´óÏó´«Ã½

Not so bad as expected this year, but more sluggish thereafter. It's a mixed picture from the Fraser of Allander assessment of Scotland's economic predicament, but most of it is a downbeat grey colour.

Factors worth highlighting from the forecast is that it's not just cuts in government spending on public services that are going to hurt the Scottish economy: it's also the reduction in welfare spend.

Those benefit payments are part of the economy too, of course, and it's reckoned the tightening of the welfare budget could take £2bn out of the economy.

The economic commentary - which comes out three times a year, with the help of Pricewaterhouse Coopers, and carries as much weight as any on the state of the nation - includes analysis of why Scotland's unemployment has gone from being better than the UK average to worse, and worsening.

Possible reasons: unemployment rose faster in Scotland last year while those opting out of the workforce - and counted as 'inactive' - rose faster in other parts of the UK.

But inactivity rose faster in Scotland this year, suggesting unemployment is now on a faster upward trend in Scotland.

There's also the possibility that the figures aren't to be trusted.
The main count is based on a survey, after all, and that comes with margins of error.

Perhaps the most plausible reason for Scotland's unemployment trends is that things have simply turned worse here, at least on the jobs front. The contraction in jobs is a lot greater than the UK's: 4.5% against 2.5%, while inactivity rates have equalised.

The silver lining to this substantial cloud, point out the Strathclyde University economists, is that more job losses imply a rise in productivity, and a rise in Scotland's competitive position is not a bad thing.

No salami-slicing

They've got some interesting observations as well on what the economic outlook should mean for John Swinney, less than a week before the Finance Secretary sets out his budget plans for next year.

First point is that there may be trade-offs between social justice and the declared main purpose of the Scottish government of increasing economic growth. Perhaps because they're economists rather than politicians, they reckon growth ought to get the priority.

What they recommend is a ruling out of 'salami-slicing' budgets - instead making rational calculations based on which bits of spending deliver the best outcomes.

That means ruling out the ring-fencing of budgets such as health or schools - politically attractive, but not a great idea in allocation of increasingly scarce resources. The NHS, it is pointed out, cannot be said to offer the best marginal value per pound spent.

To sustain growth, there's another warning not to do the populist thing by bashing Scottish Enterprise. Returning its role to the civil service hasn't worked in Wales, says Fraser of Allander (no relation), so don't think it will in Scotland either.

Disappointing capital

And what about university funding? Research should continue to get a high priority, says the report, along with policies to boost its commercialisation.

To say that the 38% cut in the capital budget is "disappointing" is something of an understatement. That spend, say the economists, is important to sustaining growth.

So, painful though it might be in burdening public services with more of the cuts, there's the proposal to shift money from resource or revenue spending to the capital account.

John Swinney isn't allowed to shift spending the other way round, but he may take the virtuous route of preserving some of his politically valuable shopping list of capital projects, while asking "efficiency" (or salami-slicing) to take that extra bit of strain.