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United Kingdom Budget

– in the Scottish Parliament at 4:39 pm on 25th March 2010.

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Photo of Alex Fergusson Alex Fergusson None 4:39 pm, 25th March 2010

The next item of business is a statement by John Swinney on the Scottish Government's response to the United Kingdom budget. The cabinet secretary will take questions at the end of his 10-minute statement, so there should be no interventions or interruptions during it.

Photo of John Swinney John Swinney Scottish National Party 4:45 pm, 25th March 2010

I am grateful for the opportunity to set out the Scottish Government's response to yesterday's United Kingdom budget statement. I have also arranged for a paper to be placed in the Scottish Parliament information centre to provide members with a detailed analysis of the budget's implications for Scotland.

This year's budget comes at an important time for both the UK and Scottish economies, as we emerge from one of the deepest recessions in recent memory. The Chancellor of the Exchequer confirmed yesterday that the UK economy contracted by 5 per cent last year. That is the largest annual fall since the 1930s. Despite more positive signs in recent months, it is clear that the global recovery remains fragile.

Through our economic recovery plan, we have witnessed the whole of the public sector in Scotland aligning activity to support and accelerate the recovery. However, many important economic levers are reserved to Westminster. The chancellor had an opportunity yesterday to support the signs of recovery that we are seeing, yet by any measure his statement failed to provide the further support that the economy needs at this time.

The weight of opinion among the International Monetary Fund and others is that it is still too early for Governments to withdraw their economic support. The Prime Minister himself has warned that recklessly and rapidly withdrawing support would risk driving our economy back into recession. The chancellor also argued yesterday that to start cutting now risks derailing the recovery, yet—make no mistake about it—that is precisely what the chancellor has done.

Although the chancellor announced a small number of schemes aimed at helping youth unemployment and small businesses, the red book shows that the UK's fiscal stance in 2010-11 will be negative. That means that the UK Government's discretionary fiscal policy will act to tighten public spending and taxation relative to 2009-10. It will not provide a further stimulus.

Let me be clear on that point. Chart 2.5 in the budget document that the Treasury published yesterday illustrates that fiscal policy aimed at supporting the recovery will contract in 2010-11 relative to 2009-10. To quote one city analyst, despite all the warnings about withdrawing support too early, the fiscal stance will be tightened in 2010-11 by 1.1 per cent of gross domestic product. It seems that a budget designed to impress the city has failed even that test.

That is the wrong approach. Across the G20, only Argentina and the United Kingdom are withdrawing their discretionary fiscal stimulus measures this year. That will hinder the recovery and put us at risk of a double-dip recession. I believe that it is vital to keep the stimulus flowing while the recovery remains fragile and until we can be certain that there is enough strength in the private sector for it to sustain economic growth when the stimulus stops.

In that vein, I called for the chancellor to bring forward capital expenditure into 2010-11 to support the Scottish economy. Such targeted spend would, I believe, have the potential to provide a vital and cost-effective stimulus to the Scottish economy at a critical stage. Compared to what the chancellor has said he will deliver, the stimulus packaged demanded by the Scottish Government would have supported some 4,000 more jobs in Scotland, the majority of which would have been in the construction sector. That is the cost to Scotland of the chancellor's missed opportunity.

Although it is a mistake to provide no further fiscal stimulus, some of the chancellor's other announcements are to be welcomed. In particular, the commitment to provide further support for youth unemployment and to consult on tax breaks for the video game industry are a positive development, especially given Scotland's leading role in that sector.

The proposed green investment bank is also to be welcomed. Scotland is already a world leader in low-carbon energy, so it is critical that the funds that were announced yesterday are truly UK-wide. Given Scotland's pre-eminent strengths in low-carbon energy, we expect a significant proportion of such funding to be deployed in Scotland. However, the suggested funds are small compared to the scale of the opportunity and compared to other international examples. The initiative also contradicts the UK Government's hostility to allowing us access to the resources that are held as a result of the fossil fuel levy.

There was very little that was new in the chancellor's statement. In many areas, he has simply followed the lead that we have set in Scotland. On university funding, we are already supporting an additional 7,500 higher education students this year. We will continue to support them in the next academic year.

On business rates, small and medium-sized enterprises in Scotland already receive substantially more generous rates relief than will be provided under the temporary arrangements that the chancellor has proposed for England. Despite the chancellor's announcements, a small business in Scotland will continue to pay up to £3,050 less in business rates next year than it would in England.

