Last week, I set out to Parliament the Government’s strategic aims on the economy, and we had a valuable and constructive debate on the economic priorities for Scotland. By re-electing this Government, the people of Scotland have ensured that the issues of importance about which we campaigned and which we set out have been brought to the fore in this session. That gives us the opportunity to secure enhanced powers and greater economic freedom for this Parliament, which is at the heart of the Government’s agenda. Today’s debate, on capital borrowing powers, responds to the expectation of the public and the mandate that we have been given.
In his opening speech of the new session of Parliament, the First Minister made clear the commitment of the Scottish Government to work with all parties across the chamber openly and positively to advance Scotland’s interests. On borrowing powers, as on many other issues, we are building on solid foundations, including the work of the Scotland Bill Committee in the previous session, the Calman commission and the Holtham commission in Wales. We can have confidence that the issues around capital borrowing have been well exercised by that process of discussion and debate in recent months and years.
I will focus my remarks on the substance of the Scotland Bill proposals on capital borrowing and how this Parliament can strengthen them. First, however, I want to offer some broader reflections on the process in which we are engaged.
As members are aware, we are engaged in detailed and substantive discussions with the United Kingdom Government on strengthening the powers of the Parliament. Those are important discussions, and we encourage the UK Government to take a positive approach to our proposals. Indeed, I noticed on the Press Association wires at 1.55 this afternoon that the Deputy Prime Minister, on a visit to South Queensferry, has indicated that capital borrowing powers that were to be in place by 2013 will be available this year. We await further detail from the Deputy Prime Minister and others on what underpins that remark.
We should consider the task that we face with regard to borrowing powers. We are considering a long-term and fundamental reform of Scotland’s financial governance. Members across the chamber will have different views about what is ultimately the right economic and political framework for Scotland, but it will be the people of Scotland who will settle those questions. Our shared responsibility, today and in the coming months, is to ensure that the outcome of the Scotland Bill is a coherent and durable set of financial reforms that can substantially enhance the authority and effectiveness of this Parliament.
It is important to be clear on the purpose of capital borrowing, and we are very clear. There is an overwhelming economic logic behind capital borrowing powers. For example, they can support the construction of large strategic projects, such as the Forth replacement crossing, which will benefit future generations but will also create significant short-term financial pressure on today’s capital budgets. They can provide a medium-term economic stimulus, similar to the accelerated capital programme that we have undertaken, but without the need to cut investment while recovery is still fragile. They can also help to lever in additional private sector investment by enabling Government to act as the funder to key sectors, such as the renewable energy, enterprise, housing and regeneration sectors, and they can prevent destabilising swings in capital spending by helping to smooth investment and to manage capacity in our key public services.
The Cabinet Secretary for Finance, Employment and Sustainable Growth quite rightly says that investment in transport infrastructure is important. He says that we need more, and we agree, which is why Nick Clegg this morning made the announcement to which Mr Swinney referred. However, I am puzzled by the fact that, when savings were made on the new Forth crossing—the bridge that has not been built yet—Mr Swinney did not invest that money in other transport projects, but instead cut the budget by £250 million. Why did he do that?
Our election manifesto set out the argument that the savings to the public purse that the excellent and well-run procurement project generated, which were savings of £250 million—
I say to Mr McLetchie that a fixed-price contract is a fixed-price contract. We have such a contract for the M74 project, which will be completed early, and for the M80 project, which will be on budget and finished early. The guffawing from the gentlemen on the Conservative Party’s front bench is entirely ill placed.
I return to Mr Rennie’s point. The argument that we deployed in the election campaign was that we could redeploy the windfall saving to support other fundamental projects, such as the digital infrastructure in rural Scotland, which Mr Fraser was on about last week; to provide sure start funding for some of our most deprived communities in order to give young people a better start in life; and to give more support to energy-efficiency projects, which are dear to the heart of Mr Harvie and others. We have deployed the windfall savings from our excellent procurement of the Forth replacement crossing to wider purposes in the Government’s programme.
I will remind members of the capital borrowing proposals that are outlined in the Scotland Bill command paper. The Scottish ministers will be allowed to borrow up to 10 per cent of the Scottish capital budget in any year to fund capital expenditure, and the overall stock of capital borrowing will be unable to go above £2.2 billion. That framework will begin to operate in 2015-16 and, from 2013-14, transitional arrangements will allow capital borrowing subject to Treasury agreement. Within that commitment, we require to see the detail of what the Deputy Prime Minister has set out today. As we know, the detail of all such schemes is fundamental to the working arrangements for the provisions.
By endorsing the Scotland Bill Committee’s report, which 121 members approved in the previous session, the Parliament has set out its view that the borrowing powers as originally conceived in relation to our capital investment and revenue budgets are inadequate. There is clear agreement between the Parliament and the Government on what needs to be done and the motion makes three core propositions on subjects of firm consensus.
The first proposition is on the need for a clear, long-term and principles-based approach to controlling capital borrowing by the Scottish Government, which is guided by a higher but entirely sustainable set of borrowing limits. The second is the immediate implementation of the capital borrowing facility. The third is that the Scottish Government should be allowed to issue bonds to fund capital borrowing when it considers that appropriate. I will discuss each proposition in turn.
On the design of the framework, the strong consensus is that debt limits should be set according to clear and objective principles that are linked to debt sustainability. The Scottish Government and the Scotland Bill Committee agree firmly on that point. The Calman commission and the Steel commission agreed similarly. In the conduct of its own affairs, the United Kingdom Government has set fiscal policy under the main aim of reducing public debt as a share of total gross domestic product in the medium term. It is regrettable that the UK Government decided not to follow that principle when it drafted the Scotland Bill.
The Parliament has been asked to accept a cash limit on total capital borrowing in Scotland that is too low and has been set without justification. We are being asked to accept borrowing for long-term purposes on a short-term repayment basis. Having a framework without criteria to help to determine prudent borrowing limits in the long term is a weakness of the system. The proposal that is on the table would leave the Parliament and the Scottish economy first powerless, and then with only weak borrowing powers, which would always be subject to decision making by the chancellor. That is precisely the outcome that good fiscal rules should prevent. It would be a dereliction of duty to leave Scotland in such a position and we should not be left in it.
In relation to the sum of borrowing that should be available, the core principles that we choose will determine almost every aspect of the framework—the annual limit on borrowing, the term of borrowing, the sustainable debt limit and our ability to plan long-term infrastructure investment. The Scottish Government’s work on that confirms the judgment of the Scotland Bill Committee, the House of Commons Scottish Affairs Committee and various independent experts that the proposed borrowing limits are far too low. We judge that, under a range of scenarios with prudent assumptions about Scottish revenues and future interest rates, capital borrowing of at least £5 billion is sustainable. However, it must be anchored in a firm set of rules that determine how it is brought about. Of course, the precise detail will depend on the budgeting arrangements, which the Treasury has still to confirm.
As a Government, we are committed to maximising the effectiveness of our capital spending. A range of sectors in our economy and public services need substantial investment. When we translate the UK Government’s proposed total of £2.2 billion into specific areas of activity, it is clear that a sum of that magnitude does not really make the impact that people would ordinarily expect. For example, over a 10-year period it could, to the exclusion of all other priorities, meet the £2.25 billion roads maintenance backlog, two thirds of which rests with our local authorities. It would enable the rebuilding of a sixth of Scotland’s secondary school stock, fund the construction of 17 miles of high-speed rail line, or enable the whole length of the A9 to be dualled. In short, the borrowing powers that are proposed in the Scotland Bill will barely address the infrastructure needs of one sector, never mind the needs of the whole economy. We require more such powers. We can sustain more with them and this Parliament claims more access to them.
With regard to timing, the Deputy Prime Minister has made some remarks about this issue on which we require further detail. However, the key point about timing is that we have at our disposal the ability to make an economic intervention when it actually matters. At this stage in our economic recovery, we need access to more capital expenditure. At yesterday’s meeting of the joint ministerial committee, we put forward to the UK Government an argument based on the Chancellor of the Exchequer’s invitation to deploy some flexibility in the financial arrangements in recognition of the fact that, at this stage in the economic cycle, when we face acute challenges with regard to public expenditure, maximising capital investment would assist in economic recovery and help to stimulate the valuable employment and economic opportunities that people in Scotland are seeking. The debate about timing with regard to borrowing is not about some obtuse constitutional principle, but arises from the very practical reality of our economy’s current condition and the need for access to powers to enable us to make as big an intervention as we can in trying to stimulate economic recovery in Scotland.
The debate has also been influenced by the issue of sources of borrowing and, as the Scotland Bill has confirmed, the Government will be able to borrow from the national loans fund and commercial banks, where such moves offer value for money. However, the UK Government has not been prepared to accept a proposal regarding Scottish Government bonds. The Exchequer Secretary to the Treasury has found himself telling the Scotland Bill Committee that Scottish Government bonds would confuse the capital markets, despite evidence that US bond markets have managed to finance borrowing by 55,000 separate issuers of municipal bonds. I do not think that that argument is the strongest that has ever been conjured up on the matter. Where such a move delivers value for money, it will remain right for the Scottish Government to have flexibility to borrow from the capital markets. Given that the issue is all about the Government’s financial accountability to this Parliament, it is wrong for the option of issuing bonds to be ruled out from the various options that will be available to the Scottish Government and Parliament.
There is a compelling case for borrowing to happen at the earliest possible opportunity to give us the ability to influence economic recovery in Scotland. After all, the purpose of acquiring capital borrowing powers is to enable us to invest in the long-term infrastructure that we all know will make a difference to economic recovery in Scotland. As we look at the current pattern of Scotland’s labour market and see the effect of this Government’s use of capital acceleration and its decision not to reduce public expenditure in the past 12 months, it is clear that investing in the economy is the correct way to build economic strength and ensure economic recovery. That is why capital borrowing powers matter and why we should have access to them with a greater degree of flexibility than is proposed in the Scotland Bill—the greater flexibility that was acknowledged by the Scotland Bill Committee—to allow us to boost economic recovery in Scotland. That is the principle at the heart of today’s debate.
That the Parliament notes the Scotland Bill proposals on capital borrowing and the recommendations of the Scotland Bill Committee in that regard; calls on the UK Government and Scottish Government to undertake joint work to agree a clear, long-term and principles-based approach to capital borrowing and the sources of borrowing including the potential for bonds, and calls for the implementation of capital borrowing powers at an accelerated timescale to that proposed in the Scotland Bill to support economic recovery and enhance Scotland’s infrastructure.
We believe that the question that requires to be answered when we debate whether the Parliament should have new powers is this: will the devolution of the powers in question benefit Scotland and, in particular, help us to grow our economy? It is not about getting new powers for their own sake.
We believe that the case for additional borrowing powers for the Scottish Government certainly has been made, and it is right that that initiative should be supported across the chamber. It was the Calman commission that made the case for the Scottish Government to have further borrowing powers. In the previous session, the Scotland Bill Committee made the case for those powers to be introduced more quickly and, indeed, for an extension in their scope. Therefore, when the Scottish Government makes the case for them to aid economic growth, it is right that we should support it, and we will support its motion.
I noticed that, as the First Minister walked along Downing Street in the rain yesterday, he did not deign to share the shelter of his umbrella with the cabinet secretary and Mr Crawford, who were left to brave the elements. I am happy to report that the cabinet secretary has taken a far more collegiate approach with his motion, and I welcome the fact that, even with a Government majority, he has worked hard over the past few days to ensure that the motion receives the widest possible support in the debate. We welcome that approach. I hope that a clear message from the chamber today will aid fruitful negotiations between the cabinet secretary and his UK counterparts.
The meeting of the devolved heads of Government with the Prime Minister yesterday seems to have been reasonably cordial in tone at least, even if the tone has not been that in today’s press. However, we hope that the dialogue on the issue that we are discussing at least will be productive. Indeed, it seems that we have good news on the timescale for introducing the borrowing powers and their establishment this year. Getting good news from Nick Clegg is a welcome change. We look forward to hearing further details of the announcement that he indicated.
