Scotland’s recession shallower than feared


  By George Kerevan
THE good news in the latest Scottish growth figures is that the economy expanded by 0.6 per cent in the third quarter of 2012. That’s a big enough number for me to trust we really are back in positive territory.
The bad news is that output in the Scottish construction sector – a key engine of recovery – fell by 0.4 per cent during last summer’s downpour, and by 7.1 per cent over the year.

Yet here’s a thing. In the UK as a whole, the industry fared much worse. Output was down by 2.5 per cent in Q3 and by a whopping 11.2 per cent across the year. That is the real impact of Treasury cuts to capital spending.

But in Scotland the economic damage was less severe because of finance secretary John Swinney’s insistence on switching revenue funds to capital investment. His critics claim that the extra capital he promised (circa £200 million per annum) is not being spent fast enough.

There’s truth in that – it takes time to get bulldozers on site. But does anyone have a better strategy, given Holyrood’s limited intervention powers?

Buried in the new growth stats is a golden nugget. A revision of earlier data (bringing calculations into line with UK methodology) shows the Scottish economy was not in contraction in the final quarter of 2011, as previously thought.

In fact there was growth of 0.1 per cent, reversing a sharp fall of 0.4 per cent. This means that when the UK as a whole started contracting in Q4 the Scottish economy kept growing.

True, there followed a short, sharp shock in Q1, when Scottish output dropped by 0.5 per cent. But things eased again in Q2 with a (revised) decline of only 0.1 per cent in Scottish output – better than the UK drop of 0.4 per cent.

Conclusion: the UK double-dip recession in 2012 was less deep in Scotland than previously advertised. In fact, the Scottish economy grew by 0.4 per cent in the year between the third quarter of 2011 and the third quarter of 2012. In the UK as a whole, growth was only 0.1 per cent, despite the London Olympic boost.

This evidence suggests to me that the seeming poor performance in the Scottish labour market in 2012, when compared to the UK, may be down to sampling errors.

Taxing times for those running small business

Another January gone and all those income tax self-assessment forms finally (and thankfully) completed for 2011-12.

The UK’s 4.2 million self-employed can rest easy till they get round to completing the paperwork for this tax year. Any tardy self-employed person filling in their HMRC forms this week will be only too well aware that Britain is not a low-tax country when it comes to encouraging individual entrepreneurship by sole traders, as a cure for unemployment.

The starting marginal rate of taxation on self-employed “profits” (ie income) is a high 29 per cent, made up of the 20p basic income tax plus 9 per cent Class 4 National Insurance contributions.

But if you start your own business late in life, and have a small professional pension, earning even a modest profit can take you into the higher income tax bracket, yielding a punishing marginal rate of nearly 50 per cent when NI is taken into account.

Are you listening, Mr Osborne?

Courtesy of George Kerevan and the Scotsman newspaper