Many of the tax increases announced by the chancellor will also be damaging for Scotland. Although the planned fuel duty rises are staggered, they will hit motorists and hauliers hard, and will be particularly painful for those who live in rural areas. I have repeatedly called on the chancellor to introduce a fuel duty regulator to help offset the higher costs of fuel that are faced by rural communities. The chancellor's decision to ignore those demands means that rural communities in Scotland will continue to pay some of the highest fuel prices in the UK.

The chancellor has also ignored the need for urgent reform of the alcohol tax system to directly link the rate of duty to alcohol content. The indiscriminate increase in duty that was announced yesterday will hurt premium products, such as Scotch whisky, and will fail to incentivise producers to make more low-alcohol products. Unlike minimum pricing, that tax increase is a blanket approach that puts up the price of everything but does not address the underlying problem of high-strength, low-price drinks. Dealing with only one drink, such as cider, does not address the issue.

Despite the UK Government's rhetoric about its ambitious efficiency programme, press reports today show that it is the UK Government that has taken two years to achieve savings worth 3.1 per cent of its budget, a target that the Scottish Government achieved in just 12 months.

I turn to the effect that the chancellor's budget statement will have on Scotland's public finances. The Scottish Government will receive consequentials of £76 million from next year's Scottish departmental expenditure limit budget. We will make proposals to the Parliament about how we intend to use those consequentials in early course. However, let us remember that, even after that adjustment, next year's Scottish budget will be 1.3 per cent lower in real terms than this year's.

I am also concerned that, despite repeated requests, the chancellor has failed to provide an explicit guarantee that, should he return to office after the general election, there will be no further cuts in the Scottish budget for 2010-11. The lack of clarity around the chancellor's so-called efficiency savings is such that no real comfort can be derived from yesterday's announcements. It is essential that we have stability in our spending plans for 2010 to ensure that all areas of the public sector can focus on supporting the economy. That is particularly essential for local authorities, which are now setting and applying their detailed budgets for 2010-11.

Further targeted fiscal support in 2010-11 is vital if we are to safeguard our economic recovery. However, that does not preclude the chancellor from setting out how he intends to reverse the deterioration in public finances in future years. A credible deficit reduction plan is yet to be announced. The chancellor has made vague promises about safeguarding elements of health and education from cuts but, yet again, he chose not to announce the overall size of the UK departmental expenditure limit budget after 2010-11. The Institute for Fiscal Studies believes that the four years beginning 2011-12 will be the most difficult period for spending on public services since the 1970s. That will represent a major adjustment to public spending, and such cuts will inevitably have an impact on our budget.

The chancellor himself said yesterday that the next spending review will be the toughest for decades. We are already planning for our next spending review, and are doing so prudently and effectively. However, we are doing that work in an environment in which the UK Government has yet to set out the resources that we will have at our disposal. I have repeatedly pressed the chancellor for greater clarity on future budgets and the importance of starting to plan now for the tighter spending environment that we will face. Given that we must legislate for our 2011-12 budget by next February, there is an urgent need for the chancellor to give a clear picture of future public spending. It is not good enough to delay that until after the election, because it is not just the level but the nature of the reductions in public spending that matter.

In closing, I reiterate that the chancellor's statement was an opportunity to help safeguard Scotland's economic recovery, support employment and set out a path for future public spending. Instead, his statement provided no additional economic stimulus and did not provide the required clarity on future spending. Members should be in no doubt that the chancellor's budget was a missed opportunity for Scotland.

Photo of Alex Fergusson Alex Fergusson None

The cabinet secretary will take questions on issues raised in his statement. We have dead on 20 minutes for such questions, after which we must go to decision time.

Photo of Andy Kerr Andy Kerr Labour

The report that the cabinet secretary mentioned in his second sentence is disgraceful, partisan and, above all, incomplete. It is an abuse of the office of the chief economic adviser. The director of finance had to come to committee to clarify statements that she made. Will the cabinet secretary instruct the chief economic adviser to attend committee likewise? The report is deliberately misleading, and I am saddened by its production.

Contrast that with the balanced report of SPICe, which describes Salmond's Scotland in terms of the information that the Government gives out to the public and to parliamentarians.

Recently, the First Minister famously said:

"most of Europe's Finance Ministers would give at least one limb" to have an economy like Ireland's. Which limb is the cabinet secretary prepared to give up for an economy like Ireland's, which, we hear today, has contracted by a massive 7.1 per cent? Ireland has had three budgets over the past year. Is it not a safer bet to welcome the budget statement from the chancellor, which gave us added support for children and families, for pensioners, for young people seeking work and training, and for first-time home buyers?