The cabinet secretary has made it clear that his goal in seeking additional borrowing powers is to protect investment in our economy, particularly at a time when the capital budget has been cut to such an extent by the UK Government. There is a clear need for the Scottish Government to be able to use borrowing powers to take the required action. The GDP figures in the last quarter of 2010 may well have been better for Scotland than for the rest of the UK, but they still showed that while the UK economy contracted by 0.5 per cent, our economy contracted by 0.4 per cent. Therefore, there can be no room for complacency in tackling the economic challenges that Scotland faces. Business organisations are still reporting a lack of confidence in the economic outlook, and the International Monetary Fund has revised downwards its economic growth forecast for the UK. It is clear that that presents us with significant challenges in Scotland.
We have argued that preserving Government investment in our economy and infrastructure should be a key part of the strategy to strengthen growth in Scotland. We do not want to see key infrastructure projects being stalled and more jobs being threatened because of the cut to the capital budget.
Four years ago, we took issue with the Scottish Government on its decision to delay new school buildings and new transport projects while it established the Scottish Futures Trust, because we believed that that was damaging for important sectors such as our construction industry, in which jobs were lost at that time.
It certainly made no sense to delay those projects at that time. I make it clear that I am happy that we can instead endorse a strategy on borrowing powers from the Scottish Government that is all about avoiding delay in establishing new infrastructure and, I hope, preserving and encouraging employment in these challenging times.
With additional flexibility being given to ministers, it will be for them to ensure that crucial projects go ahead, from the sick kids hospital in Edinburgh to the transport projects in Aberdeen that are close to my heart and to the heart of Lewis Macdonald. I am sure that Lewis Macdonald will refer to a number of key projects in his closing remarks. We support bringing forward the use of the powers in question and hope that the UK Government has now accepted that point as well.
The point of gaining borrowing powers is to be able to pump-prime the economy and create jobs and wealth. We cannot afford to wait for too long, as every delay can mean the difference between new jobs and no jobs.
We have previously suggested that the powers should be available earlier so, if they are to be introduced in the current financial year, that is welcome. Given that that is within the same spending review period as under the previous plan to introduce the powers in 2014, we believe that it is eminently achievable. So, in one sense, there should be no surprise at the announcement from the Deputy Prime Minister earlier today.
The Scottish Government is facing a cut in its capital budget of £790 million in this financial year, which is why there is urgency in the debate about how ministers can access additional borrowing. We believe that the case has been made for increasing the amount that the Scottish Government should be able to borrow for capital beyond the £2.2 billion cap that is proposed in the Scotland Bill and the limit of 10 per cent of the Scottish capital budget in any one year. As the cabinet secretary mentioned, the Scotland Bill Committee did not believe that there was a “principled basis” for those limits, and several witnesses made the point to the committee that the levels that are proposed in relation to the Scottish budget and future tax revenue are modest. We believe that ministers should be given more flexibility. It has been helpful to hear from the cabinet secretary his current thinking on what an appropriate extent of borrowing might be. He referred to the £5 billion figure that the committee discussed. We think that those are sensible directions in which to travel.
On short-term borrowing, we agree with the Scotland Bill Committee that the currently proposed limits should be increased, not least because of the penalties that the Scottish Government would face under the bill if the revenue that the Government received in tax was lower than forecast. However, we believe that that issue also needs to be reconsidered and that, as the committee said, those provisions should be removed from the bill. Professor Anton Muscatelli said:
“doubling that limit would not be exaggerated in terms of prudence and in terms of giving the Scottish Parliament a bit more room for manoeuvre”.
We also agree with the committee that the four-year timescale to repay short-term borrowing is unnecessarily short and should be extended.
The Government’s motion calls for the Scottish Government to have access to wider sources of borrowing. The Scotland Bill already provides for the Scottish Government to borrow from the national loans fund to attract favourable interest rates, as well as to borrow finance commercially. The motion raises the issue of the potential for the Scottish Government to issue bonds. We believe that that should also be on the table for discussion between the Scottish and UK ministers, particularly given the Scotland Bill Committee’s view that there is no reason why there should be an impediment in statute to their use by the Scottish Government.
We believe that the extent of the powers can be increased in those ways while remaining entirely in line with a responsible approach to borrowing. Our amendment seeks to reinforce the point about the need for a sustainable approach and refers to the principle that was outlined in the Scotland Bill Committee report that the limit of borrowing should be set with reference to the level of debt that can be prudently serviced through tax revenue. The key issue is that borrowing levels should be affordable, and the cabinet secretary has made it clear that he agrees with the importance of that approach.
I understand entirely the member’s point that the amount of borrowing should not exceed the amount that can be serviced through devolved taxation. However, I am unclear why he implies that such a provision should remain in the Scotland Bill. If financial powers go with accountability, should not it be for the Scottish ministers to make prudent decisions, rather than for UK legislation to tie their hands in that way?
We are discussing what can be achieved in the current negotiations and through proposed legislation that is in process. From that point of view, I am trying to be helpful to the Scottish Government. In relation to ensuring that the right levels of borrowing are set, that should be done in agreement between the UK Government and the Scottish ministers. That is the appropriate way in which to proceed.
On other additional powers, we believe that the Scottish Government has yet to make a compelling case. For example, it has not made such a case on how devolving corporation tax will benefit our economy, particularly given that we do not know what the rate would be. When we have a nationalist Government seeking a range of new powers, of course we will cast a sceptical eye over the case that is made. We will not hesitate to object if the Scottish Government asks for more powers when there is no justification for that and if we believe that the result might destabilise our economy. However, we will support the Scottish Government if the evidence exists that a proposed change will benefit our country and economy. On borrowing powers, the case has been made by the Scottish Government, as it has been made by members across the chamber and as it was made by the Calman commission.
The economic situation that Scotland faces makes additional borrowing powers not simply desirable but necessary—and soon. That is why, on borrowing, we support the action that the cabinet secretary is taking to secure agreement from UK ministers to go substantially beyond what is proposed in the Scotland Bill, and that is why we will support the Government motion today.
I move amendment S4M-235.1, to insert after “bonds”:
“; recommends that the total limit should be set by reference to the capacity of the Scottish Government to finance debt prudently from devolved tax revenue”.
As a member of the Scotland Bill Committee in the previous session, it gives me great pleasure to open the debate on behalf of the Scottish Conservatives. The committee gave detailed consideration to the issue of borrowing powers and made a number of recommendations, which I hope will be taken on by Her Majesty’s Government in the form of amendments to the Scotland Bill before it is finalised.
Like Richard Baker, I welcome the moderate and measured tone of the Scottish Government’s motion. It is mercifully free of the intemperate language that characterises the behaviour of certain other ministers—so well done, Mr Swinney. We will achieve nothing on this issue by shouting at one another; as the motion says, we can achieve a great deal by joint working between Scotland’s two Governments and two Parliaments and by taking a sensible and principles-based approach to capital borrowing.
One of the first principles must be a recognition that borrowing by the Scottish Government forms part of the overall UK public sector borrowing requirement and that our powers have to be exercised within that overall framework. Today, that framework requires the elimination of the poisoned chalice of a structural deficit in revenue spending that was bequeathed to us by the outgoing Labour Government and action to stabilise the overall level of the soaring national debt.
The second point to be emphasised is that borrowing is not a cost-free option. The spendthrifts of the past Labour Government demonstrated a real talent for swelling the national debt due to a failure to relate growth in public expenditure to growth in tax revenues. It is a pity in many respects that the Government of the United Kingdom was not subject to the same financial disciplines as the governance of this Parliament, which will have borrowing limitations placed on it for both revenue and capital purposes when the Scotland Bill is enacted. We should all welcome that.
Is Mr McLetchie developing an argument for the limitations in the Scotland Bill to be a firm cap, as envisaged in the current proposals, or is he persuaded by a methodological approach, based on size of GDP or proportion of budget, which could be allocated in a much more relevant fashion to the scale of borrowing that the Scottish Government’s revenue budget could sustain?
I am happy that there should be a principles-based approach to the determination of the appropriate figure. Whether an absolute figure or a formula and mechanism is put in the bill is a matter for consideration, but I believe that, as long as we arrive at a limit, it is a sensible approach to take. It would be a limit that everyone understood and could work to.
Borrowing has to be prudential and the amount has to come within our ability to service such debt. Let us remember that the cost of debt servicing will place limitations on future revenue spending. Whether the capital borrowing limit is £2.2 billion or a higher figure—approaching, say, £5 billion—let us not rush to spend, spend, spend for the sake of it or as a short-term expedient.
We want to maintain and sustain employment and promote economic recovery. It was heartening to see, only this week, the IMF’s endorsement of the UK Government’s policy approach, which is of far greater significance to Scotland than the relatively puny efforts of this SNP Government. We must remember that we are not responsible for macroeconomic policy and that, for us, demand management is secondary to the primary purpose of capital expenditure, which should be investment in major infrastructure projects, such as the new Forth crossing, which are of lasting benefit to Scotland.
It is interesting to note that, despite Mr Swinney’s apparent moderation of language, he and his colleague Mr Ewing are as trapped in the same ideological cul-de-sac as the rest of the SNP when it comes to borrowing. I was intrigued by the statement in the SNP election manifesto, which said:
“As part of our efforts to improve the Scotland Bill we will also seek substantial and early borrowing powers for Scottish Water.”
The fact is that there is no need to seek substantial or early borrowing powers for Scottish Water, because it already has such borrowing powers.
In section 42, the Water Industry (Scotland) Act 2002 states that Scottish Water may,
“with the consent of ... Scottish Ministers, borrow money, whether in sterling or otherwise, from any person or body, whether in the United Kingdom or elsewhere.”
Scottish Water can already borrow any amount in any currency from anyone anywhere in the world. What could be more substantial than that? Is Mr Swinney going to get a few bob from the Klingons as an alternative? The real issue is not whether Scottish Water is funded by loans from the Scottish Government—
Mr McLetchie went on at great length about constraints and limitations on borrowing. One of the constraints on private borrowing by Scottish Water is the rigidity that his Government imposed in relation to capital departmental expenditure limit constraints on the Scottish Government. That is where the problem lies.
It is because Scottish Water is in the public sector, which is exactly the point that we are coming to. How disappointing—I thought that we were going to be told that the SNP is going to abandon the euro and join the Klingon currency.
The issue is not how Scottish Water borrows, but the way in which its borrowing counts in the public finances. Those rules will not be changed in any Scotland bill, as the SNP claims, because they are effectively set by Europe and international bodies. They will not be changed by European legislation any time soon because the euro-loving SNP would not want that.
Unlocking further borrowing potential for Scotland’s benefit requires a change in Scottish Water’s constitution so that it becomes a mutual or public interest company and is taken off the books and outwith direct ministerial control. If that was done, we would have access to more than £1 billion of additional funds to invest in our infrastructure.
The SNP has set its face against that perfectly reasonable course of action, so it has only itself to blame for the limitations that its policy choices are placing on borrowing and investment capacity in Scotland. You have chosen that limitation, so do not forget it, and do not start preaching to the rest of us about the desperate need for more borrowing when you have set your face against it.
I could say a lot more about Klingon currencies and SNP policy. I support the motion, and I hope that the Scotland Bill will be suitably amended in respect of reasonable and moderate borrowing powers by the time it is enacted.
In the run-up to the 1997 UK election, Tony Blair once famously claimed that it would be odd if the Scottish Parliament did not enjoy the same powers as an English parish council. He no doubt came to regret that statement as it was often misinterpreted, but it seems particularly appropriate to this debate as parish councils have a glaring power that we do not: they have at least some borrowing powers.
I think that members on all sides of the chamber accept that the financial arrangements that were put in place for the Scottish Parliament in 1999 need to be changed and that the addition of borrowing powers must be part of those changes. However, the measures that the current Scotland Bill contains are neither sufficient nor appropriate for Scotland’s needs.
Much of the Scotland Bill Committee’s work during the previous session of Parliament was controversial to say the least, but one aspect on which all members agreed was—as Richard Baker said—that the proposed borrowing powers do not go far enough.
One consequence of the proposals to fund a sizeable part of the Scottish budget from a portion of income tax receipts—which the SNP has consistently warned about—is that we will become intensely vulnerable to fluctuations in the amount of income tax that is generated from year to year. It is a situation in which no normal independent country would find itself, as any other country—or indeed any federal state—would rely on a range of taxes to ensure that its budget was not subject to wild fluctuations in the receipts from a single type of tax from year to year. However, if that is the position in which the Parliament finds itself, borrowing to cover fluctuations in tax receipts will at least mean that public spending reflects longer-term trends, instead of having to rise and fall based on year-to-year changes.
