Covid-19 Fiscal Implications

Part of the debate – in the Scottish Parliament on 16th June 2020.

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Photo of Willie Rennie Willie Rennie Liberal Democrat

The debate is an important early discussion on what steps we should be taking not only to restart the economy but to shape it for decades to come.

Just as liberals and reformers worked on the new order that followed the second world war with the creation of the national health service among other things, now it is our responsibility and opportunity to build something new. However, it is not just about dreamers; it is about delivery.

From my inbox, I know that people are hurting, and they are worried about their future. One in 10 people could be unemployed by the end of the year, and the economic hit could last for three years, if not longer. We need to give them comfort, certainty and hope.

The chancellor’s announcement later this year about the recovery plan will be important. That is when decisions will be made about the size of the state, the level of the intervention, how we manage or pay off the debt, and the level of the annual deficit. Our view is that, if the UK Government seeks to impose on itself a needless, masochistic rule to pay off the debt and operates too tight a fiscal arrangement, it will snuff out any economic recovery.

There is significant tolerance in the markets to greater borrowing by Government. This is a global issue, so the UK is a relatively safe place for someone to put their money. Equally, future generations would never forgive us if we left them a massive debt without also leaving them a better country that is stronger, fairer and greener. That means new green homes; more green energy, heat and electricity; more pay for those in the front line of the pandemic, including care home workers; new job schemes; and support for our excellent universities.



.] I will not take an intervention just now.

Today’s debate on the flexibilities in the fiscal framework may seem rather inconsequential in the scheme of things, but it is important nevertheless, as it deals with the immediate financial issues that are ahead of us following the monumental effort by those who work for us across the public service. With a fraction of the time that is normally required, they reinvented the state to come to the aid of businesses, people and communities. The enterprise agencies, councils, the Scottish and UK Governments and so many others have stepped up, so now it is our time to step up for them.

It needs to be noted that the support for Scotland from the UK Government is more than the funds that it supplies to the Scottish Government. The support also includes the furlough scheme, self-employment schemes and the various loan and grant schemes. I am afraid that the cabinet secretary’s motion does not include reference to that point. Such schemes are giant economic stabilisers that are provided automatically by the UK Government, so they should be part of our discussions today.

Today’s unemployment figures show that 30,000 more people were out of work in the months until April, which is before the real teeth of the economic crisis will have bitten. Those people alone will get £100 million of direct unemployment support. That money does not come across the Scottish Government’s desk or pass through its accounts, but it is important to people in Scotland.

When the economic shock is asymmetric—as today’s unemployment figures are—the system works to give more support to Scotland, not just the Barnett share—[


.] I will not take an intervention just now. The system gives more support, not just the Barnett share of the support for lower English unemployment. A full analysis of the fiscal framework needs to include the full numbers, which are currently missing. That is why my amendment acknowledges the direct funding from the UK Government and suggests that adjustments to the framework “should be considered”. I would expect that to be done once we get fuller financial information from the Scottish Government.

We should recognise, as Jackie Baillie did, the endless hours that John Swinney invested in coming up with the fiscal framework. At the time, he praised it as being fair to taxpayers; he thought that it was a good agreement. It would be helpful if, in the cabinet secretary’s summing up, she could set out some of the details of the fiscal flexibilities that she seeks.

We are prepared to support short-term flexibilities, as we do not believe that those changes would fundamentally undermine the strength and benefits of the United Kingdom. It is right that the framework allows for the effects of decisions that are made by the Scottish Government to be felt by the Scottish Government, but that does not apply in the case of Covid-19. This is an exceptional event and we should be able to cover it through the flexibilities.

The construction industry has been largely absent for months, so it is no surprise that the Scottish Government has been unable to spend its capital on construction work. We should have flexibility in that area.

The current borrowing requirements on resource are designed to deal with in-year management or budgeting errors, yet greater borrowing to deal with the pandemic would be helpful. We should get flexibility in that.

The Labour amendment pre-empts mine but is broadly similar, so we will support it at decision time. I encourage the Scottish Government and other members to support it, too. Nevertheless, I will move my amendment, even though I hope that we do not even get to it.

I move amendment S5M-22033.4, to leave out from “; notes” to “differential impact of COVID-19” and insert:

“and directly to individuals and businesses in Scotland; notes that the funding requirements of responding to COVID-19 have been significant, and have also put pressure on local authorities responsible for delivering many of the services required to tackle the pandemic; agrees that additional fiscal flexibilities beyond those in the Fiscal Framework should be considered to be able to respond sufficiently to the pandemic, including support to businesses, communities and public services; further agrees that Scotland’s public finances should not face undue risks via the Fiscal Framework on account of any differential impact of COVID-19; believes that local government in Scotland should be treated fairly and transparently by the Scottish Government”.