Will the cabinet secretary state for the record that, on top of the £943 million that he had in addition in the 2010-11 budget, he now has another £76 million at his disposal?

Photo of John Swinney John Swinney Scottish National Party

The material from the office of the chief economic adviser, which is now in SPICe, is what it says on the report: a production of the office of the chief economic adviser. It shows that the budget will be 1.3 per cent lower in real terms in 2010-11 compared with 2009-10. The document includes a chart, which—as is accurately shown—is extracted from page 33 of the budget red book. Any analysis of that chart shows that the fiscal stance in 2010-11 is negative. That demonstrates that there is no fiscal stimulus in place in 2010-11. That is the reality that Mr Kerr must face up to.

That is a matter of regret to me. If the Prime Minister and the Chancellor of the Exchequer were living up to their rhetoric—that it was important to deploy fiscal stimulus to support economic recovery at this time—chart 2.5 on page 33 of the red book would not look the way that it does. That is what Mr Kerr needs to reflect upon.

I want Scotland to have a prosperous and successful economy. The opportunity for that would be strengthened if we had had the access to fiscal stimulus through capital acceleration that the Labour Party has supported and which Mr Gray has made a virtue of calling for. I only wish that the chancellor had listened to the Labour Party in Scotland and its demands for capital acceleration to support economic recovery.

Photo of Derek Brownlee Derek Brownlee Conservative

The note that Mr Kerr was complaining about refers to UK growth projections. What are the Scottish Government's expectations of Scottish growth, in light of the information in the budget? In particular, will the Scottish Government be able to deliver its targets for economic growth?

Photo of John Swinney John Swinney Scottish National Party

Mr Brownlee and I have rehearsed this point before, and he will be aware that we set our targets in 2007, which consist of short-term and long-term ambitions for the development of the Scottish economy. Those targets were set before the economic difficulties that we now face, and their achievement will be challenging in the current economic context. However, we are determined to retain focus and to do everything in our power to achieve those targets.

Experience shows that the performance of the Scottish economy during the recession has largely mirrored that of the United Kingdom economy. That is my expectation regarding future growth, and I reiterate that the Scottish Government will do everything in its power to ensure that its targets are achieved.

Photo of Jeremy Purvis Jeremy Purvis Liberal Democrat

The cabinet secretary mentioned fuel and rates. It is helpful that he agreed entirely with the view that was expressed to the chancellor yesterday by my Westminster leader, Nick Clegg, who said:

"There is a fundamental problem with fuel duty in rural areas where using a car is not a luxury but a necessity. The real priority should be to help rural areas, not just a ... reprieve."—[Official Report, House of Commons, 24 March 2009; Vol 508, c 271.]

I think that there is agreement about that. Why, in a written answer to me in June last year, did the Minister for Transport, Infrastructure and Climate Change, Stewart Stevenson, confirm that the rural petrol station grant scheme, which is now administered by Scottish Enterprise, was being frozen for two years? That amounts to a real-terms cut in funding for the operation of that scheme.

With regard to rates, why has a response to a freedom of information request to the Government, which asked for all the information on why the Government had ruled out a transitional relief scheme for businesses, been denied on the basis that the information should be published within 12 weeks? Do not businesses that face a massive increase in rates, including rural petrol stations in my constituency, deserve a full explanation? That is why the information should be published now, not in three months' time.

Photo of John Swinney John Swinney Scottish National Party

My point about the freedom of information request is simple: we are following the legislative framework that exists. The freedom of information legislation indicates that if we are to publish information within a 12-week period, we are entitled to do so in an orderly fashion. That is precisely what we will do.

My second point is that of course there are rates relief schemes in place for rural petrol stations. Relief is available to the relevant businesses. Sixty per cent of businesses in Scotland will be better off as a consequence of the rates revaluation. If we had had a transitional relief scheme, those businesses would not have gained the reduction in business rates to which they were entitled. Across the piece, businesses will save £220 million as a consequence of this Government's decision to peg the business rates poundage in Scotland at the poundage rate in England. That has been of significant benefit to the businesses of Scotland.

That is in addition to the significant investment that the Scottish Government has put into the small business bonus scheme, not—as in the case of the chancellor's budget—for one year, but for a number of years.

Photo of Alex Fergusson Alex Fergusson None

We come to open questions. We have 12 minutes for the 10 members who want to ask a question, so if we keep it pretty brief, we will get there.

Photo of Joe FitzPatrick Joe FitzPatrick Scottish National Party

The computer games industry is of particular importance to my constituency in Dundee, so I was pleased to hear the chancellor finally accept the argument that computer games development should receive a tax break. Has any light been shone on the timescale for implementation of that measure, which our computer games industry needs now, to allow it to compete on a level playing field with developers in countries such as Canada and France?

