The use of the Scottish Input- Output framework for policy evaluation Sandy Stewart Scottish Government

Scottish Input-Output Analysis - Overview  History of I-O in Scotland  Recent developments  Future developments  Recent uses of I-O  Environmental Extensions  Suggestions?

History of Input-Output in Scotland  First tables 1973 (FAI, IBM, SCRI) and 1979 (FAI, SCDI and SO)  1989 (first official SO publication)  (ESA79)  (ESA95)  1998 – 2004 (consistent time-series tables – published March 2009)

Recent developments  I-O constrained to Regional Accounts headline GVA figures (2002 onwards)  Weights from I-O incorporated into GDP(O) system  Construction of Tourism Satellite Account  Scottish Labour Market Intelligence Project  Global Connections Survey  Systematic quality improvements in data sources and methodologies  Scottish National Accounts Project (launched October 2008)

Scottish National Accounts Project (SNAP)  Estimating quarterly GDP (production, income and expenditure approaches)  Use of I-O framework to ‘balance’ and benchmark short term estimates  I-O tables from 1998 to be dynamic, reflecting methodology and definitional chages over time  Constructing artificial SU matrices quarterly – for modelling and impact studies  Creating experimental national accounts for Scotland (household, industry, trade and environmental accounts)  CGE modelling

Example 1 UK Government Efficiency Savings  UK Government planned budget cuts for and  Reduction in Scottish budget of £500m in each year - £250m current expenditure, £250m capital expenditure  Current expenditure spread using Central & Local Government columns in I-O tables  Capital expenditure spread using public sector element of Gross Fixed Capital Formation column in I-O tables

Impact on Scottish Economy  £500m cut to Scottish budget each year leads to: - £700m reduction in output - 8,700 job loses (4,500 in public admin and 2,000 in construction)

Press  “Brown's £1bn cuts 'will cost 8,700 Scots jobs' – Salmond” – The Scotsman, Feb ’09 Gordon Brown was accused yesterday of placing 8,700 Scottish jobs at risk under the UK government's plans for £1 billion of cuts north of the Border.  “PM sticks to his medicine for poorly Scotland” – The Glasgow Herald, Feb ’09 The loss of £500m for 2010 to the Scottish Budget would "destroy" 8700 jobs right across the economy, said Mr Salmond, who produced a table of where the axe would fall. Public administration, i.e. the Scottish Government and councils, would be hit the worst with more than 4500 jobs being lost while construction would lose around 2000.

Example 2a Skykon project in Campbeltown  Skykon take-over of Vestas wind turbine plant in Campbeltown  Redevelopment of plant funded by £35m from Skykon and £9.8m from Scottish Government  Project aims to: - Safeguard current jobs - Construct new facilities for larger capacity turbines - Expand production

Impact on Scottish economy of safeguarding jobs  Directly safeguards 85 jobs at Vestas in 2009 – plant likely to have closed without funding  Supports 45 jobs in wider economy through supplier industries and increases in household spend due to increased employment

Example 2b Impact on Scottish economy of construction of new facilities  £20m spend on construction of larger capacity wind turbines in 2010  Directly supports 203 jobs in construction industry  Supports a further 187 jobs in whole economy through indirect and induced effects

Example 2c Impact on Scottish economy of production expansion  Supports a further 158 jobs in whole economy through indirect and induced effects  Production expansion expected to create 300 additional jobs in 2011

Press  “Huge expansion for turbine plant” – BBC News, March ’09 Mr Salmond said: "The impact of this investment will be truly transformational, not just for the Kintyre peninsula but for all of Scotland. It creates high quality and skilled employment in the local area and gives Scotland a lead in the development of clean, green energy technology - putting our nation at the forefront of global developments.”  “Argyll will see economic benefits of wind farm revamp – Salmond” – The Scotsman, March ‘09 One of Scotland's most remote areas will be transformed by a £45 million investment which will create hundreds of jobs, Alex Salmond said today.

Other uses of I-O  Marine industry  Carbon Accounting  100+ ad hocs in 2008, 50 in 2009 so far

Marine Industry  IO analysis used to inform the Marine Bill in  Estimates of ‘productive’ status of the seas and marine economic activity  In 2004, value of marine- related sector in Scotland was £2.2 billion supporting 50,000 FTE employees

Carbon Accounting  SG commissioned work by FAI to use CGE modelling to forecast CO 2 emissions 2010 to 2050 under various scenarios  Model involved further disaggregation of the electricity production sector  Uses AMOSENVI (environmental CGE model)  Model considers impact on economy and environment of efficiency savings in electricity production

Ad-hoc requests  Over 100 requests in 2008 – 51 days  Customers include: Shetland Island Council, SPICE, Council of Economic Advisers, Fraser of Allander Institute, Scotch Whisky Association, Scottish Enterprise, BBC  Increasing interest in I-O and in ad-hoc analyses

Environmental input-output economics and policy  Environmental items Natural resources Natural resources Pollutants Pollutants  Policies addressing environmental problems: Impose quantity limits on destructive activities Impose quantity limits on destructive activities Discourage harmful activities by taxation Discourage harmful activities by taxation Specify property rights Specify property rights  Models need to focus directly on the implications of different policy interventions  More work required on a “whole systems” approach

Components of an environmental model  1. Establish product inputs for output goods  2. Environment coefficients associated with unit production  3. Information on technology or abatement activity associated with unit production  4. Labour input coefficients associated with production and abatement  5. Policy description – how much should be abated, who pays?  6. Need sophisticated assumptions about both production and consumption over time and space.

Finally  Thoughts welcome  Links SNAP - SNAP ScotStat – ScotStat – Scottish Input-Output Analysis - Scottish Input-Output Analysis -