Download Scotland and Wales: Responses to the Recession

Scotland and Wales: Responses to the
Recession
David Bell
University of Stirling
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The context:
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Effects of the recession vary across the devolved
territories
Partly reflect differences in industrial structure,
credit conditions and conditions in regional
housing markets.
Devolved institutions financed almost exclusively
through a block grant which is determined by the
Barnett Formula
The recession has not resulted in substantial
changes in UK government spending plans
Changes that have taken place are nevertheless
controversial.
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Inactivity Rates
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Unemployment Rates
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The context:
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The huge gap that has opened in UK public
finances has largely arisen due to falling tax
yields, over which the devolved bodies have no
control. The UK government bears the risk of
falling tax revenues.
The pain will come when, after the next election.
the new government has no option but to
significantly cut current Departmental
Expenditure Limits, with consequential effects,
via the Barnett formula, on the devolved bodies
Automatic stabilisers e.g. JSA funded from
Westminster
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Response to the recession
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The devolved bodies want to be seen to be
contributing towards easing the pain of
recession, but they can only do a limited amount
within a fixed budget.
Although they cannot originate a fiscal stimulus,
they may be able to change the time profile of
spending or reallocate funding between budgets
However, although they cannot borrow, they may
have unallocated End Year Flexibility which may
be spent subsequently (with the consent of the
Treasury)
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Responses to Recession: Scottish
Government
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Some examples:
• Acceleration of £293m of capital spending into
2009-10. Increase supply of affordable
housing, bringing forward £120m from 2010-11
• £35m to Home Owners Support Fund over 2008-
10. Bringing forward spending on 2007-13
European Structural Funds programmes
• £16m to support a 7,800 new apprenticeships
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Welsh Assembly Government
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Extension to the Single Investment Fund to
provide smaller enterprises with access to
revenue support grants of up to £10,000 and
capital grants from £5,000-£10,000
Pressing for changes in EU intervention rules for
match funding Convergence projects
The ReAct scheme: Businesses can obtain
financial support to assist them in hiring
individuals who have been made redundant from
their previous job. Training costs and wages can
both be subsidised..
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The Political Imperative: Be Seen to be
Doing Something
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"There is no doubt that the recession has
instilled in us some key disciplines and allowed
us to demonstrate the real dividends of
devolution.”
“We have been able to take bold and swift
decisions that are the right ones for Wales, the
Welsh economy and the people of Wales”
Deputy First Minister and Minister for the Economy and Transport
Ieuan Wyn Jones
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But is there an evidence base for the policy
responses to the recession?
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Would Additional Fiscal Powers in the
Devolved Areas Reduce Negative Impact of
Recession?
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Where should responsibility for the control of
macroeconomic policy lie?
Should the devolved bodies have borrowing
powers?
Would tax competition be helpful/harmful?
• Whose perspective matters?
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Do the Parliament/Assemblies Have Processes
to Adequately Manage Future Real Cuts in DEL?
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Where is the challenge function?
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Should it be strengthened?
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How will capital spending be protected?
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Can efficiency savings deliver required cuts or do
parliament/assemblies need to redefine the
boundaries of state intervention?
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