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Scotland's Economy & Public Finances: Uncertainty is the New Normal

This report examines the outlook for Scotland's economy and public finances, including the economic and Brexit outlook, and the impact on public finances. It highlights the need for cautious optimism and the importance of preparation and resilience in the face of uncertainty.

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Scotland's Economy & Public Finances: Uncertainty is the New Normal

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  1. The outlook for Scotland’s economy & public finances October 2018

  2. Outline – uncertainty is the new normal • Economic outlook • Brexit outlook • Public finances outlook

  3. The economic outlook • A relatively strong and resilient global economy • A recovering Scottish economy • Fastest growth since 2014/15 • But significant uncertainty - both economically and fiscally

  4. The economic outlook • A relatively strong and resilient global economy • A recovering Scottish economy • Fastest growth since 2014/15 • Significant uncertainty – both economically and fiscally

  5. Cautious optimism • Over the last 5 years or so, the Scottish economy has been stuck in a weak cycle of growth • Growth has picked up in recent times, but remains relatively fragile

  6. The economic outlook • A relatively strong and resilient global economy • A recovering Scottish economy • Fastest growth since 2014/15 • Significant uncertainty – both economically and fiscally

  7. Brexit: what do we know so far • Referendum to leave the EU: 23rd June 2016 • UK will leave the European Union on the 29th March 2019 • December 2017 ‘exit’ deal agreed: • Principle of ‘no hard border’ with Ireland • Rights of EU citizens in the UK and UK citizens in the EU will be protected • So-called "divorce bill" of between £35bn and £39bn • But this always just kicked the can down the road…..

  8. Brexit: what do we know so far • UK Government published its ‘Chequers Plan’: July 2018 • Subsequent high profile resignations • Last month: • PM – ‘only plan on the table’ • Donal Tusk: Chequers plan ‘will not work’ • 18 – 19 October: EU summit • Gathering of 28 EU member states

  9. Brexit options: Single Market • No tariffs/non-tariff barriers on goods or services • Average tariff outside of EU of 2.6% (7.8% for agriculture) • other barriers to ‘single market’ removed – i.e. mutual standards & product recognition • Inside Customs Union • single customs inspection + common external tariff • Access to trade deals between EU and 3rd countries • Retain ‘four freedoms’+ role of European Court of Justice • Including free movement of people

  10. Brexit options: Chequers option • The UK to leave the Single Market and Customs Union • A 'Facilitated' customs arrangement where UK collects tariffs on goods coming into the UK on behalf of the EU • Comprehensive ‘free trade deal’ in goods only….not services (including financial services) • Ending free movement, but a new “mobility framework" to allow UK and EU citizens to travel, and apply for study and work • The withdrawal of the UK from EU institutions

  11. Some Stats • Around 40% of Scottish international exports are to the EU • 230,000 EU nationals living in Scotland • Scotland ranked 2nd in UK for international investment • EU demand is estimated to support over 130,000 jobs across Scotland each year

  12. Scotland’s key international markets • Scotland exports more to the EU than to N. America, Asia, S. America, Middle East and Australasia combined • Equivalent to over £12.5 billion each year

  13. Some Stats • Around 40% of Scottish international exports are to the EU • More than N. America, Asia, S. America, Middle East and Australasia combined • 230,000 EU nationals living in Scotland • Scotland ranked 2nd in UK for international investment • EU demand is estimated to support over 130,000 jobs across Scotland each year

  14. Some Stats • Around 40% of Scottish international exports are to the EU • More than N. America, Asia, S. America, Middle East and Australasia combined • 230,000 EU nationals living in Scotland • Scotland ranked 2nd in UK for international investment • EU demand is estimated to support over 130,000 jobs across Scotland each year

  15. Some Stats • Around 40% of Scottish international exports are to the EU • More than N. America, Asia, S. America, Middle East and Australasia combined • 230,000 EU nationals living in Scotland • Scotland ranked 2nd in UK for international investment • EU demand is estimated to support over 130,000 jobs across Scotland each year

  16. Brexit: getting ready

  17. Economic uncertainty = fiscal uncertainty • As has been well documented, the Scottish Budget has been squeezed in recent years…. • ....with the resource block grant now around 6% lower than in 2010/11 • But with a rising population and new (and growing commitments) in key areas such as health, squeeze on other budgets has been that much tougher • Outlook?

  18. Summary • Uncertainty is the new normal • Brexit represents greatest structural shift in our economy in over 45 years; • Long-term changes – ageing population, automation etc – will mean that our economy in 5, 10, 20 years time will look radically different; and, • Austerity may be over for some, but for a great many, tough budget settlements will be here to stay • Preparation and resilience will be key

  19. The outlook for Scotland’s economy & public finances October 2018

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