Scotland needs to reform the way it produces and shares statistics if it is to make a real fist of independence, argues Richard Marsh in the first of two pieces from “Scotland’s Economic Future: Disruptive Ideas” in which he presents the case for a Scottish ONS.
The UK system of producing statistics was designed to produce economic statistics for the whole of the UK, not for the devolved administrations. Since devolution there has been an increase in the demand for statistical evidence of Scotland’s performance across a wide range of areas. This has exposed gaps in the availability of data, with responses which seek to ‘patch’ these gaps rather than to take a more expansive view of Scotland’s future needs. Indeed, if Scotland’s statistical system were to be designed from scratch it would almost certainly look very different.
The Bean Review invited a fundamental rethink about the way we produce economic statistics. The Digital Economy Act (2017) has improved access to a range of economic statistics collected by Her Majesty’s Revenue and Customs (HMRC).
Without a fundamental change in the way we produce data in Scotland we are likely to find ourselves reheating old data to try to answer new policy questions.
The creation of the Scottish Fiscal Commission demonstrates that it is possible to establish an arms-length scrutiny body to produce economic statistics. There are lessons to be learned, here, in how Scotland takes forward its approach to data.
Scotland needs to establish an independent Scottish Statistics Agency that is imaginative, agile, forward looking and customer focused. A review should be undertaken reflecting Scotland’s statistical needs and informing economic policy. Capacity will need to be built across Scotland’s statistics community, responding to the significant potential offered through the Digital Economy Act.
The Agency should be led by a Chief Statistician in Scotland independent of government and free to interpret the data needed to support and measure government policy. Countries similar to Scotland operate independent statistics agencies and have already achieved much of Scotland’s stated vision of data leadership. Establishing an independent statistics agency would signal a much-needed step-change in the provision of statistical support for the evaluation of Scotland’s public policy choices and the delivery of public services.
Challenges and Opportunities
Measuring Scotland’s modern economy has become more challenging. While more data has become available the economy has become increasingly complex, evolving at an ever-quicker pace. In the early 1980s Scottish manufacturing accounted for more than one in four jobs including shipbuilding, steel and whisky. Today manufacturing accounts for just one in every 14 jobs in Scotland and the latest official classification system added over one hundred industry classifications in just five years.
Rapid technological changes have raised challenges in defining and measuring economic activity. These are compounded by Scotland being a small, devolved and open economy. Scottish companies account for less than half the turnover of Scotland’s private sector while foreign owned companies (outside the UK) accounted for nearly £100bn of turnover in Scotland.
The pace of devolution is beginning to expose cracks in the UK’s system of producing economic statistics. This places a strain on the ability of statistical systems to measure key indicators like economic growth, income, capital investment and exports. For example, some key indicators provide limited detail for Scotland’s economy, while systems struggle to separately identify activities within different parts of the UK.
Furthermore, governments are increasingly interested in goals beyond raising economic growth and increasing national income. Broader strategies encompassing social and environmental outcomes require more detailed economic data. (The below figures are from the latest ONS well-being index).
Scotland’s Economic Strategy sets out the Scottish Government’s (SG) vision for Scotland’s economy and society. Promoting economic growth and reducing inequalities is the central theme. Inclusive growth was set out as one of the strategy’s four pillars. When the strategy was first published nearly five years ago it lacked a clear definition of what constitutes inclusive growth and how it could be measured – both in terms of the activities contributing towards this aim and the changes to demonstrate success.
The SG’s Council of Economic Advisors set out how to define and monitor inclusive growth for Scotland. The Council’s review listed a set of components (to be taken together) including productivity, population, participation, people and place.
The difficulties in applying inclusive growth to Scotland’s key economic development initiatives were highlighted in a recent inquiry into City Region Deals. The inquiry found that “the partners behind the Edinburgh and South- East Scotland City Region (ESESCR) Deal said that clarity was lacking from the UK and Scottish governments on the exact definition of economic growth to be used to model and assess projects”. The absence of a clear definition also creates a gap in understanding what should be measured and how this data can be derived and applied.
