Understanding Scotland Economy Tracker – The underlying story of Scotland’s economy is a lack of government spending

For the last four years The Understanding Scotland Economy tracker has been tracking the general public’s views on the economy. See the latest report here. Every quarter we get a feel for economic sentiment from a cross section of over 2000 Scots. I attended the releasee of the report in Edinburgh on the 27th May. 

The survey is wide ranging – designed to be top level for others to look into the details – and provides a good ‘vibe’ of what is going on in the economy. The picture painted by Scott Edgar, Senior Research Manager at the Diffley Partnership was one of pessimism and precarity. 

60% of the respondents felt that the Scottish economy was going in the ‘wrong direction’. When the survey started in September 2021, the figure was 42%. The top two issues chosen from more than 20 options have been consistent across the four years. Healthcare and the NHS is number one, closely followed by ‘Cost of Living/Inflation’. A whole host of issues hover above 10% and each one occasionally breaks free to become the third most important issue. ‘Immigration’ as a concern is on the rise, housing seems to be slipping. Chart one from the May 2025 Report

Surveys like this are not an exact science and compromise is the watch word when putting them together. As such it is very likely that many issues like increasing rent and mortgage payments (surely they should come under housing?) are instead collected by the catch-all term ‘cost of living.’ The discussion that followed the presentation in Edinburgh caught this aspect while missing that the cost of living, of course, is a two sided coin. It is not only the expenditure side captured by the addition of ‘inflation’ but the income side – low wages and precarious work – that should be reflected when we discuss the cost of living. This wider framing opens up a very different conversation. I’d also point out that inflation is mostly a redistribution of income but seldom considered as such. Highlighting that there are winners and losers when prices rise would be a major step forward in our general economic understanding.  

The impact of the media

We know the very close relationship between the priorities of the third estate and the adoption of those social concerns by the public. If anyone had the time to compare media coverage and the priority given to each of these topics they would find them very closely correlated. That is not to say that there is no value in the research just to highlight the issues we face using these surveys to gauge what is truly important to the Scottish public. 

Besides the ‘feels’ for the economy the report has more useful granular data on financial and money matters. As you would expect with ‘cost of living/inflation’ scoring so highly, people are cutting back spending. See below Chart two from the May 2025 Report:

People tend to cut back when income falls but also when there is a belief that they may be less well off next month. This is clearly reflected in the data. 

Perhaps the most shocking finding across the survey is that almost half of Scots (those surveyed) would not be able to find £500 – without borrowing – to fund an emergency. Even at lower amounts people would struggle to find the money,

“Over one in five (22%) say they could not cover a £100 emergency without borrowing”. 

This highlights the precarious nature – financial fragility – of many households in Scotland. This only increases then government’s reduce spending – which is the reduction of net financial wealth.

Interestingly considering there is such a focus on spending, there are no questions on debt and this would add a lot of useful information to the survey. As the Scottish Government highlighted late last year

“steep rises in the cost of living (not matched by rising incomes) have increased the scale of the debt problem by further eroding living standards, reducing financial resilience and negatively affecting household debt affordability. Some households have been disproportionately affected by these developments.”

It would be great if the report tracks the size and impact of financial debt.

The data revealed that households with children were more stressed in both financial and mental terms than households without.

In summary the report shows a general weakening of optimism on ‘our economy’ as well as individuals’ personal situation over the last four years. It provides some useful data to back up what most of us feel and perceive. The point of the report, one would hope, would be to provide a stimulus for economic commentary and ideas to suggest what we must do to turn round the situation.  

The need for increased government spending and government action

It’s useful to look at the list of ‘issues’ and see how many of them are public services. Healthcare and the NHS is obvious of course but so is education, crime and housing all of which scooped more than 10% of the priority vote (look again at above chart one). 

People are certainly commenting on the quality of (or lack of) these services but surely they would all corral around the idea that government spending on these areas needs to increase. In sum, by highlighting these as important issues people are saving we need more government spending. 

In other areas, perhaps immigration fits in here, they are also saying we need more government involvement. The Scottish Government needs to push for more or less immigration, depending on how you see the issue. Also, you would imagine that most people think the government is primarily responsible for the condition of the ‘economy’ which of course is only partly true for the UK government and even less so for the Scottish government.

