This paper develops - and applies - a micro-macroeconomic modeling approach for assessing major welfare system reforms. With a growing interest in the value of bold welfare reforms in the light of persistent and widening inequalities, we demonstrate the value of a comprehensive analysis of both the (micro) impact upon the distribution of household incomes and wider (macro) impacts upon national income, unemployment and government spending. By combining microsimulation with CGE modeling, we argue that our findings demonstrate the importance of any major social welfare or broad fiscal reform being the subject of a micro-macro modeling approach. We illustrate this through an application to the introduction of a universal basic income in Scotland.

Regional development now encompasses inclusive growth so that welfare spending becomes a potentially important policy for regions with devolved powers. Universal Basic Income (UBI), an unconditional payment to all citizens, has been gaining traction, including internationally. We provide a system-wide analysis of a region-specific UBI for Scotland on the level and distribution of regional activity. Using both micro-and macro-economic models we find that, although UBI has a beneficial effect on equity among households, it may adversely impact the level of economic activity unless there is a social contract in place and/ or there is a substantial stimulus to productivity.

Regional development now encompasses inclusive growth so that welfare spending becomes a potentially important policy for regions with devolved powers. Universal Basic Income (UBI), an unconditional payment to all citizens, has been gaining traction, including internationally. We provide a system-wide analysis of a region-specific UBI for Scotland on the level and distribution of regional activity. Using both micro- and macroeconomic models, we find that although UBI has a beneficial effect on equity among households, it may adversely impact the level of economic activity unless there is a social contract in place and/or there is a substantial stimulus to productivity.

The part of the UK fiscal framework which determines how UK government funding is allocated across the four home nations has undergone profound change since 2012, given tax and social security devolution. The UK government's post-Brexit plans for regional development funding, state aid, regulation and trade negotiations have led to significant disagreements about the nature of the devolved fiscal and constitutional settlement. And the COVID-19 pandemic provided a major shock to a fiscal system with limited flexibility for the Scottish, Welsh and Northern Irish devolved governments. This paper reviews the changes and challenges faced during these reforms and policy shocks. We find that: tensions about reforms to funding arrangements reflect the inconsistency of principles guiding the reforms; that the UK government's post-Brexit plans do reduce the policy autonomy of the devolved governments, but reflect powers central governments often have in even highly decentralised countries; and that temporary changes to rules and the nature of the COVID-19 pandemic prevented a subnational fiscal crisis, but that more systematic change may make the system more robust to future shocks. This suggests that a review of the principles underpinning the UK's subnational fiscal and economic policies would be highly worthwhile.

This paper examines the extent to which the UK’s three devolved governments have sought and achieved influence on the UK Government’s evolving post-Brexit international trade policy, distinguishing their influence at key stages of the trade policy cycle (mandate, negotiations and implementation). Despite carrying the legal responsibility to implement those aspects of trade deals that fall within areas of devolved competence, the devolved governments’ attempts to secure meaningful influence on the UK’s trade agreements have largely been frustrated. This reflects a lack of trust between the devolved and UK governments, weaknesses in the framework for and operation of intergovernmental relations, and a strong desire of the UK government to retain control centrally wherever possible. The resulting tensions have exacerbated devolved governments’ concerns over the authority of the devolved institutions post-Brexit.

Following Brexit (the withdrawal of the UK from the EU and the European Atomic Energy Community at the end of 31 January 2020), the British government stated that it hoped to reach a new trade agreement with Canada to be modelled after the Canada–EU Comprehensive Economic and Trade Agreement, the first free-trade deal for which Canadian provinces were directly involved at every stage of negotiations. In the UK, while there are mechanisms for the involvement of devolved regions in European policy, there is no clear constitutional doctrine as to the roles they should play in elaborating trade policy more generally. Moreover, the asymmetric nature of the UK’s devolution system complicates the involvement of its devolved governments in trade negotiations. By providing a specific focus on the cases of Quebec and Scotland, this article provides a comparison of substate governments’ roles in trade negotiation and trade promotion. It concludes that, while there seems to be only limited scope for substate governments’ formal input into future trade negotiations, their trade and investment promotion organizations allow them to pursue different objectives over trade outcomes within a unified national framework.