Is one of the fluctuations to which the member refers the huge fluctuation in corporation tax that may follow, should the SNP get corporation tax powers? Is she suggesting that borrowing powers should take the place of corporation tax losses?
I was referring to the fact that it will cause severe problems if we can make changes only to income tax. If we have corporation tax powers, there will be at least one more tax that we can use to even out fluctuations. We are suggesting that we need a range of taxes and powers, as well as increased borrowing, to grow the Scottish economy—which I hope all members are about.
That would be a more desirable state of affairs, yet even a cursory examination of what is currently proposed shows that it will not be achieved without changes to the Scotland Bill. Between 2007-08 and 2008-09, the income tax yield in Scotland fell by £527 million, according to figures in “Government Expenditure and Revenue in Scotland”, yet the proposed cap on borrowing for current spending is just £200 million per year, up to a cumulative cap of £500 million. With such fluctuations demonstrably already having taken place in Scotland, the likelihood that the borrowing caps will quickly be reached is all too apparent.
I am sure that that issue will be examined when a local income tax is considered. At least local councils have the option of borrowing for projects, which the Parliament lacks. That is what this debate is about.
The problem is only made worse by the requirement for such borrowing to be applied retrospectively, after tax receipts fall, rather than as a pre-emptive response to forecast reductions.
When it comes to borrowing for capital projects, the current provisions in the Scotland Bill are similarly flawed. The whole point of being able to borrow for capital projects is surely to provide the Scottish Government with an additional financing tool. However, with a cap of just £2 billion, the entire amount could be tied up in a single project such as the Forth replacement crossing. Hitting that limit so easily removes borrowing as an option for other public sector infrastructure projects and limits its value. Rather than have artificial Treasury-imposed caps, surely what matters most when looking at how much the Scottish Government should be able to borrow is whether sufficient resources are available to cover repayments. That is even more the case when no expert or UK Government minister was able to explain to the Scotland Bill Committee how those caps were selected.
Michael Moore has been performing some impressive political gymnastics recently, as his positions on more powers for Scotland seem to have altered on a daily basis. However, there can be no doubt that one of the changes to the Scotland Bill that simply must be made is to improve the borrowing provisions and accelerate their implementation. That is why I welcome Mr Clegg’s announcement today; we should invite him to Scotland more often. We look forward to hearing the details of what is proposed. It may be that, as with the fossil fuel levy, they are giving with one hand and taking away with the other.
Improving the provisions of the Scotland Bill that relate to borrowing powers would by no means solve all the problems that are inherent in the legislation, particularly in relation to taxation, but it would certainly be a step forward from the bill’s current provisions. Given that the Scotland Bill Committee in the previous Parliament unanimously supported plans for greater borrowing powers and their faster introduction, I hope that members from all parties will back the Scottish Government’s call and send out a strong message that progress on improving the borrowing powers for which the Scotland Bill provides must be made.
I welcome the debate, and I believe that we can reach some consensus on the issue—certainly in principle. Capital borrowing powers were introduced by the Calman commission and incorporated in the Scotland Bill.
I took the opportunity to look at the Scotland Bill Committee’s report to find out what it said on the matter. Capital borrowing powers are probably the best-known borrowing powers. They are required for large-scale developments. The committee welcomed the proposal—as I imagine we all do. In the first years of the Parliament there were increases in public spending, and financing projects was not an issue. To an extent, public-private partnerships were used to borrow for projects, spreading the cost over the lifetime of a building.
Budgets are now being cut, and they will continue to be cut for some time into the future. Against that backdrop, we need to develop large strategic projects such as the Forth replacement crossing, which threaten to consume most of our capital budget. The bill committee expressed concerns regarding the limits that had been set for borrowing. It is clear that the limits that will be required must be workable and affordable within our taxation revenue.
There were concerns that the powers should be available earlier. I welcome today’s announcement that there might be progress on the matter—that the Westminster Government might be willing to allow the powers to come in earlier.
I voice a note of caution, however. We are all agreed that we need borrowing powers, but it is not free money: the borrowing needs to be paid back with interest. In essence, it is a matter of bringing forward spending and spreading the cost of that spending over a longer period. The point is that the borrowing has to be paid for.
The temptation will be to borrow to cover the shortfall in the budget but, in a climate of falling budgets, that will only impact more severely in coming years. When decisions are being made about borrowing, they must be based on borrowing being economically sensible, rather than politically expedient. The Parliament must assess the impact of borrowing on future spending. In the present climate, there is a temptation to spend to grow. I am not saying that we should not do that, but we need to ensure that that spending will lead to savings in the future that can offset the cost of the borrowing.
There is a further borrowing power that has the potential to alleviate some of the pressure, depending on how it is set up. Short-term borrowing is designed to cover dips in the taxation that is collected. That is an important borrowing power if we are to raise and gather our own taxation. Because we have never used the Scottish variable rate of tax in the past, it has never been an issue before. Now that further taxation powers are being devolved under the Scotland Bill—powers that we will have to use in the future—it is imperative that we consider the issues very carefully. The borrowing powers must be workable, and they must give the Government of the day the flexibility to deal with peaks and troughs in income from taxation. The bill committee expressed concern about a number of issues in that regard.
First, on the levels of taxation that will be forecast and any surplus or deficit that will be paid into or out of the Scottish cash reserve, the bill committee suggested that underspends should also be added to the reserve. That needs further investigation. Could that enable Governments to manage better their finances and budget for the future?
The committee was also concerned that the forecast taxation income would be fixed throughout the spending review period, even if better estimates came to hand at a later date. If the banking crisis shows us anything, it is that we cannot foresee changes in our economic circumstances, which can change dramatically in a very short space of time. If we have to work within original estimates once a situation has changed dramatically, we could find ourselves in an extremely difficult position. If surpluses could be paid into the reserve, would that allow spending to be altered immediately to deal with changing situations? That point is worth exploring. It is my understanding that the current proposals only allow received taxation that is above the estimate to be added to the reserve.
The bill committee suggested that short-term borrowing levels should be increased to reflect the level of taxation income and the percentage of fluctuations that could occur. However, the inability to change estimates might lead to a need for greater borrowing powers to cover deficits that could be created by sticking to estimates of income that had been set too high over a spending review period. The prudent way forward would be to work from the best estimations of taxation available at the time.
If that was possible, and it was also possible to add to the reserve, could the money be used to offset future pressures on the budget? When borrowing was committed to fund capital spending, any reserve moneys could be used to offset the future costs of that, too. If such an ability to relieve pressure on future budgets is possible, it would mean spreading the cost even further by budgeting for it for the future.
Such issues need to be carefully considered before the borrowing powers are finalised. The matter is crucial to our economy and our future. Therefore, I urge the Government to work constructively with the Westminster Government to explore the issues further. I also ask the Government to work with all parties in the Parliament to examine the implications of changes, so that we can ensure that the final settlement is in the best interests of the Scottish people.
I welcome the robust approach to seeking an appropriate level of capital borrowing from the Westminster Government, as outlined by the finance secretary. The question of borrowing powers for the Scottish Parliament is complex, but it should be simple, because Scotland should have the full borrowing powers of a normal nation and should not be holding out its begging bowl to Westminster.
Along with many other people, I think that the current situation is anomalous. Scottish local councils and even English parish councils have more borrowing powers than the Scottish Government has, and the Northern Ireland Executive can borrow from the national loans fund for capital expenditure purposes only.
On funding for capital expenditure, the case for substantial enhanced borrowing powers is compelling, not least because the Westminster Government has imposed a 36 per cent cut in our capital budget up to 2014-15. The finance secretary has repeatedly said that the cuts are inappropriate and Scotland’s needs are different. A fiscal stimulus to our economy through capital investment will provide further benefit, by smoothing the business cycle and helping the country through the recession. Such investment can act as a stimulus, to mitigate the effects of the downturn and support private sector consumption and investment levels.
Notwithstanding the limitations on the Scottish Government’s current powers, much that is positive has been achieved by way of offsetting the impact of the recession through capital investment. For example, there has been £350 million of capital spending to stimulate the private sector and safeguard jobs. The non-profit-distribution programme, which the Scottish Futures Trust developed, includes £1 billion of investment in vital transport infrastructure—in projects such as the Borders railway, for example; investment of £840 million for the Southern general hospital; and £27 million for the Commonwealth games. All that investment is part of a £2.5 billion NPD programme, which gives a much-needed boost to jobs and the economy—let us just think what we could do if we had the full range of tools to raise capital and thus make an even more significant difference.
As the finance secretary said, it is self-evident that the powers that are proposed in the Scotland Bill leave much to be desired. The proposed borrowing limit would be £230 million, or 10 per cent of the Scottish capital budget every year, with a cumulative limit of £2.2 billion. The facility would be available only from 2013—although the finance secretary has indicated that there is a possibility of modification on that. Borrowing would be subject to HM Treasury consent, on a project-specific basis. Borrowing would be from the national loans fund or—this seems bizarre to me—from commercial banks, I presume on some sort of club-loan basis. The principle is that loans from the national loans fund would be repaid within, say, 10 years.
The Scotland Bill Committee recommended a higher limit of £5 billion and a shorter implementation period. Both recommendations are fine as far as they go, but I welcome the finance secretary’s demand for an accelerated timescale for implementation.
Borrowing powers will open up a wider range of options and levers for the Scottish Government to deploy in support of our economy. They will enable the funding of major infrastructure projects, which will in turn result in long-term economic benefits that are essential to the driving of economic productivity and competitiveness.
The Forth crossing provides a perfect example of the need to modify the current proposals and allow payment over a longer period—20 years, say. That would be more realistic for such a major project, which has a high price tag attached to it and is of national strategic importance. The proposed delay in granting the new borrowing powers until 2013 would not be helpful, given that payments on the Forth replacement crossing will start in 2011-12. Indeed, HM Treasury would still need to consider the project’s eligibility and approve the borrowing.
Large-scale projects are expensive. Funding such projects over a number of years through capital borrowing ensures that the cost of financing a once-in-a-lifetime project can be spread. It also ensures that other programmes are not adversely affected by a reduction in expenditure and avoids the need for tax increases within the year in which the asset was purchased. That is basic good management of public finances.
It is absolutely realistic for the finance secretary to continue to argue for a higher limit for borrowing for capital purposes. The proposed cumulative limit of £2.2 billion compares poorly with that of Northern Ireland, which has a cumulative limit of £3 billion. Northern Ireland has a population of about one third of ours and a correspondingly smaller economy. Crudely put, on that basis, it could be argued that Scotland should have at least three times the Northern Ireland borrowing limit, which would result in a £9 billion limit on paper.
A further reason to welcome additional borrowing powers is that they will finally highlight the demise of the discredited PPP/PFI funding route, which still costs the public purse disproportionately. We will be paying off the debt that was run up through that model for decades to come. Not only that, but the sharp accounting by which the PPP/PFI schemes were to be kept off the national books came to an end when the UK Government was challenged and had to adopt international financial reporting standards as of April 2009. That means that all such assets had to be brought back on to the balance sheet. At the end of the day, we are paying extortionate credit card rates for projects.
It is true that public sector borrowing is much cheaper than borrowing from the market, but the Scottish Government should not be restricted in the tools that it can use to raise funding. As far back as 1950, the Exchequer and Financial Provisions Act (Northern Ireland) 1950 allowed the devolved authority in Ulster to issue Treasury bills or any other securities or instruments that it might wish to issue for the purposes of raising capital. There is, therefore, an abundance of examples of devolved Governments possessing wide powers to issue financial instruments independently of the central authority.
I welcome the determination of the finance secretary and the Government to continue to press the case for increased borrowing powers to enable better management of Scottish finances, and I look forward to a positive result.
It is worth stating that the motion by the Scottish Government comes against the background of sound financial management over the past four years by the Scottish National Party. It is a history of maximising our capital spending, which we have also done this year, to support infrastructure investment and, of course, jobs.