Photo of John Swinney John Swinney Scottish National Party

I do not have to hand any further information from the United Kingdom Government on the timetable for that, but I pay tribute to Mr FitzPatrick's tenacious efforts on behalf of his constituents in Dundee West. All the effort that goes into the development of computer games is quite remarkable. I visited Realtime Worlds not so long ago and was amazed at the number of people who are paid to sit and play computer games all day—it was a marvellous experience to watch. The computer games industry makes a fantastic contribution to the Scottish economy, and I pay tribute to Mr FitzPatrick's efforts to encourage the UK Government to take the step that he outlined.

Photo of David Whitton David Whitton Labour

Speaking of living up to one's rhetoric, the cabinet secretary said that it was essential for local authorities to stimulate their local economies, but Audit Scotland has said:

"After years of sustained growth in central government financial support for local government, in December 2009 the Scottish Government announced funding of £12 billion for 2010/11, representing a decrease in real terms on the previous year."

If he now has an extra £76 million in Barnett consequentials, will he consider giving some of that to local authorities such as East Dunbartonshire Council, which has £800,000 less this year than it had last year?

Photo of John Swinney John Swinney Scottish National Party

As Mr Whitton knows—he has probably heard me say it a number of times—the share of the Scottish budget that goes to local government is increasing year on year, and it was decreasing year on year when I came to office. Mr Whitton has rather inadvertently confirmed my point—it is the logical conclusion of his question—that the budget in Scotland is falling in real terms. In that context, the share of the budget that is going to local government is increasing as a consequence of the decisions and choices that this Government has made.

Photo of Gavin Brown Gavin Brown Conservative

The cabinet secretary's statement was a curious mix of spending demands and a demand for a credible deficit reduction plan. Does he think that the spending demands for which he has asked should be paid for by an increase in borrowing or an increase in taxation?

Photo of John Swinney John Swinney Scottish National Party

As Gavin Brown knows from his analysis of the red book, the chancellor has tightened his fiscal stance in comparison with the stance in the pre-budget report. The chancellor made that decision although he had the opportunity to provide the type of capital acceleration programme for which the Scottish Government was calling without jeopardising the financial framework that he set out in the pre-budget report in December.

That is a perfectly sustainable proposition to put to the United Kingdom Government, notwithstanding the fact that I accept the need for a reduction in the deficit in due course. It is important that we support the development of the economy to contribute that private sector growth and return, rather than jeopardising it as the chancellor has done by adopting that fiscal stance.

Photo of Ross Finnie Ross Finnie Liberal Democrat

The cabinet secretary said in his statement that there was

"very little that was new in the chancellor's statement", and that

"In many areas, he has simply followed the lead that we have set in Scotland."

Given that the gap in GDP is bigger and unemployment is rising faster in Scotland, is not that response rather complacent?

Photo of John Swinney John Swinney Scottish National Party

I know that Mr Finnie would never want to misrepresent the points that I made in my statement. I went on to set out a range of initiatives that the chancellor announced yesterday, which this Government has already taken forward. Those include additional student places, and support for small businesses, which has been a substantial part of the Government's programme long before the economic difficulties came upon us.

I reassure Mr Finnie that the Government is, through our economic recovery plan, taking a series of different measures and initiatives to ensure that the Scottish economy is given the maximum support possible at a very difficult time.

Photo of Linda Fabiani Linda Fabiani Scottish National Party

As the budget seems to have been designed primarily to get the UK Government through the next six weeks, will the cabinet secretary confirm that he will, following the UK general election, continue to stand up for Scotland by lobbying whoever is in Downing Street to rethink the capital acceleration question? Will he expect the leader of the Labour group in this Parliament to assist him in that endeavour?

Photo of John Swinney John Swinney Scottish National Party

The leader of the Labour group in this Parliament has supported the Government on capital acceleration, so I am surprised that there is not some shared disappointment at the chancellor's announcement yesterday.

I assure Linda Fabiani that the Government will do everything in its power to persuade the incoming UK Government to attach greater priority to fiscal stimulus in 2010-11, to assist us in working our way through these economic difficulties. Of course, the Government continues to seek absolute clarity that none of the incoming United Kingdom Governments will in any way try to restate downwards the budget of the Scottish Government for 2010-11, which would have significant consequences for public services in Scotland.

Photo of Wendy Alexander Wendy Alexander Labour

The cabinet secretary's statement specified the number of jobs that he believes his stimulus package would have created in Scotland. How many jobs in Scotland were saved by the banking bailout? If he does not know, will he commit to finding out?