Mairi Spowage, Deputy Director of the Fraser of Allander Institute is joined by Adam McGeoch and David Eiser of the Fraser of Allander Institute and Steve Williams, Senior Partner at Deloitte to discuss todays Fraser of Allander Economic Commentary. The Institute sets out the key messages from the latest Quarterly Economic Commentary, including the latest analysis of the impact of the coronavirus pandemic on the Scottish economy and will gain insight from Steve on the role Deloitte have had in supporting businesses in the last few months. Timestamps (00:30) – Brief overview of commentary, Mairi (2:23) – Overview of the Scottish economy and results from the commentary, Adam (7:15) – Considerations of businesses, Steve (18:00) – Implications for the Scottish budget, David

This paper poses the question: if the UK were to introduce a net wealth tax, to what extent would there be a case for that tax, or elements of that tax, to be devolved to the UK’s three devolved legislatures? The notion of a tax being devolved in this sense can include anything on the spectrum from full devolution, through some form of tax sharing arrangement where devolved government can vary specific aspects of the tax within their territories, to revenue assignment. To analyse this question, the paper draws on economic theory, the practical experience of recent tax devolution in the UK, and lessons from other countries that operate a wealth tax at devolved level.

We were delighted to be joined on Tuesday by our friends from the Resolution Foundation.The Resolution Foundation is an independent think-tank focused on improving the living standards of those on low-to-middle incomes – www.resolutionfoundation.org Their outstanding work on understanding the implications of this crisis on the economy has greatly shaped the policy debate across the UK. The webinar will provide an opportunity to hear first-hand about their research and to discuss the implications for Scotland. Timestamps(2:44) Cara Pacitti: Findings from recent publication ‘Implications of Coronavirus for the UK Economy and Public Finances’(10:45) Richard Hughes: The policy response successes and challenges so far and thoughts for improvements.(19:45) Mairi Spowage: The implications for the Scottish economy, and the policy divergences that exist in Scotland. David Eiser will cover the implications for the Scottish fiscal framework and the Scottish Budget.(30:41) David Eiser: Implications for the Scottish Budget(43:11) Q&A(43:55) The Outlook for the Minimum Wage?(46:25) The outlook for poverty and inequality?(50:00) The economic implications of exiting lockdown(52:10) How might Scotland differ from the rest of the UK?(56:09) How might Quantitative Easing be utilised?(59:50) How might the Scottish Government use bonds to support the recovery?(01:02:20) What are the intergenerational implications of higher debt?(01:05:20) What sectors are likely to help more in aiding recovery?(01:08:40) What the future might look like.Video at https://youtu.be/jEFDbYwtvFw

UBI is defined as a payment made to all citizens in a region/ nation that is unconditional, permanent and substantial. We explore the macroeconomic consequences of such a UBI proposal for a regional economy, introduced on a fiscally neutral basis. We use Scotland, a country where the First Minister has indicated her support for the principle behind the idea, to illustrate the application of our analytical approach. The implementation of such a UBI at scale represents a major societal shift that involves substantial rises in taxation as well as in payments. Much of the existing empirical evidence relates to schemes that are small and in which the beneficiaries bear none of the costs, so its applicability here is questionable. Our approach combines microsimulation, to identify the immediate impact of the UBI on the tax/benefit system and distribution of income, with macroeconomic modelling to identify and analyse the wider economic impact of potential behavioural responses. The macroeconomic impact of the UBI depends critically on workers’ and potential migrants’ behavioural responses to the increase in taxation as well as to increased benefits. However, it seems clear that any positive stimulus to productivity as a consequence, for example, of reduced precarity and increased training would need to be substantial to offset any adverse impact on the scale of economic activity, unless policymakers succeed in securing a social contract that dampens or eliminates workers’ pressure for higher wages in response to a reduction in take home pay.