In spite of the Westminster cuts, we have accelerated capital projects and front loaded the European social fund projects. However, we are now at the point where Scotland needs substantive capital borrowing powers to truly support economic recovery and enhance our infrastructure. To paraphrase what the First Minister said some time ago, Scotland needs borrowing powers that are appropriate to its size, ambition and potential.
That has been recognised across the board, and I am pleased at the consensual nature of the debate. The Scotland Bill Committee was clear that there was no principled basis for the particular capital borrowing limits that are proposed in the Scotland Bill. If I remember rightly, it recommended a cumulative limit of £5 billion as opposed to £2.2 billion. Even the Westminster Scottish Affairs Committee asked that the Government reconsider the proposed limits.
Borrowing is important to finance the capital investment that we all require. However, sources of borrowing are also extremely important, and that is reflected in the motion. How Scotland should borrow is important. Should we borrow only from the UK Government? I do not think so. Because it has control, it would share none of the risks.
Should borrowing only take place under the conditions in the Scotland Bill as introduced? Probably not. It seems to me plain that any privately or publicly funded organisation that borrows should have in place a Treasury strategy and an asset and portfolio management policy. Therefore, it is sensible and right for John Swinney to call for
“joint work to agree a clear, long-term and principles-based approach”.
One of the first principles of that must be that Scotland should be able to decide what capital projects it wants to do. We cannot rely on Westminster to decide that for us, because Scotland’s economy is different from that of the rest of the UK and we have differing priorities. We cannot allow our nation to rely on Westminster to decide what capital investment funding and what type of funding to propose when it suits Westminster. We need that degree of borrowing autonomy to increase the range of options and policy levers that are available to us to stimulate the economy during times of economic necessity. The Scotland Bill still has to go through many stages and there is still time to make changes.
On bonds, the command paper that came with the Scotland Bill explicitly states that the Scottish Government will not be allowed to issue bonds. That seems strange to me when Transport for London is using what are, in effect, bonds for its crossrail project, and Birmingham City Council is similar. States in the United States, Canadian provinces and regional and local governments can issue bonds to raise money for capital projects, so it is bizarre that we cannot. The Scottish Government is one of the few national or federal Governments in the world that cannot borrow. Indeed, in these islands, local authorities, the Northern Ireland Executive, and even English parish councils can borrow. As we have just heard from Colin Beattie, the Northern Ireland Executive can borrow at a much higher rate than that which is proposed for Scotland.
Today, it was interesting to hear from the cabinet secretary that Nick Clegg had already said that he thinks that we can start to borrow more quickly than had previously been envisaged. I was reading back over some of the comments that Michael Moore made when he came to give evidence to the Scotland Bill Committee. He said that he hoped to make “positive noises” about bringing forward unrestrained borrowing powers earlier than 2015. It would seem that Nick Clegg stole Michael Moore’s thunder when he arrived today.
Michael Moore also said that the £2 billion was not set in stone. Nick Clegg did not say anything to suggest that he was talking about increasing that capital borrowing limit as well as conceding that we should have borrowing powers more quickly than was previously suggested. I hope that that figure is not set in stone and I hope that the Westminster side is prepared to offer the same level of co-operation that the cabinet secretary and the Scottish Government have advanced. Everyone in the chamber wants the best for Scotland and will support moving forward towards what is best for Scotland in relation to borrowing powers to enhance our economy.
Despite the best efforts of David McLetchie, the debate has been broadly consensual. That does not come as an enormous surprise, because the Government’s motion is pretty much a cut and paste of the conclusions of the Scotland Bill Committee’s recommendations on the limits and timing of borrowing. What we are being asked to vote on at 5 o’clock is not altogether different from what 121 members of the Parliament voted in favour of just before dissolution when the Scotland Bill Committee’s conclusions were debated.
I will pick up on a couple of points before moving on. I should not have to make this point, but it is critical to say that borrowing is not a cost-free option for the current Scottish Government or any Scottish Government in the future. We have heard comments that members, particularly those from the SNP, do not like PPP or PFI because the money has to be paid back over a period of years. That is not altogether different from borrowing.
No, I do not accept that proposition, except in the case of a couple of early PFI schemes.
It is interesting to note that the non-profit-distributing model that the Scottish Government now favours involves paying back sums that are not terribly different from the sums that are paid back under PPP schemes. The profit is capped, but it is not a non-profit model, as the party in charge often claims. Borrowing does not represent new money; all that it does is change the time at which the money becomes available. That could be very important but, at some time, those debts must be paid while, of course, the borrowing itself incurs charges.
As the Scottish Futures Trust said just the other day regarding capital spend, one pays for a facility as one builds it or as one uses it, but pay for it one must. We must take account of the fact that whatever limit is placed on borrowing and whatever figure goes into the revised Scotland Bill, any borrowing that is undertaken by the present or any future Scottish Government will, by definition, restrict the budgets of the Governments of following years. From listening to the rhetoric of SNP members, it sometimes appears that they see the £5 billion figure as a target to be reached as quickly as possible, as opposed to a limit.
We must remember David McLetchie’s well-made point that borrowing by the Scottish Government will form part of the UK public sector borrowing requirement and that our powers must be exercised within that framework. The UK Government must take account of the size of the deficit. Given that overall public sector debt is at eye-watering levels and that the UK has to make interest repayments of tens of billions of pounds every year before a penny can be spent on public services, we must recognise the macroeconomic responsibilities of the UK Government.
Criticism has been made of the slow pace of change and of the fact that the UK Government is not to give the proposed additional borrowing powers yesterday, but I remind the cabinet secretary of his own Government’s slow pace of change from time to time. When the Scottish Investment Bank was proposed, it was put forward as part of the solution to lending to businesses in the economic downturn. As something that could make a big difference to businesses on the ground, it received cross-party support. The Scottish Investment Bank was announced, reannounced with reduced funding and reannounced again with further reduced funding. It took two years for the SNP Government to set up a bank of £50 million, so we in the Conservative Party will accept no criticism at all from it on the pace of change.
Nor will we take any lessons from the SNP on its economic theories. We heard about Scottish ministers going down to London yesterday to give the UK Government advice on a plan B for the UK economy. I would prefer to see Scottish ministers spending a bit more time on a plan A for the Scottish economy than on trying to give lessons to others.
We will take no lessons from the SNP. I did not make that comment last week because the Scottish Government had not publicly announced its plan B; that was announced yesterday. Mr Swinney is simply incorrect on that.
We are told by the SNP Government that it has already saved £250 million on the Forth crossing project, which has not even begun—there are no shovels in the ground yet. We hear cries of, “It’s a fixed-price contract,” but that does not necessarily mean that by the end of the project not a penny more will have been spent on it.
We agree with the Scotland Bill Committee’s proposals—we agreed with them at the time and we voted for them back in March—and we will support the Government motion and the Labour Party amendment, because we think that Scotland needs borrowing powers. If those powers can be extended and their provision accelerated, we will welcome that, too.
It is a great privilege to have been elected to serve the people of the Highlands and Islands region. It is where I was born and where I first made my home as a young adult, although, Presiding Officer, you will no doubt discern from my accent that I spent most of my formative years growing up in Glasgow. In my time here in this Parliament, I hope in some small way to help bridge the gulf of understanding that sometimes exists between urban and rural Scotland.
Becoming a member of this Parliament has caused me to reflect on my political awakening, which happened not suddenly but in stages. I recall the final stage of that awakening in late August 2001, as I was driving home from a six-month spell of working in London. I recall crossing the border and coming back into Scotland. I recall the air becoming immediately fresher, the sky bluer and the grass greener. No doubt we are all subject to such romantic feelings when we return to our homeland.
However, I was immediately confronted by a hard reality. The moment that I re-entered Scotland, the road quality deteriorated significantly. As I continued my journey home towards Argyll, the quality deteriorated still further. In places, the roads in the Highlands and Islands region are reminiscent of those in third-world countries. I think in particular of the roads on the island of Mull. Just as that is true of our roads, it is true of much of the rest of our infrastructure. I very much welcome the recent addition of the new ferry, Finlaggan, to the CalMac fleet, but I also know that most of that fleet is well over 20 years old.
During the first three sessions of this Parliament, the improvements have been insufficient and I have wondered why that might be. I do not think that it is because this Parliament and successive Scottish Governments have lacked the will to effect improvement. Having been a builder for more than 30 years, I am forced to disagree with our bard, Robert Burns, when he said,
“... makin roads
Is no this people’s study”.
It is neither lack of skill nor lack of study, but only lack of money that is at the root of that problem.
My former colleagues and workmates in Scotland’s sophisticated and capable construction industry stand only too ready to build better infrastructure for Scotland.
Each of us is a product of our experience. I can only reflect on mine and ponder that if I had lacked borrowing powers, I could not have provided a home for my family. I cannot imagine that many members have not availed themselves of a mortgage to buy or build a home for their families. I can also only reflect that of all the houses that I have helped to build over the past 30 years, I cannot recall one that was built without the help of borrowed money.
It is often said that the whole is greater than the sum of its parts and nowhere should that be more true than in this Parliament. Our collective wisdom is and should be greater than the sum of our individual portions of wisdom. If members believe that it is wise to avail themselves of borrowing powers, how can any member believe that this Parliament and the Government that derives from it should lack those powers? That seems simple and self-evident.
It also seems simple and self-evident that we will never afford the quality of roads, public transport, hospitals and schools that we deserve if we have to meet their cost from each year’s budget. Such improvements provide long-term economic and social benefits and must be funded over the long term.
Rhoda Grant and Gavin Brown provided some helpful advice in this chamber only a few minutes ago. They reminded us that borrowed money must be repaid. I thank them both for those pearls of wisdom and remind them that capital assets should never be financed on the credit card schemes of PFI and PPP. In fact, if either of them would like to build Scotland’s first PFI home, I can recommend a number of builders who would queue in a long line for the opportunity.
Just as my political awakening happened in stages, it seems that the Opposition parties in this Parliament are awakening in stages and are coming round to the idea of borrowing powers for our Scottish Government. I welcome that, just as I look forward to their further awakening. I hope that they will agree with all of us in the SNP, who have long recognised that we will never achieve our aspirations for high-quality infrastructure and the prosperity that will spring from that unless we can obtain proper and adequate borrowing powers for our Scottish Government.
I issue a caveat for Opposition parties: borrowing powers must be adequate and they must be appropriate for their intended purpose. The timescale for repayment must recognise the lifetime of the asset that is being funded. Just as we must fund capital assets appropriately, so must we be in a position to weather the ups and downs of the business cycle. An overdraft that is too small may be as bad as no overdraft at all.
There is an urgency to all this in difficult times. The banks are still depriving the private sector of the oxygen of finance. Our budget will be cut year on year for the foreseeable future. I urge all members from across the political spectrum to add strength and force to our arguments for adequate borrowing powers; otherwise, there is a danger that in its present form, the Scotland Bill will become the anti-Scotland act.
Having the opportunity to make my first speech in the Scottish Parliament is a proud moment. I thank the voters of Motherwell and Wishaw, because it is an honour and a privilege to represent them.
My constituency has of course been very ably served for the past 12 years by Jack McConnell, whose illustrious career has now taken him to the House of Lords, with the title of Baron McConnell of Glenscorrodale. I am sure that everyone here will join me in thanking our longest-serving First Minister for his enormous contribution to this Parliament and the wellbeing of the people of Scotland. [Applause.]
Over the next few years, Scotland will face enormous challenges. To meet those challenges, we must work with the rest of the UK and others internationally to build a greener, more sustainable environment and economy. The promises of consensus and co-operation from the Scottish Government will carry little weight if every problem is to be addressed by blaming Westminster and asking for more powers. That is the road to conflict, confusion and calamity. The public want a Scottish Government that will solve the problem, not pass the blame.
Therefore, the Scottish Government’s first priority must be to ensure the best use of the powers that it has. I welcome the plans for more modern apprenticeships, which are important to the economy and to the people of Motherwell and Wishaw. The policy of no compulsory redundancies is also crucial. However, to achieve that across the whole public sector, the Scottish Government must ensure that services are adequately funded.
On independence, the First Minister says that the Scottish Government is
“not rushing this journey ... We shall keep travelling, and so get ever closer to home.”
