Brexit, GERS and Inclusive Growth

Brexit, GERS and Inclusive Growth

The Scottish Government’s analysis of the consequences of Brexit for the Scottish economy indicates a significant loss in the level of output by 2030. The extent of the annual loss is estimated to range from £1.1bn to £11.2bn. The reason the range is so wide is due to the uncertainty of the details of the post Brexit relationship between the UK and the EU. For example, if there is access to the single market then the loss in output will be at the lower end whereas if trade is governed by World Trade Organisation rules then the loss in output will be at the higher end of the estimate. Whatever the nature of the post Brexit relationship with the EU the conclusion of the Scottish Government analysis is that the Scottish economy will be significantly smaller than it otherwise would have been which has implications for both  the level of employment  and government revenue. This anticipated contraction is against the background of already increasing pressure on Scottish public finances  as a result of the continued low oil price.  An obvious response would be to encourage faster growth in the non-oil economy in Scotland in order to mitigate against the adverse consequences of Brexit and the possible continued low world price for oil

The WiSE Research Centre at Glasgow Caledonian University suggests that an alternative route to promoting faster economic growth would be to implement a range of policies that promote greater gender equality. Pricewaterhouse Cooper recently demonstrated that the UK could boost its GDP by 9% if it could increase the number of women in full time paid work to match that of Sweden (http://www.pwc.co.uk/services/economics-policy/insights/women-in-work-index-2016.html) Although women’s employment rate in Scotland is at its highest recorded levels, around 40% of women work part-time compared to around 10% of men. This explains some the persistence of the gender pay gap, as the pay gap between men and women has narrowed as more women enter the full time formal labour market. At the current rate of decline, a crude calculation indicates that it will take until around 2050 for the gender pay gap to be eliminated altogether in Scotland. Another reason for the persistence of the gender pay gap is the extent of occupational segregation where women’s jobs tend to be clustered around occupations which generally are low paid whilst men dominate in areas such as engineering and construction which tend to be higher paid. In addition to this horizontal segregation we also have vertical segregation which occurs when women are over-represented at lower grades within the organisation whilst men tend to dominate the senior management roles. This is despite the fact that women’s educational attainment is consistently higher than men’s.

So how do we encourage more women into full time work and a wider range of better paid occupations? One of the main reasons women work part-time is the division of caring responsibilities. A recent report by the Institute for Fiscal Studies demonstrates ‘the motherhood penalty’ which shows that it is mothers who suffer the largest pay gap

(https://www.ifs.org.uk/uploads/publications/bns/bn186.pdf).

It can be no coincidence that as well as having a high level of full time employment for women, the public sector in Sweden also invests heavily in the provision of subsidised childcare.

The Scottish Government is committed to increasing the level of subsidised childcare for under fives. However the economic and social benefits of this provision will be undermined unless the care provided is of good quality. And part of that involves ensuring that the staff providing the care, predominately women are adequately rewarded otherwise it reinforces occupational segregation and the continuation of the gender pay gap (see WiSE Working Paper 4 “Growth, Equality and Employment: Investing in Childcare in Scotland”, Lapniewska 2016).

The current political and economic environment in Scotland provides an opportunity to rethink how childcare is delivered and funded. If we accept the substantial economic and social benefits from the provision of good quality childcare and view it as public investment rather than public expenditure then there is a very strong economic case for providing comprehensive childcare free at the point of use. It is only an outmoded accounting convention that treats the pay of construction workers as investment and the pay of childcare workers as consumption. In economic terms the pay of childcare workers is just as much of an investment as the pay of construction workers, in that one creates physical capital, the other creates human capital. A move towards comprehensive childcare free at the point of use would enable the government to substantially rationale the plethora of funding mechanisms involved in current provision as well as dealing with the disincentive effects which arise from the operation of the tax and benefit system. It would also help to mitigate the economic cost of Brexit and make a substantial contribution to the Scottish government goal of promoting equality, particularly gender equality.

Whatever the annual variations in the GERS reporting, a key consideration for economic policy for Scotland – Brexit or not – is how to maximise the powers over taxation that are coming to Scotland. Growing the economy and expanding the tax base to boost the tax-take that can be allocated to public spending and services in Scotland have to form the core of an economic strategy that truly seeks to tackle inequality and offering more economic opportunity for all.

https://www.commonspace.scot/articles/9141/snp-issues-renewed-warning-over-brexit-after-deficit-figures-published.