Scots purchasing power better than most

Scots fare better than many parts of the UK in the amount of goods and services that their income can buy – their real disposable income.

The average Scot also has greater real disposable income than most citizens of the Scandinavian countries and the Republic of Ireland.

That’s according to new analysis by Professor David Bell from the University of Stirling, using figures from the Organisation for Economic Co-operation and Development (OECD).

Professor Bell said: “How prosperous an independent Scotland might be is a big theme of the referendum campaign. To the man or women in the street, that really means how much cash they have to buy the things they need.

“Up to now, there has been no reliable way of comparing spending power in Scotland with other parts of the world. That’s why these figures from the OECD are a really useful addition to the debate. Now we have a sound basis to compare real disposable income in Scotland with countries that are frequently mentioned in the campaign such as Norway, Sweden, Denmark and Ireland.”

Professor Bell conducted his analysis as part of his work for the Economic Social Research Council’s Future of the UK and Scotland teams to inform the referendum debate.

He compared real disposable income - the amount of real spending power available after taxes on income have been taken away and state benefits added – across all of the regions and territories that make up the OECD.

The data is adjusted by the OECD to take account of differences in prices as well as incomes. These price differences can be marked – according to the Economist magazine’s “Big Mac” index (a Big Mac costs 69 per cent more in Norway than it does in the USA).

Professor Bell said: “Scotland’s real disposable income comes 114^th out of the 367 territories and regions that make up the OECD. It is above the average, but citizens in many other parts of the OECD can buy more goods and services with their income.”

Nevertheless, the average Scot has higher real disposable income than the average consumer in the Scandinavian countries and in the Republic of Ireland.

These countries may have high incomes before tax compared with Scotland, but their higher prices and taxes reduce their spending power below that of the average Scot.

“Regions in the South of England each have higher real disposable income, but regions in the North of England, Wales and Northern Ireland each have lower real disposable income than Scotland,” said Professor Bell.

His analysis also raises the issue of the potential impact on prices in Scotland if the country were to become independent. “One issue that this discussion does throw up is whether prices are lower in larger countries because larger markets lead to more price competition.”

He said: “Scotland is part of a more comprehensive free trade zone than are the Scandinavian countries or Ireland. The EU single market is not yet complete, and its currency arrangements are complex. Norway is outside the EU and therefore its domestic producers are less open to external competition than is the case with EU member states, which may explain its high prices, even within Scandinavia. Although before-tax incomes in Norway are considerably higher than Scotland, price differences narrow the gap considerably.”

Scotland’s trade with rest of the UK is facilitated by the absence of trade barriers and a shared currency. This encourages businesses to compete with each other across the whole of the UK and so may help to keep prices in Scotland relatively low compared with Scandinavia.

Professor Bell said: “Competition with producers in the rest of the UK may keep prices relatively low in Scotland.”

He continued: “Scottish Government estimates place Scotland 14^th in the ranking of Gross Domestic Product (GDP) per capita among OECD countries. This is based on Scotland being an independent state and therefore receiving a geographically based share of North Sea oil revenues. Including oil in Scotland’s national accounts would be unlikely to affect real disposable income substantially. Employment in North Sea oil already contributes to real disposable income in Scotland. Much of the rest of the value created in the North Sea goes to the shareholders of oil companies who are not resident in Scotland.”

You can read more from Professor Bell and other academics contributing to The Future of the UK and Scotland programme by visiting www.futureukandscotland.ac.uk

Read Professor Bell's paper here: Disposable Income in Scotland: How does it compare?