That constant, drip, drip, drip approach sounds like a form of torture that is designed to sap our willpower and destroy our ability to resist. That said, there is a strong case for an extension of powers such as on capital borrowing. As Richard Baker said, we support an increase in the proposed limits on short-term and capital borrowing. We also support capital borrowing powers being introduced in April 2012. As the cabinet secretary has already informed us, that could now come this year. Given the degree of consensus, that should not become a pawn in the pursuit of independence, which was played down in the election campaign but moved to centre stage immediately afterwards. In this modern world, independence is something of a relative term. The world is interdependent and we are all subject to global forces.
From that perspective, the question is not about independence but about the most appropriate level of democratic decision making for each issue. Borrowing is a good example of that. Clearly, there are borrowing powers that are best exercised at the local level, at the Scottish level and at the UK level. Questions remain, however, about the borrowing methods and the circumstances and outcomes that merit such borrowing.
As a former North Lanarkshire councillor, I am well aware of the advantages of being able to borrow capital to invest in and fund worthwhile projects such as the upgrading of Clyde Valley high school, in my constituency, which was promised by the Scottish Government under its Scotland’s schools for the future programme. It has now been suggested that Government support will change from capital to revenue funding, which would seriously undermine the plans that have been made and would add to the cost. I would be grateful for a reaffirmation of the Government’s support for the original plan to finance the project.
The fact that my party is in opposition and the SNP is the party in power should not make the SNP the party of arrogance and disregard for people’s wishes. The Scottish public deserve more than lip service being paid to consensus; the people of Scotland deserve respect from their Government. They have elected us to help them to realise their ambitions, aspirations and self-respect. As the MSP for Motherwell and Wishaw, that is what I intend to do.
I congratulate Mr Pentland on his maiden speech. It is clear that he will be a forceful advocate for his constituents’ interests. I am pleased to note his and the Labour Party’s support for enhanced borrowing powers for the Scottish Government.
I hope that the political consensus will continue apace in the months to come as we all work together in the interests of the people of Scotland. There are many improvements that I would wish to see made to the Scotland Bill, which will be the focus of political discussions in the coming months. However, I am mindful of the subject of the cabinet secretary’s motion and will restrict my remarks to the issue of borrowing powers.
All normal Governments have borrowing powers. They have powers to assist in the managing of cash flows—something that all of us and all our constituents are becoming expert at dealing with in these difficult economic times, except perhaps for the bankers, who do not yet seem to have quite got it. At the same time, Governments need the flexibility to counter the effects of the economic cycle when receipts are down but demand for services is up. Also, as many members have mentioned, Governments need to have borrowing powers to fund large-scale capital projects. Such powers are particularly useful in economically straitened times, when the use of them can boost the economy and create vital jobs.
However, under the Scotland Act 1998, the Scottish Government’s borrowing powers are very limited. They are to be used only to support temporary cash shortfalls; there is a cumulative ceiling of £500 million; and the source of the borrowing is a single source—the national loans fund. The lack of such a key economic tool for improving economic performance is seriously hampering our ability to stimulate our economy, as has been recognised widely across the chamber today. The situation is particularly difficult when we take into account the Westminster cuts of some £1.3 billion that have been imposed on this year’s budget alone.
The lack of real borrowing powers is a serious problem for Scotland and for us as we try to grow our economy. As has been pointed out, it is also anomalous in that we seem uniquely to have no real borrowing powers. Local authorities rightly enjoy borrowing powers and, as Maureen Watt mentioned, the Northern Ireland Executive enjoys enhanced borrowing powers beyond those of the Scottish Government. Even English parish councils, which were so favoured by the former Prime Minister, Mr Tony Blair, enjoy borrowing powers. It is clear that this Parliament and this Government are in an anomalous position.
There was a recognition of that anomaly in the drafting of the Scotland Bill, and there are proposals that are welcome, as far as they go. However, the key point is that they do not go far enough. As we have heard, there would be a cap of £2.2 billion and there would be no accelerated borrowing, except with Treasury approval, until 2015. It has become clear today that there has been some movement on the timescale of the capital borrowing changes but, as the cabinet secretary rightly pointed out, the devil is in the detail. We will need to see exactly what the Deputy Prime Minister has said before we are able properly to comment on it.
It is clear that the powers do not go far enough. That was recognised by the work that was done by the Scotland Bill Committee in the previous session. Of course, that committee recommended that the powers be enhanced, which is what we are here to discuss in more detail today.
We support the increasing of the cap, although as has been said perhaps a better approach would be to set a prudential framework for borrowing that is based on principles of debt sustainability. However, if there is to be a cap, a higher cap would be of more use to the Scottish Government. As Gavin Brown said, we would not have to go to the cap; the point of the exercise is to have the economic levers available to the Government to do the job that is necessary for Scotland, which is to boost our economy.
That is what we hope to achieve. The attitude that is taken in another place remains to be seen, but it is quite clear that today in the Scottish Parliament we have the opportunity to state quite clearly what our position is.
I will conclude—to allow more time for the other speaker to whom you referred earlier, Presiding Officer—by noting that, during the election campaign, the SNP argued strongly across the length and breadth of Scotland for the strengthening of the powers of this Parliament, including enhanced borrowing powers. Of course, on polling day, the people of Scotland returned 69 SNP MSPs and, therefore, a majority Government. It seems clear to me that the people of Scotland have spoken on the issue of enhanced borrowing powers and that we, as their Parliament, should today do likewise.
Obviously, my button-pressing skills have not been honed yet. I should have gone to that training course that the Presiding Officer provided.
I am grateful to the Scottish Government for taking on board our suggestions for the motion today. Not least, I am grateful to the Government for recognising that the motion covers the report of this Parliament’s Scotland Bill Committee.
It is worth establishing firmly that the Scotland Bill is not the status quo. It contains radical and significant new responsibilities for the Scottish Parliament in relation to taxation. It will change for ever the way in which the Parliament works and will make us responsible for the two sides of the balance sheet. It represents a massive transfer of powers and will give this place greater financial responsibility. That point should not be forgotten. Calman is not the status quo—we are moving on. The Parliament will have greater powers.
In all of this, it is important to explain what we want to do with those powers. The Cabinet Secretary for Finance, Employment and Sustainable Growth will know that our manifesto highlighted how we would use borrowing powers to support the Forth road bridge project. The Deputy Prime Minister is obviously an avid reader of the Business Bulletin and timed his visit to Scotland to make his announcement about borrowing powers to coincide with this debate. I am sure that we are all grateful for the Deputy Prime Minister’s contribution to today’s considerations. It is important to recognise that that is extra money for Scotland’s bridges, roads and railways. It is a clear example of the Liberal Democrats delivering for Scotland in government, perhaps with a little bit of help from the Conservatives. We are making progress and delivering things for Scotland.
Now, the new Forth road bridge can be built—I have campaigned for it for some time and I am delighted about that. The crossing will be built without the SNP’s planned cancellation of or delay in other transport projects, so great progress will be made on many projects that are on the SNP’s long list of projects.
The cabinet secretary will know—I am sure that he is slightly nervous about it—about the long wish list of his back-bench SNP colleagues, who made many promises for many local transport projects. The puzzle to which I alerted him earlier is that his back benchers made those promises and he has clearly stated the importance of transport infrastructure to regenerating the economy, yet, when he made that point yesterday, he forgot to alert Radio Scotland to the fact that he has cut £250 million from the transport infrastructure projects budget.
The SNP has chosen not to prioritise all the projects that back benchers have spoken about throughout the country. When SNP members complain, they try to blame everybody else, but we will now be able to point to where the decision was made. The SNP will no longer be able to blame everybody else in every other part of the country. SNP members have made their choices and will have to live with them—£250 million has been cut from transport infrastructure projects.
Yet again, the SNP blames somebody else. The SNP must accept responsibility for the projects; it has been in government for four years. There is no point in blaming anybody else. The SNP’s cabinet secretary has cut £250 million from transport infrastructure projects. He and his back-bench members will need to explain that decision to their constituents, as it is the SNP’s responsibility.
I support the call in the motion for a discussion about the borrowing limits. As John Swinney will recognise, the wholesale collapse in global economies because there was too much debt means that clear limits on borrowing and debt will have to be set. Sometimes, SNP members give the impression that those limits would disappear after they got independence, but I understand that they might expect the Bank of England to run monetary policy, with or without Scottish representation or a Scottish remit, and that the bank’s macroeconomic rules would have to be followed. I have no doubt that the SNP will say that the oil fund could be used, but it has already been spent three times—on pensions, bailing out the Scottish banks and fuel duty.
I put on record my commitment to the principle that the Parliament should have borrowing powers. The big question is not so much whether we should have those powers as what we should do with them.
Presiding Officer, I am sure that you, like me, are experiencing déjà vu. Once upon a time, the SNP opted out of the Scottish Constitutional Convention. Then, when it saw the way the wind was blowing, it jumped on board the devolutionary train and claimed to be the champion of a Scottish Parliament. Fast-forwarding two decades, we witness the SNP, having once again opted out of the Calman commission and dismissing it as a waste of time, now popping up as the great champion of the commission’s product: the Scotland Bill.
A clear pattern emerges. The SNP and the First Minister act like petulant children, refusing to play with anyone else, and then they realise that the game is actually quite good and not only try to join it but try to claim that it was their idea in the first place and try to change the rules. However, I am not one to hold grudges; as a God-fearing man, I will always welcome a repentant sinner back to the fold. Let us hope that, after two major constitutional opt-outs, the SNP has learned from its mistakes.
The main question in the debate is not whether we have borrowing powers but what we are borrowing for. If we are borrowing to pay for infrastructure projects, including, for example, repairing our crumbling roads, and new transport and housing projects that will employ large numbers of people, count me in; if it is to create real apprenticeships in construction and civil engineering, count me in; and if it is to be used in projects to pay people a decent wage, count me in. My support is based not only on the need to create a better and fairer society but on evidence that progressive taxation and Government investment help to boost demand and strengthen the economy. We have seen that in Norway, Germany and other countries; indeed, the UK stimulus package in November 2008 helped to reduce the deficit as a percentage of GDP and in real cash terms.
The First Minister recently met the Tory big beasts; today, he meets the Lib Dem kitten. However, I suspect that he made or will make no effort to challenge either on the corporation tax evaders who, depending on who we listen to, pilfer between £40 billion and £120 billion per annum. Those are incredible figures. If that money were recouped, as it should be, and if there were a parallel increase in taxation for individuals and corporations able to pay more, what would be the impact on our economy and society? Prioritising tackling tax avoidance and evasion would stimulate the economy as we would be able to borrow more, invest that money in our communities and pay it back through increased tax receipts.
However, the SNP is now talking about cutting corporation tax. Instead of tackling the tax avoiders, it wants to cut tax revenues even further.
I thank the member for giving me my first successful intervention in my time in the Parliament. Does he think that it would be better overall if Scotland had access to all the resources that it raises, especially given that, according to Government reports, we raise more in public expenditure than we spend?
If the member waits to hear the rest of my speech, we might debate the point later.
We need Mr Swinney to clarify whether the SNP will borrow to make up the revenue that will be lost from cutting corporation tax, given that there is no evidence that such a move will stimulate the economy. I want no part of any move to secure borrowing powers based on that scenario.
In last week’s economy debate, I set out a number of policies that I believe can take Scotland forward. In the spirit of consensus that he regularly speaks of, I make Mr Swinney an offer. As he knows, the conduct of the banks and our financial institutions over the past few years has wiped out centuries of hard-won reputation; certainly in my community their standing is still at rock bottom. How can we help them help themselves? The principles of the Robin Hood tax on financial speculation are well established and promoted by most of the major charities, non-government organisations and trade unions and by others; indeed, today, the Scottish Catholic International Aid Fund contacted all members about it. I believe that such a move would command a majority in the Parliament; after all, we are talking about a 5p charge on every £1,000 of speculation.
Let me test Mr Swinney’s commitment to a fair society, consensus and—
I have no more time.
Let me test Mr Swinney’s commitment to a fair society, consensus and his much-talked-about desire for a parliamentary love-in by asking that he convene a meeting of the Scottish banks and institutions to which my colleagues and I would be invited and at which we could ask them to make a voluntary contribution—in other words, make financial reparations that are morally, socially and economically the right thing to do.