The theme of more government could also stretch into the ‘cost of living/inflation’ concern. But, unfortunately we have developed an economic narrative – especially in the UK – that says that ‘prices’ are a natural function of the market (supply = demand) and that governments are simply powerless bystanders. This is despite the awareness that it is the government that sets the price cap on domestic electricity and of course it can’t be forgotten that the government paid everyone’s wages during COVID.

The space for government action is much broader than most people think.

Therefore, solutions to ‘the cost of living/inflation’ could be addressed with more government action. The reason UK electricity and gas bills are amongst the highest in Western Europe is multi faceted but it partly reflects the toothlessness of the regulator and as Professor Brett Christophers says clearly linked to the lack of state owned generation capacity. If the state pushes profit making companies too hard (i.e. puts the price cap too high) they can threaten to cut supply or pull out of the market altogether. Without the ability for the state to step in there is only ever one winner in this stand off. Which is why we have ‘cost of living’ issues. All prices are socially constructed and the UK government should play a more meaningful role in setting or influencing those prices. 

So my argument is that the data highlights the desire from the public for more government spending and more government involvement in our economy. This assumes of course that the public is able to hear arguments I have made above in the mainstream media – which of course it rarely does.

So let me make it clear: the problem is not too much government spending but too little. Not too much government oversight and control of our economy, but too little. 

The narrative the public is surrounded by was succinctly put by Mairi Spowage, Professor of Practice and Director of the Fraser of Allander Institute. Mairi highlighted concerns that recent public sector wage rises and the overall size of government in Scotland was not ‘fiscally sustainable.’ 

Fiscal Sustainability

The idea of fiscal sustainability is a core belief of the Fraser of Allender Institute and many similar organisations. It is fair to say that both the Scottish and UK governments have similar beliefs. All levels of government, local, Scottish and the UK government, must in the medium term balance the books (taxation to equal spending) and leave ample space for the market to drive our economy. In sum, government deficits are bad.

I would suggest that all the evidence presented in this report shows that this belief is what is causing the problem. Too little government spending and too much power with markets. 

We of course know that the Scottish Government must balance the books (it must be ‘fiscally sustainable’: it is a legal obligation set by Westminster). In highlighting that as an issue the Fraser of Allender Institute is responding to Scottish government instructions. In fact the Scottish Government and local government should all balance the books but a larger part of the funds should come from the currency issuer: the UK. The report shows the negative impact of the macro economy and individuals when this does not happen.

It is the UK government – as the currency issuer – that should step in with more government (deficit) spending and support for devolved nations. With economic dogma dictating that spending should match taxation (there is no solid economic argument for this belief) we sacrifice the wellbeing of the public. 

Continuing to worry about unscientific and arbitrary ‘fiscal rules’ will make people feel even more “worse off” “less optimistic” and be in a poorer financial situation. 

A policy suggestion

So what policies should we be promoting? Certainly a change in UK fiscal rules to allow more government -especially on social security – would be one. More government involvement in essential services – I have made the case for electricity generation but could do the same for housing and transport. And I would like to add one more. A government job guarantee. The report says,

Many households remain unprepared for even modest financial emergencies, and concerns about job security persist amid a weakening sense of opportunity in the labour market.

One of the many benefits of a government job guarantee is that these concerns and many others, disappear almost overnight. Just over half of those surveyed said they would feel confident finding a new job if they lost their current one. That wouldn’t be an issue for anyone if a well funded, meaningful job was waiting for them. A government job guarantee should be central to any wellbeing economic narrative.

A wellbeing narrative

There was a lot of concern in the audience around the issue of ‘immigration’. If the immigration issue is in fact that the public think we have too much of it, blaming the ‘other’ will only be fuelled by further fiscal austerity, which is always and forever, undertaken under the banner of fiscal sustainability. 

Policymakers and commentators must use this data to push for more progressive policies, more government spending and greater involvement in our economy. Unless this happens more Scots will turn to the alternative economic narrative being provided by the right.