 47p, for those Scots earning more than £125,140, and the higher rate from 41p to 42p for those earning more than £43,662. In fact, the Scottish system has five different tax bands, something that I didn't know, although it will be interesting to ascertain the extent to which this affects things like tax revenues, the opportunity cost of collection per capita, and comparative levels of tax avoidance. 

Can the Scottish economy survive if it were an independent nation? Larry Elliott thinks that it can, but that such a move would have many pitfalls - notably trade barriers with its largest trading partner - the rest of the UK and the need to establish the appropriate economic institutions. There's not much in the way of theory but it gets you thinking about what's required for a stable economy. 

Does one feel sympathy for those turkeys that voted for Christmas? Yes, in as much as they chose to believe some of the most pathological liars in recent political memory. And no, in that you'd have hoped they would have seen sense.

However, look at the absurdity of this: Scottish fishermen landing their catch in Denmark to avoid the litany of bureaucracy required in this country. I'm sure they've got a strong negotiating position there too.

No wonder that Jacob Rees-Mogg thinks that fish are "happier"; there will be no British fishermen left to catch them.

Another sector that's been badly affected by the coronavirus outbreak is the oil and gas sector, largely concentrated in the North Sea, with some estimating that 30,000 jobs are likely to go. 

This has also sorts of macroeconomic implications - both highly localised around Aberdeen, and for the Scottish and UK economies more generally. The problem with this is that asking for state aid is made more complex by the environmental imperative - with many arguing that unless the sector looks more seriously at its carbon footprint, there is a weaker case for state aid.

An interesting tax story from the 'Athens of the North' - Edinburgh City Council has voted in favour of the introduction of a £2 per night tourist tax, with the hope of raising between £11.6m and £14.6m per year.

The tax has previously been vetoed by the Scottish government - but their position has changed, and you can see why, in the case of Edinburgh. which is inundated by tourists, especially for the Festival in the summer. Other cities, notably Oxford and Bath are looking on with interest. 

Crikey! On the plus side, even if Brexit goes badly wrong, it appears we might have sufficient gas to keep us warm, with the news that Chinese state-owned company CNOOC has discovered 250 million barrels of recoverable gas in its Glengorm project, east of Aberdeen. 

A boost to the economy's productive capacity, potential growth and the local economy. What's not to like? Well, the environmental implications of fossil fuels, for a start...

Good news for the Scottish economy with the news that train manufacturer Talgo is going to build a new factory in Fife, creating up to 1,000 jobs. 

Positive multiplier effects all round.

This is an interesting article, highlighting the fact that Scotland has a  better deal than the rest of the UK, and now because of a renegotiation of Barnett formula which subsidises less wealthy areas. 

The new agreement allows the Scottish government to double their annual borrowing to protect day-to-day spending to £600m, which means that last year the Scottish government could have spent £8bn more per year. 

Lots of economics here - it could be either micro- or macroeconomic - environmental economics or regional economics - in that any investment in the Cambo field might have a multiplied effect on the Scottish economy, boosting economic growth and creating jobs. And what about the implications for the UK's supply side? 

However, to what extent is it purely economic concerns that has driven this decision? In which case, you might also think about the economics of a company's brand image. 

Even though Brexit may have strengthened support for Scottish independence, it seems that the economic argument is weak, with an prospect of independence being two to three times more costly than the impact of Brexit. 

Ooops!

I'll just leave this here - and allow you to file it in the costs of Brexit file. You might also reflect that it would seem to be the case that on this occasion, turkeys have just voted for Christmas.

A day for dichotomy: supply-side bonus or environmental catastrophe? You  choose.

Wonders will never cease - to quote my mother, among other people - a non-Brexit story, However, Babcock have announced another slew of job losses at Rosyth, with 150 men being laid off, another example of a negative regional multiplier as a result of job losses. 

The latest Scottish budget has frozen the threshold for higher level taxpayers at £43,431 to finance tax cuts for the less well-off. This is a lovely example of both the power of the devolved government in Scotland and the lesser spotted concept of fiscal drag; you might have a read to see if you can deduce how you might define the term.

The recent uptick in global oil prices has far-reaching consequences, particularly for Scotland. This BBC piece highlights the fact that there might still be £330bn worth of oil and gas in the North Sea, something that has the capacity to have a significant multiplier effect.

One caveat, however, is that demand for fossil fuels is declining, so is it likely to be the case that the economy is able to make the most of this, given the calls to ban petrol-driven cars, for example?