Let us make it an all-party affair. We can run a bus. I am sure that Mr Harvie, Mr Rennie and Ms MacDonald will come and, as we go, we can wave to Mr McLetchie out of the bus window. It would be a great opportunity for our banks to show humility and international leadership. How’s about it, Mr Swinney?
I congratulate members who have made their maiden speeches today.
It is right and sensible that the Scottish Government and the Scottish Parliament should be endowed with borrowing powers. In that context, I welcome today’s debate. In doing so, I clarify that I look forward to the day when such debates are a thing of the past. It seems strange to me that a national legislature must have such debates. In a previous debate, other SNP members and I remarked on the normalcy of independence. Part of that normalcy is, of course, having a Government that is able to borrow as any sovereign Government is able to borrow. In such a context, no such debates would be required in the Parliament. We might debate the necessity or sensible nature of an independent Government borrowing a particular amount of money that it seeks to borrow, but we would not need to have debates on whether a Scottish Government should be able to borrow. I look forward to that day.
I welcome Nick Clegg’s announcement this morning. Maureen Watt said that he would be welcomed back to Scotland more often if we got more such announcements. I understand where she is coming from, but I am not sure how welcome he will be in Scotland, not least among his Liberal Democrat colleagues in the Scottish Parliament, given the recent performance of the Liberal Democrats in the election. That said, surely everyone will welcome the announcement that was made. As we have heard in the debate, there is clear consensus that it is sensible for the Scottish Government to have borrowing powers. Perhaps I will turn to why that is the case a little later.
It is clear that the announcement came about only because of pressure from the Scottish Government. It was interesting to hear Mr Findlay making the case that the SNP has somehow done a U-turn and changed its stance on the Scotland Bill. Let us be clear. The entire Calman process and the entire further devolution process have been driven by one thing alone: the election of an SNP Government in 2007. The process will be driven further by the re-election of an SNP Government this year. We welcome the announcement that was made, but it is obvious that we should take a cautious approach, as John Swinney suggested. We need to see the detail and ensure that the transfer of borrowing powers is signed, sealed and delivered before we break out the ticker tape.
I welcome the broad consensus that has been expressed across the chamber and Richard Baker’s stated position that Labour supports the devolution of borrowing powers. I note the terms of Labour’s amendment, which is not particularly objectionable, and the point that Patrick Harvie made during Richard Baker’s speech about the Scottish Government exercising fiscal responsibility was well made, but the debate has been consensual, although even Gavin Brown noted that David McLetchie tried to break down that consensus. Mr McLetchie seemed to go off on one about the Klingons. I am not quire sure where he was coming from. He seemed to be the only one trying to cling on to an unreconstructed, do-Scotland-down unionism that is, thankfully, dying a death in Scotland.
I thought that John Pentland was going to follow Mr McLetchie’s lead; he just about avoided that. I thought that he was going to do the same when he started to talk about independence. He referred to independence being relative and the fact that we live in an interdependent world that is subject to the forces of change. That is objectively true and is, in fact, why I support independence. It is surely also why the Scottish Government should have borrowing powers. Annabelle Ewing made a point very well about the Scottish Government’s ability to respond to changed economic circumstances with borrowing powers.
I want to comment briefly on Neil Findlay’s point about seeking the Scottish Government’s backing to tackle tax evasion. I will leave aside the year-zero approach that he seems to adopt in glossing over the fact that much tax evasion took place under the direction of his Labour Party in government. It is, of course, clear that we do not have the powers to tackle such tax evasion properly so, as well as welcoming his support for borrowing powers for the Scottish Government, I welcome what I presume is his support for Scottish independence, which would endow us with the powers to tackle the tax evasion to which he refers.
I turn to why I believe that the Scottish Government should have borrowing powers. The Government’s submission to the Calman commission stated:
“The ability to borrow would ... give the Scottish Government greater influence over the pace and priorities of Scotland’s capital expenditure programme.”
The Government argued that that would allow it to phase funding
“in a way that is sensible, efficient and wholly appropriate to Scotland’s circumstances.”
By any measure, that is reasonable. Members frequently call for projects in their area that require capital investment—incidentally, I am as guilty of that as any member—and that might require borrowing powers, so it is sensible to argue that the Scottish Government should be endowed with such powers.
I turn to devolved legislatures internationally. The Basque Country is responsible for raising about 86 per cent of its budget and has far greater financial competence than we have in Scotland. At the start of 2009, the Basque Country’s credit rating was higher than that of Spain, which shows that, even within the constraints of devolution, devolved Administrations can successfully have borrowing powers and can be assessed as exercising them more effectively than the state of which they are part.
I am running out of power, Presiding Officer. I beg your pardon, I do not think that I have any power—I am running out of time. I will close by welcoming the debate and the impending transfer of borrowing powers to Scotland. I reiterate that I look forward to the day when we are independent and do not have to have such debates.
Thank you, Presiding Officer. It is good to be the 15th speaker and not have had to stand up 15 times beforehand to get to speak, as they do at Westminster in one of the strange customs there.
In one sense, the ideal would be not to have to borrow at all. If we look across the North Sea at Norway, we see that, in the good times, Norway saved money and then, when it hit the bad times, it had funds to fall back on. It ill becomes David McLetchie and some of his colleagues to talk about prudence and cutting borrowing and debt when in fact their Government failed to save any of the oil revenues. It is clear that many businesses have borrowed too much in recent years.
I am saying that, at the last count, Norway had £300 billion in the reserves, or something along those lines, and other countries in the middle east have similar or larger amounts.
The UK Government is one of the Governments that have failed and borrowed far too much. Individuals in our society have borrowed too much, too, which has often been because of irresponsible lenders. On Saturday, I received through the door an invitation to borrow at an interest rate of 82 per cent and an APR—annual percentage rate—of 272 per cent. Frankly, that is exploitation.
Our football clubs have not been exempt from borrowing too much. In yesterday afternoon’s debate, I was disappointed to find out how many Partick Thistle supporters there are in the Parliament. I must accept that my team, Clyde, have had similar financial problems. Football clubs need to learn, too.
As we do not have the savings that Norway and other countries have, we need reasonable amounts of borrowing. The question is how we do that borrowing. Is it through straight loans, the Scottish Futures Trust or PFI/PPP? Let us be honest that borrowing is borrowing. For years, we were told that PFI/PPP was not really borrowing and it was kept off the balance sheet. As an accountant, I must accept that accountants were partly to blame for that. They looked at the letter of the law and forgot about its spirit. I suggest that lawyers are guilty of that, too.
Glasgow City Council presents a particularly bad example of PFI and how it did not work. Secondary schools were refurbished and rebuilt in that way, with the council paying well over the odds for what it got. The council is tied into buildings for 30 years, although it might or might not need them, as none of us knows what will happen in 30 years. The payments are ring fenced, which means that if the council has to make other cuts, those cuts have to be greater, because the council unwisely went into the PFI deals. The council has realised now that it made a mistake, and it has replaced primary schools in a different way. That change is belated but welcome.
Obviously, there is a danger that anyone will borrow too much, which applies again to Glasgow. When I was first elected as a councillor in 1998, about half the rent from housing went to servicing the debt, and the housing itself was therefore in a poor state. That is something that none of us wants to see.
The more recent addition of prudential borrowing for local authorities has been a major step forward and has largely worked. When I was a councillor, we were given a lot of advice by finance staff. I was going to read out the Chartered Institute of Public Finance and Accountancy code, but I shall refrain from doing that as time is against us. However, as I understand it, we could have three dilapidated schools in an area, with costs being great because of repairs and heating. By closing the three schools and building a brand new one, we would make savings, which are then fed back into the system. In that situation, prudential borrowing is allowed, and it seems to have worked. I assume that that is what the Labour amendment is aimed at, although I am not sure that it adds much to the motion.
When I trained as an accountant, prudence was a fundamental concept of accountancy. Sadly, the accounting profession has moved away from that in recent years. Prudence also got a bad name because it was linked to Gordon Brown.
Finally, one question that has been raised by a few members, not least Rhoda Grant and Neil Findlay, is about what we would spend the money on if we had more money for capital projects. Obviously, any Government has to set priorities, and we cannot all get everything that we want. We have had a lot of good capital investment in the east end of Glasgow in recent years—the Clyde gateway, the Commonwealth games, the M74, the M8 and the M73—but if John Swinney wants my wish list for the years ahead, I am happy to oblige.
I know that, for example, Labour’s priority in Glasgow is a rail link. In an ideal world, I would take that as well, but it is a luxury that will not help ordinary people in my constituency. We need decent primary schools, and we could do with more housing. There are some very interesting points in the Scottish Federation of Housing Associations briefing for the debate:
“Investing in new-build affordable housing generates important social and economic benefits, provides employment, and a long-term saving to the taxpayer, via less spending on welfare.
Every £100 million of investment supports 696 direct jobs and 557 indirect jobs.
Every £1 spent on construction generates an extra £2.84 for the UK economy.”
As this is my first speech in the fourth session of the Scottish Parliament, I begin by congratulating the cabinet secretary on his reappointment. I would have also congratulated the minister on her appointment but, unfortunately, she is not here. I am sure that I will get an opportunity to do that in the future.
At the end of the previous session, the Scotland Bill Committee did an excellent job. There were areas of disagreement—indeed, a minority report was produced—but the committee came forward with some well-thought-out and evidenced proposals, for example on the need for a higher limit on capital borrowing and a timescale for earlier implementation. I am pleased that we are moving to a position in which the Scottish Government will have greater fiscal responsibility.
I noted with interest what the cabinet secretary said about the Deputy Prime Minister. The only note of caution that I would put forward is that I remember Mr Clegg saying that he did not believe in tuition fees, so perhaps the cabinet secretary is right to be cautious about wanting to see the detail of any statement before he agrees with Nick.
I am no fan of the policies of the UK Conservative-led coalition Government. I am firmly of the view that its policies are deeply damaging to public services and to the Scottish economy. The Labour Party has said on many occasions that the UK Government is inflicting cuts that are too fast and too deep, and that is also the view of the majority of Scottish voters. Albeit that they did not go the way that my party would have liked, the results of the recent election demonstrated that most people in Scotland reject the cuts-led economic model and would prefer to see an investment-led economic model. We need to have the tools for that.
Whatever we feel about the political complexion of the UK Government, progress must be made through constructive dialogue. I agree with David McLetchie in that I caution against the type of language that has been used recently in the context of other UK issues such as the Supreme Court. It is counterproductive to use such terminology in discussions, or in speaking publicly and in the media about the nature of such discussions. I am assured, however, that the cabinet secretary is probably more temperate in his language than are some of his colleagues.
The rationale for increased borrowing powers delivered in a faster timescale is to implement a different type of economic recovery. That must be sustainable, and infrastructure investment—as many members have said—is key. However, like Neil Findlay, I am interested in how we will spend the money, not just in the fact that we will have the money to spend. We need to have a nationwide and not just a national recovery.
There is a lot of interest in and emphasis on large-scale projects such as the new Forth crossing. Although I appreciate how important those are to the national economy, I remind members of the need for smaller-scale investment, especially in rural areas such as my constituency.
The early casualties of the £1.3 billion cut that the UK Government imposed on the Scottish Government were two improvement sections for the A75, one of which was the Hardgrove to Kinmount section in Dumfriesshire. That improvement had been planned for a number of years and should have been completed in 2007, but it was delayed initially by objections to the initial traffic orders. I am not quite sure what went wrong later, but it did not come to fruition.
The A75 is a Euroroute and is crucial to the economy of much of Dumfries and Galloway. The scheme would have improved connectivity with the Annan, Gretna and Lockerbie areas, which are being affected by the decommissioning of Chapelcross. We need the scheme to be implemented. I am not asking for a dualling of the A75: all I want is for the two improvements to be undertaken. Yesterday’s tragic accidents on the A75 emphasise that we need to improve the safety of the route.
Similarly, the A76 connects the coalfield communities of Sanquhar and Kirkconnel with Dumfries town and Ayrshire. Improvements to that trunk road are needed for the regeneration and economic recovery of those communities.