An extensive programme of fiscal devolution to the Scottish Parliament is underway. Fiscal devolution is expected to bring several benefits, including the ability to align policy more closely to preferences, and enhancing the accountability of the devolved parliament. But it can entail costs in the form of diseconomies of scale, complexity for taxpayers, and various inequities and inefficiencies. This paper reviews Scotland's new devolved fiscal settlement and considers the extent to which it is realizing the benefits that were intended, and how these compare with the costs and risks.

Mairi Spowage is joined by David Eiser from the FAI, Dr Ed Poole and Guto Ifan from the Wales Governance Centre at Cardiff University, and David Philips from the Institute For Fiscal Studies to discuss the impact of Covid-19 on devolved fiscal frameworks. Timestamps (01:01) How has the outlook for the budget evolved since the crisis? (03:12) In terms of the risk that the budget has been exposed to, how has this changed since the budget was set and what is likely to happen next in setting the supplementary budget? (05:20) In terms of the Scottish budget, how has the outlook evolved and what additional risks is the budget exposed to? (08:44) What extent has the crisis changed perspectives about the strengths and limitations of fiscal frameworks that exist?(14:30) The Scottish Government and other commentators in Scotland have called for extra flexibilities, how feasible are these flexibilities and how might they be arranged by the Scottish and UK Government? (17:57) In terms of the additional flexibility that the Welsh Government has been calling for, how well do you think negotiations between the Welsh and UK Government will go regarding these flexibilities? (20:13) To what extent would you say the policy response has diverged in Scotland compared to England? (23:59) Has the experience been similar in Wales? (25:57) Do you have any reflections on the different ways parts of the UK will come out of lockdown and what impact this may have on the Welsh economy and the Welsh budget? (27:45) What impact may this have on the Scottish economy and its budget? (33:14) In terms of the policy responses on the funding side, do you think this reflects the constraints of the fiscal framework? (38:48) What implications will this crisis have on the distribution of devolved spending more generally and the way public services are funded? (43:16) How do you think the fiscal framework will evolve in the longer term in Wales? (46:35) How does this crisis allow the Welsh Government to pursue their own fiscal strategy? (48:59) How do you think the fiscal framework will evolve in the longer term in Scotland? (53:26) Given the fiscal frameworks in place during this crisis, how do you think this might impact the fiscal frameworks of the future?

The aim of this report is to provide an assessment of the economic impacts of introducing a Citizen’s Basic Income (CBI) in Scotland.It has been prepared by researchers at the Fraser of Allander Institute at the University of Strathclyde, Manchester Metropolitan University and IPPR Scotland. In order to capture a realistic picture of the reality of a CBI in Scotland, we look at both the payment of the CBI itself, and the increase in tax that would be required to pay for it. The assessment of how it may impact upon the economy is then put together by quantifying both the direct impact on people’s incomes and, based on available evidence, the range of possible decisions and behaviours that may follow.

Over the past few years, the Scottish Parliament has been taking on significant additional fiscal and economic responsibilities. Further responsibilities are still to be transferred, principally in the form of major social security powers. Around half of VAT revenues were due to be assigned from next year (2020/21), but given concerns around the robustness of the methodology developed to estimate VAT receipts in Scotland, this appears increasingly likely to be delayed. In around two years’ time, the process for how these powers are operationalised – the Fiscal Framework – will be reviewed by the UK and Scottish Governments. Whether the review will be as fraught as the negotiations to reach an agreement back in 2016 remains to be seen.

This chapter considers how the Scottish Parliament has responded to the economic and fiscal challenges over the first 20 years of devolution. It goes on to ask what the major economic and fiscal issues facing Scotland are likely to be over the next 20 years, and assesses how well placed parliament might be to tackle them.