Budget (Scotland) (No 4) Bill: Stage 1

Part of the debate – in the Scottish Parliament at on 27 February 2020.

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Photo of Bruce Crawford Bruce Crawford Scottish National Party

I will specifically address that matter. Witnesses did make such comments.

Of course, the Scottish Government has two additional budget management tools to help it to manage increased volatility. First, it has the power to borrow up to £600 million a year, with an overall limit of £1.75 billion. Secondly, there is a reserve with an overall cap of £700 million, and annual drawdown limits of £250 million for resource and £100 million for capital spending.

The Scottish Government’s view is that, given the far greater than anticipated volatility, those powers are insufficient. Although the fiscal framework is due to be reviewed in 2022, ministers have asked Her Majesty’s Treasury to extend the resource borrowing and reserve powers in the short term. The committee has invited the Treasury to consider the findings of our budget report in responding to that request.

However, that would not answer the question that I posed earlier. Indeed, if HM Treasury were to agree to increase the borrowing and reserve powers, that would make the question more immediate. Do we want to consider, as a whole Parliament, whether it might now be more prudent, when additional funding becomes available, to build up a reserve to deal with future volatility? Alternatively, are we content that all new and additional funding be allocated, and that we deal with future volatility as and when it arises?

The forecast negative reconciliation of £550m for 2018-19 is likely to present the Scottish Government and Parliament with a significant challenge in setting next year’s budget. The cabinet secretary suggested to the committee that were the Scottish Government to build up a significant reserve, there would be accusations that she was not using the Government’s resources as well as she could. Today might well demonstrate that the cabinet secretary made a fair point.

Use of the reserve therefore raises the wider question about the need for a more strategic approach to budget management and the Government’s medium-term financial strategy. In our pre-budget report, the committee indicated that we were somewhat disappointed by the lack of information in the MTFS regarding how the forecast £1 billion negative reconciliation would be addressed. In response, the Scottish Government stated its position that decisions on management of income tax reconciliations can be taken only in each budget year. The committee asks—reasonably, I think—how that approach is consistent with the principles and priorities that are set out in the MTFS, which appear to provide the basis for a strategic approach to management of reconciliations.

The committee also asks how the Government will seek to find an appropriate balance between increasing the size of the reserve and/or committing to further public expenditure. The committee recognises that there will always be political pressures to allocate all available resources annually. However, Government and Parliament now need to consider seriously whether that is a sustainable approach.

The committee believes that the possibility of shifting from an annual focus on allocations to a more medium-term approach needs to be considered. The committee therefore recommends that the next MTFS set out the basis for a more strategic approach to budgetary management that seeks to address medium-term volatility and risk. In addition, the possibility of multi-annual budgets for public bodies should be considered. That said, the committee fully recognises that that would be a significant challenge, given the lack of a recent UK comprehensive spending review, and given some of the reasons that Patrick Harvie outlined earlier.

I recognise that it will not be easy to engender meaningful wider debate, but I live in hope. However, I warn Parliament that the challenges that the committee identified will not go away. Come December, it is likely that the Government will need to find about £500 million to address negative reconciliations.

There will also come a point in future budgets when Parliament will need to decide how to deal with positive reconciliations, which could be substantial. Should such additional funding be spent, or should it be kept in reserve to pay for future negative reconciliations? The answer will depend on our collective willingness to engage constructively on whether it is now prudent to plan beyond a one-year budget horizon. Our report is intended to contribute positively to that debate.

In conclusion, I thank our committee clerking team and our adviser, David Eisner, for their highly professional and considered input to preparation of our report.