Contributors to last week’s debate highlighted the desperate need to upgrade broadband infrastructure, especially in rural areas, which will not be serviced by the private sector because they are not competitive. I was pleased by the cabinet secretary’s comments in that regard in his response to Willie Rennie’s intervention today. Rural areas will otherwise be left behind to the detriment of business, medical services and education and training. I want our borrowing powers to be used to invest in rural infrastructure such as broadband, as it benefits those communities.
My colleagues and I have had much to say in the previous session of Parliament about the Scottish Futures Trust, and much of it has not been complimentary. Given the result of the recent elections, I recognise that the SFT will be a major delivery vehicle. However, I draw to the cabinet secretary’s attention some concerns that have been raised with me locally about the hubco model. Local firms are worried that the size of the geographical territory that is required for a population of around 1 million and the involvement of a single private sector delivery partner—in all probability a large national or multinational company—will mean that small local businesses will be unable to compete and may be excluded, even at a subcontractor level.
Unfortunately, the operation of the Scottish Government energy assistance programme in my area has no businesses from Dumfries and Galloway within it. Most businesses in rural areas such as mine are small and medium-sized enterprises, and it is essential that they, too, benefit from the local infrastructure investment and from investment in our local economy.
I am sorry if my contribution has appeared to be parochial, but I promised my constituents when I was elected last month that I would continue to bang the drum for them, and I have taken the opportunity to do so today.
My colleagues have taken most of my best lines already, so I will pick up on areas that have not been covered in so much detail.
Elaine Murray referred to the Scottish Futures Trust. Along with a number of our colleagues, I attended an SFT briefing this week in which it was made clear that there will be a £14 billion gap in capital spending in Scotland as a result of the budget allocation from Westminster in forthcoming years, and the implications that that will have for the Scottish Government’s capital planning were outlined.
The Scottish Futures Trust has been engaged in the delivery of a number of projects, and members—not least the cabinet secretary—have mentioned the savings that the programme has delivered, including on the Forth crossing. The programme includes £2.5 billion-worth of projects and is allied to efforts to deliver greater efficiency in delivery of projects and procurement savings. That is one means of delivering local authority and central Government investment projects at a better price and, through regional hubs, delivering a better bang for our bucks than has been delivered in the past.
However, there is no disguising the scale of a £14 billion gap. The considerable effort that the SFT has made will not go far enough to deliver all the projects that we would like to see delivered in Scotland or to address some of the issues that my colleague Mike MacKenzie raised concerning the crumbling roads in many parts of rural Scotland.
I mention the SFT in the context of the fact that the Government has asked for a framework for borrowing powers that recognises that we should have greater freedom to borrow, but within the constraints of prudence. The SFT is a good example of how the Scottish Government and the Parliament are already delivering capital projects in a prudent manner. I hope that that prudence will be evidence that will allow the UK Government to trust the Scottish people and the Scottish Parliament to a greater degree than is presently demonstrated.
I will skip over the benefits of capital spending, as others have made that point well. However, I reiterate that capital spending is undertaken to deliver long-term sustainable returns. Clearly, long-term sustainable projects should not be funded from present spending and current budgets. We need to think much more clearly about how we fund such projects. As Mike MacKenzie said, borrowing is the sensible route by which to deliver them. That is preferable to proceeding on a pay-as-you-go basis, which is the constraint that we currently face.
I will focus in the main on revenue borrowing. The Scottish Parliament has often been described as a pocket-money Parliament. According to the most recent GERS report, we currently contribute roughly £55 billion in tax receipts. The current DEL for Scotland is slightly more than half that figure. It is not the case that Scotland does not generate income—it is about where the income goes and how much of it comes back to us. Clearly, we have the capability as a country to sustain a level of borrowing well in excess of the current proposal of £2.2 billion.
If the income tax proposals that the current Scotland Bill suggests had been implemented back in 1999, they would have resulted in Scotland having a cumulative shortfall of £8 billion between 2001-02 and 2010-11. In her speech, Maureen Watt mentioned that the most recent GERS report indicated an income tax drop of more than £500 million, which is in excess of the Scottish Government’s capability to borrow under the bill to fund any short-term shortfall.
I am concerned that the proposals in the Scotland Bill are entirely dependent on the Office for Budget Responsibility’s forecasts for tax receipts, which are crucial. There would be a reconciliation exercise 12 months later, to see to what extent there had been a shortfall or an overcommitment by the Government. In effect, there is provision for borrowing to offset the inaccuracy of the OBR’s projections, because we will be entirely dependent on the accuracy of its forecasts. That is not the same as borrowing to cope with the effects of the economic cycle, which is what borrowing should be about. The irony is that the Scotland Bill as currently constituted would not allow the Scottish Government to borrow to offset the impact of a temporary fall in tax revenue that was forecast by the OBR. In effect, we will be able to borrow only to deal with the inaccuracy of the original forecast. Given that the UK Government has been habitually overoptimistic in its projection of tax receipts, the annual limit and the total of £500 million will clearly be insufficient.
As I am running out of time, I will focus on a couple of the comparisons that have been mentioned. Members have already referred to the example of parish councils. However, as someone who comes from Northern Ireland, I find it ironic that, under current legislation, the Northern Ireland Executive—which is responsible for a jurisdiction with less than one third of Scotland’s population, as has been indicated—has greater ability to borrow than the Scottish Parliament. Furthermore, that is part of a package of measures. Recently, the Secretary of State for Northern Ireland suggested that Northern Ireland should accept corporation tax powers, which are currently denied to Scotland. In the current climate, Northern Ireland would have a greater ability to compete for jobs than Scotland. I think it was mentioned earlier that up to 58,000 jobs could potentially be generated through the package of measures that are proposed for that country.
I highlight the example of Norway, which John Mason raised earlier. In the current year, Norway can spend 4 per cent of its oil fund, which is about £13.5 billion. That could pay for 40 of the railways to which Colin Beattie referred earlier.
As the cabinet secretary is well aware, there are serious areas of disagreement on aspects of this subject between the Green Party’s position and that of every other party represented in the chamber, most specifically on what we would use borrowing powers for.
In his opening speech, John Swinney listed with pride all those big, bad, ugly road-building projects, so I do not need to. The motion omits the cabinet secretary’s favourite oxymoron—sustainable economic growth—so I do not need to dissect that, either.
I would be happy to give a list of all the forms of investment that I think are priorities for Scotland and which we would be able to afford were it not for successive Governments’ addiction to pouring concrete.
Mr Rennie criticised me for removing £250 million from the Forth replacement crossing budget and spending it on rural broadband, youth talent, sure start, warm homes and green transport. Does Mr Harvie believe that I have taken a wise decision in doing that, and does he accept that that is perhaps a response to some of the issues that he has raised in the Parliament?
It is a response to a separate set of issues. I share the pleasure in reminding Mr Rennie—who has just rejoined us in the chamber—that his message calling the SNP to account for being responsible for the cuts that it is imposing on the public sector should be heard by every political party, not just the one in government in this country.
We should frame our emphasis on investment in terms of not economic growth but, as I have repeatedly argued over the years, a wider concept of progress, including social and environmental objectives as well as economic ones.
The issue before us is whether the proposals in the Scotland Bill are right. I can see no principled argument as to why the Scottish Government should have any less ability to borrow than local authorities, or indeed the UK Government; nor do I see a case for Richard Baker’s amendment, which seems to imply that UK legislation should continue to set a borrowing limit on the Scottish Government’s capacity to finance its own debt through taxation. I have never heard of a UK chancellor proposing to hand over legal powers on their borrowing choices to another Government and I do not see why we should impose such a constraint on the Scottish Government.
Unlike Mr Harvie, we still believe in a United Kingdom economy. The borrowing from the Scottish Government will be part of UK national borrowing. That is why we believe that it is sensible for the Scottish ministers and UK ministers to agree limits.
I can see a case for agreement on the limits between the two Governments, but in a relationship of equals. The idea of UK legislation binding the hands of the Scottish Government implies that there will not be a relationship of equals and it suggests that such a relationship is not even sought.
Financial power should go hand in hand with accountability. That means a genuinely empowering approach, giving the Scottish ministers the responsibility to make prudent decisions and giving this Parliament the ability to hold them accountable for the decisions that they make.
Richard Baker’s amendment properly makes the connection, however, between borrowing powers and taxation powers, which is an important point to draw out. If we expect UK Government ministers to give the Scottish ministers the combination of a power to borrow and a power to tax in order to service that borrowing, we should equally put to Mr Swinney a case for the Scottish ministers to take the same empowering approach with local government.
Every member can list investment that they would like to see, such as investment in housing, in the repair of our existing road network—which Mike MacKenzie talked about and which gets far more sympathy from me than does building additional capacity in our road network—and investment in publicly and community-owned renewables, which can generate revenue for the future as well as clean energy. We could empower local government to invest in all those areas if we encouraged local authorities to borrow and empowered them to raise local taxation to service that debt.
Exactly the same argument, on which I agree with John Swinney, is made about empowering the Scottish Government to borrow and to raise tax to service its debts. We should make the same case and the same offer to local Government. We can do that right now. We do not need to wait. The ability to invest in all the priorities that constituency and regional members from throughout the country have set out exists right now, if we have the will to act and to empower local government in the way that we expect the Scottish Government to be empowered.
This has been a long afternoon. I congratulate the members who made their first speeches during the debate—good speeches they were, too. They have had the opportunity to watch a debate that started with complete agreement deteriorate into a rammy. That is something that we have an ability to achieve in the Parliament, and we Conservatives are proud of our contribution to that record.
The debate started with John Swinney saying that he thinks that he has a mandate to demand higher borrowing powers. Indeed he appeared to claim that the Scottish people had gone out to give him such a mandate. Annabelle Ewing suggested that, too. I am not convinced that the Scottish people would have voted for the SNP in such large numbers if the ability to borrow yet more money had been right at the centre of the party’s manifesto commitments. I suspect that a broader trend was at work.
We have to realise that we in Scotland already borrow money. A significant proportion of all the resource that Scottish Governments have spent during the past 12 years was borrowed. During the past five years, in particular, a huge proportion of spend was borrowed. Scottish taxpayers stand shoulder to shoulder with taxpayers south of the border to take our share of responsibility for that, because we spent the money.
For that reason, we must remember that we do not start from zero. We do not start from a clean line in the sand. Thanks to the previous Labour Government, in particular, which maxed out on the credit card, we stand up to our necks in a pit of debt. That is where we start from and the responsibility will lie with us for many years to come.
The Labour Party’s habit of blaming the banks for the entire debt will be debated on another day. I have no fear in saying that even when the economy was at its strongest and the banks were at their most profitable, the Labour Government was still borrowing at record levels. Its failure to fix the roof when the sun was shining, as George Osborne said, is the reason for the depth of the hole in which we stand.
Let us consider the proposals that have been made. I point out again that Conservatives—David McLetchie, in particular—took an active role in the Scotland Bill Committee and supported every commitment in the committee’s report. The unfortunate tendency of some of our new back benchers to give the impression that Conservatives are the foot-draggers on the argument—if not the knuckle-draggers—is entirely inappropriate, because we have been at the forefront of the process.
Will Mr Johnstone tell us what the Conservative Party’s position was throughout the 2007 election campaign and after that election on whether the Parliament required any more powers?
The Conservative Party’s position was then, as it is now, to consider the options that are before us and say, “Careful now!”
During the debate, we heard a number of speakers make claims for what they would like to spend the money on, and I need to talk about how we will spend money that we borrow in the future.
We must remember that, although many members would like the Parliament to be able to borrow money, it is a responsibility that we need to take seriously. We also need to remember that it does not come without a cost. It will be a cost to us in the future and members should remember that the debt that we have accrued through the money that comes from Westminster already cuts the amount of money that we have to spend.
Responsible borrowing with responsible limits is the sensible way ahead. That will limit the potential impact. Borrowing over the medium term to fund capital projects has a major contribution to make to the development of the Scottish economy in years to come, but we cannot make the mistake of previous Governments in saddling our successors with a debt that they cannot afford to pay.