Mind the gap
Scotland has not had a broad conversation about the statistical system and evidence base that it needs. Instead we have continually asked how minor improvements can be made to existing systems and the data they produce. This incrementalism is unlikely to promote the step-change required in how Scotland values and uses economic data.
The Scottish Parliament’s inquiry into economic data concluded “It is clear that were we starting from scratch with a plan to configure Scottish economic statistics we would not seek to replicate the current statistical framework and scale of operation at the UK level.”
For example, recent developments to improve or expand economic statistics in Scotland have often relied on UK-wide data. This includes measures of labour productivity and GNI (both available online). Consistency with the core economic data of the UK (and other countries) is desirable but it is not sufficient for the purpose of building a statistics system. At best Scotland will only be able to replicate some of the statistics produced for the UK, but even this may not be the best use of resources to help scrutinise public policy.
The SG produces economic statistics covering most of the key indicators used to scrutinise modern economies. Scotland is by far the best served part of the UK in terms of economic statistics and the only UK devolved administration to produce quarterly GDP figures.
The Bean Review invites a fundamental rethink about the way we produce economic statistics. For example, it is plausible that it would be more appropriate to measure Green GDP for Scotland.
It is important that Scotland takes up the challenge laid down by the Bean Review and looks at new approaches to develop the next generation of economic statistics. This is particularly true when considering the need to blend economic data with wider environmental and social outcomes to measure the effectiveness of public policy choices.
The SG’s Data Delivery Group currently falls short of this aim. The creation of the Scottish Fiscal Commission demonstrates how it is possible to establish an arms-length scrutiny body to produce economic statistics. The Commission was established relatively quickly at minimal cost and has served to significantly increase the scrutiny of government spending and public policy choices. This model could be replicated for Scotland’s statistics agenda.
Without fundamental change in the way we produce data in Scotland, we may find ourselves reheating old data to try to answer new policy questions. Indeed, the Scottish Parliament’s economy committee has raised the issue of a precipitous fall in the number of formal evaluations of economic development initiatives. While there is no evidence of a cause/effect relationship between the absence of evaluations and an absence of data, there is a strong likelihood that the reduction in evaluation work is influenced by a lack of relevant data, which is sufficiently granular.
The Digital Economy Act will provide the Office for National Statistics (ONS) with improved access to a range of economic statistics collected by HMRC covering employment, wages, profits and exports. The economy committee has said “… it is imperative that the Scottish Government fully benefits from this easier access to administrative data.”
The vast reservoir of microdata available is an underused resource and cries out for the kind of change in culture advocated by the Bean Review. It calls for statisticians to turn their attention away from ‘getting the statistics out’ and think more creatively about potentially new series of data more relevant to economic policy. This could significantly improve both policy making and policy evaluation.
Make the change
The Review invites a fundamental rethink about the way we produce economic statistics, the structure of our economic statistics system and how they are presented. Echoing the SG’s focus on inclusive economic growth the First Minister suggested earlier this year that health and wellbeing were as fundamental as GDP. There is, therefore, a clear need to support this vision with relevant and reliable data.
It is, equally, entirely plausible that it would be more appropriate to measure GDP taking into account the consumption of natural resources.
The ONS publishes environmental accounts (available online and see figure below) which include indicators combining GDP and data on energy and material consumption. The ONS is also considering how to measure the UK’s circular economy. Scotland, too, needs to keep pace with this agenda, reflecting the SG’s commitment to addressing climate change through a wide range of measures. The role of data here could signal a game-changer in how Scotland moves forward with this agenda.
Additionally, the SG has arguably produced some of its most policy relevant information when it has produced publications that don’t seek to copy an existing UK publication or statistics. For example, in its annual carbon assessment of the Scottish draft budget. It has a long-standing programme producing annual analytical Input-Output tables to support economic modelling (UK analytical tables have been produced less frequently).
Establishing an independent statistics agency would provide a platform to generate statistics that best support the evaluation of Scotland’s public policy choices and the delivery of public services.
End of Part One
Abridged and edited version (agreed with the author) of a paper in the series “Scotland’s Economic Future: Disruptive Ideas” conceived and co-ordinated by Alison Hunter and Fabian Zuleeg
The full version of the paper is available on the Fraser of Allander Institute website