Scottish Budget: Scotland may see shallower recession than rest of UK, claim finance experts

Scotland may experience a slightly shallower recession than the rest of the UK due to relatively lower mortgage debt north of the border, experts have told MSPs.

Shoppers looking for Christmas gifts on Buchanan Street. Picture: Getty Images

However, the Scottish Fiscal Commission (SFC) said Scotland and the rest of the UK are expected to follow broadly similar paths amid an economic downturn next year.

The SFC says Scotland has already entered recession this year and in 2023 real household income is expected to see its sharpest decline since records began in 1998.

Speaking to Holyrood’s finance committee on Tuesday, SFC chairman, Professor Graeme Roy, said those with the lowest incomes would be disproportionately affected by this.

Committee convener Kenneth Gibson said the forecast was “grim news indeed”.

Prof Roy said: “Broadly speaking – this is a judgement call – we think the recession will be slightly shallower in Scotland compared to the UK.”

He continued: “Some of that is about the level of mortgage debt relative to the UK as a whole which then means that if interest rates go up, Scottish households are – all else remaining equal – less exposed to that increase in potential mortgage payments.”

A rebound in North Sea earnings could also boost Scotland’s relative economic performance, he said, as would difficulties in the financial services industry in London.

Prof Roy added: “Broadly speaking, we see Scotland being pretty similar to the UK over the next couple of years in that challenging environment.”

The SFC representatives said Scottish house prices were lower on average than south of the border.

Earlier, a separate panel of the Scottish Government’s economic advisors gave evidence to the committee.

Professor Sir Anton Muscatelli said MSPs should give “serious thought” about public sector reform as difficult times lie ahead.

Discussing the Scottish Government’s recent Budget, the principal of Glasgow University said: “There are more difficult times ahead.

“We expect, simply from the UK Government’s announcement, further constraints on fiscal policy ahead in the next couple of years.

“We don’t know, of course, what will happen after a UK election, it may or may not get tighter.”

He added: “Therefore, this is an important time I think for the Scottish Parliament to think seriously about how it engages in public service reform to get the most efficient outcomes in terms of total public spending.

“Because there will be pressures on public service salaries and therefore hard choices may need to be made.”

Council leaders have warned essential public services “may have to stop altogether” with local authorities at “absolute breaking point”, in a critical assessment of the Scottish Budget.

COSLA, the representative body for all of Scotland’s 32 local authorities, has furiously criticised the details of Deputy First Minister John Swinney’s Budget, claiming the £550 million extra from the Scottish Government for local government was in fact worth just £71m in cash terms.

Jim Thewliss, general secretary of School Leaders Scotland, said the squeezing of budgets would see subjects removed from the school curriculum and class sizes increased.