Also, once borrowed, the money must be used where it is most effective. A number of members suggested projects, not least Patrick Harvie, who suggested that the money should be invested in developing green energy. I suggest that the future of the Scottish economy depends on attracting private investment into the development of green energy in the long term. Using public money to displace private investment is exactly the opposite of what we should do. Infrastructure development is a key part of our future, but we must target into proper investment money that the public sector has borrowed.
Considering the scale of growth that will take place in the renewable energy industry in the next few years and the amount of money that will be made from it, surely there is room for the private sector to take a major part in driving that industry forward and for the public and community sectors to keep a share of that revenue for themselves for the future?
I am not entirely convinced that we should use additional borrowing powers to invest to produce that kind of return on the future and displace private investment.
I believe that the Parliament will unite around the motion and the amendments at 5 o’clock tonight. By doing so, we will send out a clear message. However, all members must understand that although the Conservatives will continue to support additional borrowing powers, we will do so on the basis that we must not use them inappropriately.
The debate has produced broad consensus in spite of the Conservative front bench’s best efforts. Mr Swinney argued for increased borrowing powers to support economic recovery and enhance Scotland’s infrastructure, and Labour believes that those objectives are more than ever of the first importance in this session of the Scottish Parliament. We, too, take the view that the proposals for borrowing powers in the Scotland Bill can be improved upon, as Wendy Alexander and Peter Peacock argued in the Scotland Bill Committee earlier this year and as Labour colleagues argued in the Scottish Affairs Committee in the House of Commons. For those reasons, we welcome Mr Swinney’s approach in the debate and we will continue to work with ministers for as long as economic growth and public investment are the drivers of Scottish Government policy on borrowing powers.
We are not naive in so doing. We understand that increased borrowing powers can also contribute to the SNP’s wider political purpose in creating an edifice of devolved powers that look as much as possible like the attributes of a quasi-sovereign state. That is an entirely predictable purpose for a nationalist party, but it is not a purpose that we share.
Labour’s approach to further devolved powers will be to distinguish between Scottish Government demands that support economic growth and those that support only political independence. We make that distinction not to highlight a difference between us, but to show that increased borrowing powers command broad support across the spectrum of political opinion in Scotland. We believe that progress is best made on the basis of agreement and that Scottish borrowing powers should go forward in the context of the United Kingdom’s overall public sector borrowing requirement.
We debated the economic recovery last week and I was a little bit surprised that the new Cabinet Secretary for Infrastructure and Capital Investment did not take part in that debate. We are debating capital borrowing today and the Government’s motion explicitly raises the importance of enhancing Scotland’s infrastructure, so I hoped that Alex Neil might be involved in this debate, as undue reticence is not a fault for which he is famous. Perhaps he will get his chance before too long. I hope that he does, because I suspect that we would agree that investment in infrastructure is a critical part of what needs to be done to promote Scotland’s economic recovery.
There are plenty challenges to be faced in achieving levels of investment in line with Scottish Government commitments and we have heard about a number of those challenges in the past few days. The SNP manifesto committed to an extra 6,000 affordable homes a year and it was widely acknowledged that that would be good for jobs, communities and tackling poverty. However, last week, Shelter Scotland highlighted its concern that current provision is not enough to meet that target and that it might fund no more than 1,550 new affordable homes. Even on the basis of the lower grant per house that ministers brought in last year, that would be a capital shortfall of £120 million annually.
This week, the Water Industry Commission for Scotland report highlighted that the current Scottish Government budget does not include £140 million in capital finance from the Scottish ministers to Scottish Water as might be expected in the context of the five-year investment plan for Scottish Water. As we have heard, there are different ways of addressing that shortfall other than through greater Government finance for the remaining years of the investment period, but the SNP has promised to retain Scottish Water in public ownership, so its future funding requirements will have to be addressed.
Concerns were raised in the chamber yesterday about the proposed new Edinburgh children’s hospital. None of our Lothian colleagues appears to share the concerns about how the project is to be implemented. The minister who responded to yesterday’s debate said that the Scottish Government remains committed to delivering the project, but did not spell out how, and there is no doubt that meeting that commitment will also present a challenge.
Borrowing powers can help to meet all those challenges, not to mention funding the larger transport infrastructure projects such as the new Forth crossing and the Aberdeen bypass. I heard Alex Neil this week—on the radio rather than in the chamber—confirming plans to start work on the M8 improvements in the course of next year. That was a welcome commitment, but it will also have to be paid for.
It would be helpful if the cabinet secretary was able to describe the relationship that he anticipates there being between increased borrowing powers and the approach to the funding of future infrastructure projects by the Scottish Futures Trust. The choice that one or two members presented between projects funded from borrowing and those funded through revenue budgets by either the SFT or PPP could be a false choice. It is about using those approaches together to deliver the infrastructure that we require. Whether they are funded from borrowing or from PPP, and whether that PPP is conventional or capped by the NPD method, those projects need to be paid for and they will involve payments from revenue budgets for years to come. It is important for us to understand the Government’s view of the relationship between such funding and borrowing powers.
We support the previous Scotland Bill Committee’s approach to capital borrowing powers and to the ability of the Scottish ministers to borrow to fund current expenditure. We also welcome the Scottish Government’s proposition that there should be a principles-based approach to capital borrowing, because borrowing should not be limited in an arbitrary way, nor should it be open ended. Our amendment supports a link between limits on capital borrowing and the capacity of the Scottish Government to finance debt prudently from devolved tax revenue, and I hope that that will also be generally agreed.
We also want a balance between prudence and flexibility in short-term borrowing and, again, we support the general approach of the previous Scotland Bill Committee. I hope that the new Scotland Bill committee that is to be established will be able to build on the strength of the recommendations of its predecessor and I believe that there is broad agreement across all parties on many of the points that the previous committee raised in its report.
Of course, we welcome indications of an accelerated timetable for access to capital borrowing powers and we agree that access to the bond market would add to the ability of the Scottish ministers to manage their capital budget without needing to add further to the UK national debt. That is an area in which agreement should be possible.
Labour is proud of the achievements of devolution and we are proud of our contribution to the Calman process, which has brought us to this point. Indeed, we hear members of parties that were not involved in that process claiming some of the credit, and that is the best tribute to the importance of the process.
We are ready to work with any party in the Parliament in building on those achievements when we believe that its objectives will benefit the people of Scotland and strengthen Scotland’s economy. The challenge for us in working with the present Government is to get the judgment right—to support those proposals that will make things better and to oppose those that will not. The challenge for the SNP is to recognise that the case for increased powers is made more strongly when it has broad support across the Parliament, and I am glad that the SNP Government has risen to that challenge today. As Neil Findlay, Elaine Murray and others have said, once borrowing powers have been achieved, the real debate will be on how they should best be used to strengthen Scotland’s economy and to create jobs, and I look forward to that debate.
Lewis Macdonald asked about the whereabouts of Mr Neil, the Cabinet Secretary for Infrastructure and Capital Investment. I inform him that Mr Neil has been involved in this afternoon’s discussions with the Deputy Prime Minister—it was only appropriate that we fielded a strong team to welcome the Deputy Prime Minister to Scotland.
I congratulate Colin Beattie, Mike MacKenzie and John Pentland on their first speeches in Parliament. Colin Beattie brought his significant experience in finance to the clear arguments for borrowing powers and the economic benefits that would arise from having them. Mike MacKenzie brought some romance to the debate when he talked about his journey over the border and on the road north from there. If he were to make that journey in the next few weeks, he would be able to use the extended M74, for which we have waited a significant number of years. It has taken an SNP Government to complete a road—despite Mr Harvie’s objections—that many other Governments failed to complete.
I am sure that it is only a matter of time before the bus companies take the appropriate action.
John Pentland made a strong speech about the interests that he will have in Parliament and dwelt on his inheritance from Jack McConnell, the former First Minister, who was a long-serving member for Motherwell and Wishaw. I thought that there was a contradiction in Mr Pentland’s argument. He argued that the SNP Government’s prosecution of its arguments on the constitution and on greater powers were examples of conflict, but somehow it is acceptable for everyone to argue for borrowing powers, which is not an example of conflict. I make the point to Mr Pentland and to the chamber as a whole that the SNP Government is interested in securing further powers for the Parliament not for the sake of it, but to ensure that we have the ability to transform the lives of people in Scotland and to deliver on their aspirations. That should lie at the heart of all the work that we undertake in the Parliament.
As regards Mr Pentland’s specific point about Clyde Valley high school, I am aware of the suggestions that have been made and the discussions that have been taking place about the approach to financing such projects, and I am sure that there will be opportunities for us to discuss those points further with our colleagues at local authority level.
The debate started in the right and proper way. I have been trying to do exactly what the First Minister has instructed me to do, which is to act as a representative of a majority Government in the spirit of a minority Government. As a consequence, I have done my level best to bring people together, and I thank Richard Baker for his thoughtful speech on the substance of the motion and on the need to create an agenda that we can all share.
It was therefore a rather surprising contrast to hear the Jekyll-and-Hyde contribution from the Conservative front bench, in particular from Mr McLetchie. He spent a large amount of his speech bemoaning some of the language used by the SNP Government in recent days. He complimented me on the measured tones that I had brought to the debate, then accused us of being a “puny” SNP Government. There is just a tad of contradiction in Mr McLetchie’s approach.
However, perhaps I should not have been surprised by that. Some of the roughest things that have been said this week in politics in Scotland have been said not by anybody from the SNP but by members of the Conservative Party. Yesterday, in The Scotsman, I read a quote from an unnamed Conservative MSP—although we may have had some clues this afternoon about the foul-mouthed speaker who said that Michael Moore should “engage his brain” before talking. That was much worse than anything that I have ever said at any stage, although I am sure that Conservative members will queue up to disown the remark.
This afternoon, Mr McLetchie argued about the importance of changing the status of Scottish Water. That is one of the very popular propositions that the Conservative Party has put repeatedly to the people of Scotland—to receive a resounding thumbs down. It is a proposition that this Government will not entertain, because we do not see why we should privatise national assets of Scotland that are important to the welfare of our country.
Continuing the rather negative tone of the Conservative front bench was—uncharacteristically—Gavin Brown. He talked about the importance of our coming up with a plan A on the Scottish economy. We spent last Thursday’s debate on the Scottish economy setting out in a pretty measured way—on my part—the Government’s approach to using our existing powers to stimulate economic recovery. At yesterday’s joint ministerial committee on the economy, the purpose of interventions made by the First Minister and me was to argue how—with further assistance from the United Kingdom Government on capital investment, on access to finance and on boosting consumer confidence—we might make more progress on economic recovery than we are currently making because of difficult decisions taken by the UK Government.
I was a bit surprised by the derision from the Conservative Party over the concept of a fixed price for capital investment. I am proud that this Government has presided over a number of projects—under its direct control—that not only have come in on budget, but will come in early. That is testament to our management of capital investment in Scotland.
We come now to the £250 million point raised by Mr Rennie. I will make no apology to Parliament for driving a tough procurement process that reduced the budget for the Forth replacement crossing by £250 million, and neither will I make an apology—because our party campaigned on it during the election—for deploying those resources to support the extension of broadband to rural Scotland, to encourage young talent in our country, to create an early years sure start fund, to encourage more initiatives on warm homes, and to deliver green transport. Those things suggest to me a Government that is focused on the real priorities of the people of our country.
Mr Rennie encouraged me to be grateful to the Deputy Prime Minister for coming to Scotland and announcing earlier borrowing powers. I have not heard any more details of that in the course of this debate, but we will no doubt hear more in the aftermath. Mr Rennie said that it was an example of Nick delivering
“with a little bit of help from the Conservatives.”
I am sure that that will be news to the Prime Minister and his colleagues. However, to be absolutely fair, we should talk about all the things that Nick is delivering: Nick has also delivered a 36 per cent cut in our capital budget. Let us not forget all the things that Nick delivers for Scotland.
Mr Hepburn made the fair point that the other parties were not really much interested in more powers in 2007, even though they said that the Parliament needed more powers. It took the election of an SNP Government to get the appointment of the Calman commission and to get to some of the debate that we are having today. The other parties can be assured of the Government’s willingness to work to achieve consensus on building new powers for the Parliament and to ensure that this institution is equipped, at this stage, with the capital powers that will enable us to invest in the Scottish economy and deliver prosperity for the people of our country.