Forecasting Eye 

 

The last official estimate of the economic impact of the Edinburgh Festival in 2015 suggested that it contributed £312 million to Scottish GDP. If true this would have been about 0.15% of Scottish GDP at that time. The estimated contribution to Edinburgh’s GDP was about 1%.

 

To anyone wandering around Edinburgh this week with a basic knowledge of economics that number looks on the low side – the whole city seems to be being transformed for the Festival with scaffolders, sign painters, scenery designers and fitters hard at work. Meanwhile sounds, some beautiful, others less rehearsed at this stage, escape from halls and alleyways as performers practice and prepare for their opening nights.

 

The official estimate assumes that the average visitor, performer or supporter who attends the Festival spends £195 additionally in Edinburgh. This may well be true for many of the young people who visit (though even they will find it hard to spend that little given Edinburgh bar prices!). Meanwhile, Cebr’s own research for the British Council for the biennial Edinburgh Festival Showcase showed average spending per delegate (clearly a very different group of people) of £2,460. In reality the Festival attracts a wide range of different types of people, some high spenders and some who are forced to economise.

 

Aiming somewhere between the official estimate which is implausibly low and the British Council data which is unlikely to be typical and assuming a cautious £400 per visitor spend, it is likely that the Edinburgh Festival generates around £500 million in additional direct expenditure in Edinburgh. Cebr has probably done more work on the multiplier effects of spending on the arts in the UK than any other economics team and our estimates suggest that such spending has larger multiplier effects than most types of spending. We think that the indirect impacts of the Festival spending are an additional £560 million. So the total direct and indirect impact is a bit over £1 billion which would be between a third and a half of Edinburgh’s GVA in August.

 

But this just scratches the surface of the importance of the Festival to the Edinburgh and Scottish economies. The Scottish economy is restructuring dramatically, away from oil (although production may be rising, the price is unlikely to return to the past heights) and finance (driven away by fears of independence) towards tourism, arts, whisky (over a fifth of all the UK’s food and drink exports) and the Flat White Economy. Scotland’s digital tech sector allegedly employs 58,000 people, which is more than any other part of the UK except London and Manchester. Other knowledge based economies are growing in Scotland, notably bio tech. The Festival showcases this new economy.

 

The latest data shows that Scotland has raised £941 million less in income tax revenue than had been expected in 2017/18. There has been some discussion about the extent to which this has been caused by taxable income moving to England. Scottish income tax rates for higher earners are now noticeably higher – someone earning £50,000 a year would pay £1,500 more in income tax in Scotland than in England. But a factor that has not been discussed in this context is the structural shift in the Scottish economy from tax rich sectors like finance and oil to sectors that are more labour intensive but generate less tax per unit of Gross Value Added like tourism and the arts.

 

With growth slowing (at least on the official figures which in Scotland like elsewhere underplay the tech and arts economies) but unemployment remaining even lower in Scotland than in the rest of the UK, perhaps the government needs to rethink its tax strategy to make Scotland more attractive to incoming employees. When the EU puts constraints on Ireland’s ability to cut taxes, there is an opportunity for post-Brexit Scotland to reinvent itself as a low tax haven to attract companies and employees.

 

Contact: Douglas McWilliams dmcwilliams@cebr.com phone: 07710 083652