The Scottish economy is slowing and cuts to tax credits for low paid workers won't help.
Strathclyde University’s Fraser of Allander Institute has published its latest commentary. It shows that the Scottish economy had slowed both in absolute terms and relative to the UK. The divergence with the UK has occurred even though expansion in the UK as a whole was slowing significantly.
Editor, Brian Ashcroft, also urged Chancellor George Osborne to think again about his planned £4.4 billion per annum of cuts in tax credits. He highlighted the impact on domestic demand and UK economic growth. He said: “The overall plan is to take £12 billion out of the economy, which is quite large. Tax credits are quite a large component of that. You are taking money away from individuals who would spend that money, whereas other people with more money would save more of it. There is a direct impact on spending that is going to affect demand in the economy.”
This supports the message of UNISON General Secretary Dave Prentis on tax credits, he said: “Mums and dads – who are already walking a financial tightrope because money is so tight – have been having sleepless nights at the thought of losing as much as £50 a week next April. Working families will now hope the government re-thinks its heartless decision to snatch so much away from so many.”
This is because Tax Credit cuts cannot be balanced simply by raising wages. Tax Credits were introduced to support working families by recognising the extra expenses of raising a family, a role businesses cannot be expected to fill, and are paid to households rather than to individual workers.
The Allander analysis has been reinforced by today's labour market statistics. As the STUC commentary says:
“This was another disappointing set of statistics which confirms the swift reversal in Scotland’s labour market recovery. Over seven and a half years since the recession took hold, Scotland’s unemployment rate is still precisely 50% higher than its pre-recession trough. While all age employment has seen a very small increase over the year, growth is now basically stagnant. If jobs cannot be found for people returning to the labour market then unemployment is unlikely to fall over the coming year. The prolonged period when women benefitted disproportionately from the labour market recovery has now ended with women accounting for most of the rise in unemployment. The small increase in total all age employment also disguises a significant fall in employment for women."
And there is little good news on wages. As this TUC chart shows, today’s Average Weekly Earnings figures show what is beginning to looks very like a pause in the recent improvements. This is reason to worry that stalling earnings may again act to stifle household demand.
The Chancellor's Autumn Statement on 25 November will be an important indicator of what action he will take to support the economy. The Scottish Government will then publish its spending plans for next year. Action on jobs and wages should be their priority.