Photo of John Swinney John Swinney Scottish National Party

It is clear that the banking sector is very important to the Scottish economy, and it has been stabilised as a consequence of the support that has been put in place. I noticed yesterday that the chancellor was making a virtue of the fact that he expected that support to have no cost to the public purse, as a consequence of the fact that he intended to exit the arrangements and deliver a return to the taxpayer. The focus—the Economy, Energy and Tourism Committee has focused on this in its inquiry in the Scottish Parliament, which is welcome—should be on how we can strengthen the financial services sector in the years to come and ensure that it makes a strong contribution to economic recovery in Scotland.

Photo of Rob Gibson Rob Gibson Scottish National Party

I note that the cabinet secretary has supported the idea of a green energy fund. Does he agree that it is important to ring fence the money in that fund for renewables development in Scotland, so that any sense that much of it might be spent on nuclear power down south does not hold us back?

Photo of John Swinney John Swinney Scottish National Party

There would certainly be a great advantage in ensuring that the renewables sector benefited from the green investment bank. There is a tremendous and sustainable opportunity for many generations to come that does not have the ramifications and consequences that investment in the nuclear sector would have. Taking that opportunity would also give a tremendous stimulus to the Scottish economy and boost Scotland's manufacturing sector. We will certainly press for that, but we will also continue to press for the release of fossil fuel levy resources of around £200 million. That money could make a fantastic contribution to renewable development in Scotland, if it was not for the United Kingdom Government's perverse accounting rules.

Photo of Alex Fergusson Alex Fergusson None

Order. There should be a bit less noise in the chamber, please.

Photo of Lewis Macdonald Lewis Macdonald Labour

Can the cabinet secretary confirm that the new green investment bank will provide an additional £2 billion of funding for low-carbon infrastructure, that that money will be in addition to the £1 billion that is already on offer from the UK Government for carbon capture and storage on a commercial scale, and that all that money will be invested—much of it in Scotland—well before the intended new date for the saltire prize of 2017?

Photo of John Swinney John Swinney Scottish National Party

The Scottish Government is, of course, investing significantly in the renewables industry. Last weekend, the First Minister announced the wave and tidal renewables scheme. I thought that Mr Macdonald would have jumped to his feet to welcome that; he normally jumps to his feet to welcome things that the First Minister has announced.

I caution Mr Macdonald to consider Mr Gibson's question. He cannot assume that all of the green investment bank's £2 billion—I confirm that that is the value of the fund—will be used for renewable development, although I think that its approach would be better and more sustainable if that were the case. If Mr Macdonald wants to support the Government on that, he will be a welcome ally.

Photo of Patrick Harvie Patrick Harvie Green

Sadly, the public money that is going into the green investment bank equates to about 5 miles of urban motorway or less than half of a road bridge in Scotland. Would not it make far more sense to clean up the banks that we already own, such as the Royal Bank of Scotland, and force them to take their money—that is to say, our money—out of tar sands, oil extraction and coal power, and put that money, which is the real money, into the transformational technologies of the 21st century?

Photo of John Swinney John Swinney Scottish National Party

I would certainly encourage private equity sources to contribute towards the capital that is essential to support renewable development in Scotland. Indeed, later this year, the First Minister will lead a finance conference that will bring together some of the key financial players to understand the scale of the economic opportunities in renewables so as to ensure that we can command private capital investment in Scotland. That is a welcome initiative.

Photo of Margo MacDonald Margo MacDonald Independent

The cabinet secretary has said that the performance of the Scottish economy mirrors that of the United Kingdom economy. I confess that I found what he said slightly difficult because of the difference in the sizes of our relative public sectors. What modelling and preparation has the cabinet secretary done for the rising unemployment that is likely in Scotland as a result of what will happen after the financial markets decide what they will peg our interest rates at?

Photo of John Swinney John Swinney Scottish National Party

As Margo MacDonald will appreciate, the Scottish Government and the United Kingdom Government have a range of different initiatives to support individuals in finding and securing employment. If we focus only on the key initiatives that we have talked about in this session alone, such as renewable energy initiatives and ventures relating to life science development in Scotland, we will find that we have real strengths in developing new employment and new opportunities. The Government will concentrate investment on ensuring that we secure many of those opportunities. I assure Margo MacDonald of the focus that we can deliver in that respect. Of course, she will also appreciate that there are limitations to what the Scottish Government can do. We could do more if we had the full range of financial powers of a sovereign, independent country, which I am sure that she would welcome.