The future that Scotland faces: public funding and household finances IPPR Scotland, Russell Gunson, June 2018

The future that Scotland faces - public funding and household finances IPPR Scotland Dedicated to researching public policy solutions across the full range of social policy Progressive think tank – economic growth and social justice Three years old in Scotland, 30 years old across the UK Independent, non-profit with charitable status Cross-party Neutral on Scottish independence The largest think tank in Scotland and across the UK. Institute for Public Policy Research Scotland

The future that Scotland faces - public funding and household finances What am I going to talk through? The economic context Public finances Household finances What does that mean for money advice and financial inclusion? Institute for Public Policy Research Scotland

The future that Scotland faces - public funding and household finances The economic context - past The longest fall in living standards across the UK for 150 years Great recession of 2007/08 following financial crash and credit crunch. In Scotland: Recession shallower but longer compared to UK Oil price crash has hit oil industry – key Scotland sector Crash hit financial services – another key Scotland sector Institute for Public Policy Research Scotland

The future that Scotland faces - public funding and household finances The economic context - present We are still in the economic doldrums In Scotland: Economic growth has been slow and projected to stay that way (less than 1% through to 2023) Productivity levels have caught up with UK but are flat-lining Pay rates have caught up with UK average but still lower in real-terms than pre-crash Employment rate at near-record levels (unemployment 4.3%) Job insecurity – 12.5% self-employment, 5.3% short-term (inc. 3% zero-hour contracts) Youth employment a big success story (10.1% youth unemployment though at least 1/12 on zero-hour contracts) Institute for Public Policy Research Scotland

The future that Scotland faces - public funding and household finances The economic context - future Maybe something (good) will turn up Productivity growth is key to driving pay growth and living standards Automation and technological change could help (or hinder) depending on how we prepare for it Or maybe not… Brexit – likely a headwind on UK economy Demographics – static working-age population and vastly increasing non-working population We need a new economy that drives equality and living standards Institute for Public Policy Research Scotland

The future that Scotland faces - public funding and household finances Public finances in Scotland We’ve had big cuts and some tax rises Unprecedented public spending cuts: Nine years and counting of real-terms cuts (unprecedented) Cuts of 9.2% (Fiscal Revenue DEL) in Scotland by 2020 compared to 2010 Larger cuts to non-protected departments in Scotland (outside of health and police) - Local government seen 7.2% cuts to 16/17 Some (welcome) tax rises in Scotland: Higher rate tax threshold in 2017/18 Tax rises (and new bands) in 2018/19 Forecasted £150m-£600m extra per year in 19/20 (and more beyond) Institute for Public Policy Research Scotland

The future that Scotland faces - public funding and household finances Public finances in Scotland More cuts to come in Scotland and across the UK Looking ahead: Cuts of 1% next five years Cuts of 9% to non-protected (£1bn per year by 2023 – biggest cuts 19/20 and 20/21) UK Government NHS funding announcement should lead to consequentials but will these help outside of health? Also: Roll-out of Universal Credit £3.9bn per year of cuts to benefits in Scotland from 10/11 to 20/21 (we’re only about half way through UK benefit cuts) Institute for Public Policy Research Scotland

The future that Scotland faces - public funding and household finances Public finances in Scotland Looking further ahead Scotland’s population is ageing (and Brexit won’t help) Next 10 years: 13% increase in 65-74s 27% increase in over 75s Working age population flat Next 25 years: 17% increase in 65-74s 79% increase in over 75s Working age may decrease For UK about £11bn cost a year by 2025 – at least £1bn in Scotland Institute for Public Policy Research Scotland

The future that Scotland faces - public funding and household finances Scotland has long-standing inequalities around gender, race, disability, and socio-economically: Poverty – 19% of people in Scotland are in relative poverty (AHC), 24% of children (2014-17) Entrenched low income – 20% of children in households with low income and material deprivation (2014-16) Inequality – top 10% have around a quarter more income than bottom 40% combined (2016/17) Gender pay gap - 6.6% gap in just full-time and 16.1% across full and part-time (2017) Institute for Public Policy Research Scotland

The future that Scotland faces - public funding and household finances Household finances - poverty Reducing child poverty a big priority for Scottish Government Child poverty in Scotland – looking ahead: 10% targets by 2030 New Poverty and Inequality Commission New Scottish Income Supplement Our report - How much would it cost to reduce child poverty in Scotland? Universal cash payment poor at reducing relative child poverty Targeted payment most effective (around twice as effective per £) Reducing relative child poverty expensive (and beyond Gov alone?): Taking 50,000 children out of poverty around £500m a year Taking 100,000 children out of relative poverty around £950m Bringing child poverty down to 10% would cost £2.6bn per year Institute for Public Policy Research Scotland

The future that Scotland faces - public funding and household finances Household finances - poverty Running (spending) to stand still? Relative child poverty is projected to increase in Scotland: 26% by 2015/16 (last single year figures) 31% by 2017/18 38% by 2030/31 Not just low-incomes. Precariousness extends up the income spectrum. Across the UK – unable to pay two essential bills: 6% of households under £20k income are in ‘income crisis’ 3% of households between £20k and just under £40k 1% of households over £40k Institute for Public Policy Research Scotland

The future that Scotland faces - public funding and household finances Where does this leave us? We will need to build equality into our economic growth For money advice, funding environment tough: Public spending looking tight even with tax rises Demographics will increase the proportion of spending on health and social care Demand for services likely to increase: Benefits cuts will hit over the coming years and roll-out of Universal Credit More people employed in insecure/volatile work Poverty rates high and increasing Households are struggling throughout income spectrum Institute for Public Policy Research Scotland

The future that Scotland faces - public funding and household finances What does this mean for money advice? Can we (continue) to successfully make the case that money advice can save public funding in the long-term?: prevents problems/prevents problems from getting worse Could we apply more of a polluter-pay principle? greater contribution to services from lenders etc. (particularly irresponsible lenders)? Can we embrace new technologies – cheaper/impact? How advice is delivered – apps/online How advice is developed – artificial intelligence/automation How advice is targeted – better data and tracking? Institute for Public Policy Research Scotland