Plenary, 28 Jun 2007

Meeting date: Thursday, June 28, 2007

Official Report 682KB pdf

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Council of Economic Advisers

The next item of business is a statement by the First Minister on the council of economic advisers. The First Minister will take questions at the end of his statement, so there should be no interventions.

It is my pleasure to set out for the Parliament a centrepiece of this Government's new approach to driving economic growth in Scotland. When I was elected, I said that sustainable economic growth was my number 1 priority, and I meant it. Today I announce the creation of a council of economic advisers. In my statement, I want to deal with the remit, the membership and the function of the council, after which I will be delighted to take questions from members.

The idea of a council of economic advisers is in essence simple. It is about focusing some of the top minds in business and economics on the particular challenge of Scottish growth. However, the simplicity of the idea should not conceal the complexity of the challenge that we face if we are to get our economy moving. Scotland's economic underperformance is beyond doubt. Over the past generation, Scotland's average annual growth rate was 1.8 per cent per year, compared with 2.3 per cent for the United Kingdom and more than 3 per cent for small European countries. The percentage difference might sound small, but it represents an opportunity cost of many billions of pounds for the Scottish economy.

That is the challenge that faces every member in the Parliament, and it is the specific focus of the new council. The council's remit is therefore deliberately specific. The council of economic advisers will advise me directly about the best way to improve Scotland's sustainable economic growth rate. Our initial target is to match the performance of the UK average by the end of this session of Parliament and to ensure that the benefits of that growth reach all parts of our society. We should be under no illusions about the scale of the challenge. In nine of the past 10 years, Scotland's economy has underperformed in relation to the UK average. That must change.

The idea of bringing together leaders from business and academia to offer advice on the economy is not new. In 1946 Harry Truman instituted a council of economic advisers in the United States. Alan Greenspan described the CEA as

"one of the most successful government agencies in history."

Three years ago, when California's economy was experiencing trouble, Governor Arnold Schwarzenegger used a different model when he convened his council of economic advisers. Rather than call together a Government agency, the governor convened top individuals to give him frank advice on how best to steer the economy.

The council of economic advisers that I announce today brings together a small group of top economists and business leaders. It will have several specific outputs in addition to any others that are decided by the council members. It will hold quarterly meetings at which there will be direct open dialogue between the council and the First Minister, following the publication of the quarterly growth figures. So that it can share insights with the wider public, the Parliament and the UK Government, the council will publish an annual report, which will provide an expert commentary on the Scottish economy and—crucially—all the relevant economic data that support its findings.

That is the model adopted in the United States, and it is the model that we propose to use in Scotland. The approach acknowledges the current reality, which is that some economic levers reside in Scotland and many, many others reside with Westminster. It is critical that both Governments work together to improve the economic prospects of Scottish families. Those measures and others will ensure that the council is plugged into the heart of Government decision making.

I will be clear about how the council will interact with Parliament and my Government. Advisers advise; Governments govern. Let no one doubt that, although the council will be highly influential, this Government and, ultimately, this Parliament will decide. The explicit role of the council is to provide expert advice, after which the people who have an electoral mandate will rightly consider and agree what decisions and steps need to be taken.

The composition of the council includes some remarkable people. The council deliberately represents a wide spectrum of economic opinion and it is independent of party politics. It exists to challenge accepted wisdoms and to think freely about the best way forward. The council will be robust, diverse and rigorous in its analysis of our historical performance and of what this Government and Parliament propose for the future.

The council is deliberately small, but that is not to suggest that only members of the council will have a view on how to drive growth in Scotland—quite the contrary. There are many vital participants in that process, whose views are not just important but essential to the formation of policy. Therefore, I am pleased to announce that I will invite bodies to join a national economic forum, the purpose of which is to allow the council and my Government to draw from the widest pool of opinion and to allow good ideas to flow from the forum to those directly advising the First Minister and the Government. We will announce more detail about the forum shortly, and we look forward to hearing those important voices as part of a national conversation about sustainable economic growth. It is my firm belief that the council of economic advisers and the national economic forum can together herald a step change in the analysis of economic policy in Scotland and allow a direct route for those driving our growth to influence public policy.

Having outlined the role and remit of the council and established the wider context within which the council will operate, I turn finally to the announcement of the individuals who have agreed to serve on the first council of advisers. Their appointments are unpaid and are for a duration of two years.

I am delighted to announce that the chairman of the council will be Sir George Mathewson. Sir George is perhaps the most eminent Scottish businessman of his generation. His period as chief executive and then chairman of the Royal Bank of Scotland inspired the transformation of the bank into a global success story. Sir George also spent six years as the chief executive of the Scottish Development Agency.

Frances Cairncross serves as rector of Exeter college at the University of Oxford. Previously, she worked for 20 years on The Economist magazine. She chaired the Economic and Social Research Council for six years, until this year, and is a well-respected author, whose works include "Costing the Earth" and "Green Inc."

Sir Robert Smith is chairman of the Weir Group and Scottish and Southern Energy. He also serves as a non-executive director of 3i, Standard Bank and Aegon UK. Sir Robert also chairs the Smith group—a group of dedicated educators and business and civic leaders who are determined to offer more opportunities to young Scots.

Professor Andrew Hughes Hallett is professor of economics and public policy at George Mason University in the United States and is visiting professor of economics at the University of St Andrews. He specialises in international economic policy and has acted as a consultant for the World Bank, the International Monetary Fund, the Federal Reserve, the United Nations, the Organisation for Economic Co-operation and Development, the European Commission and central banks around the world.

Professor Alex Kemp is the Schlumberger professor of petroleum economics at the University of Aberdeen. He is a leading energy and taxation expert who has advised the World Bank, the UN and individual Governments around the world. In recent times, he has expanded his research to include the economics of renewable energy and how best to foster carbon capture.

Jim McColl is chairman and chief executive of Clyde Blowers—a company that has been transformed under his leadership into a portfolio of global engineering companies. He also serves as chairman of the welfare to work forum, which has seen 15,000 young Scots enter employment.

Professor Frances Ruane serves as director of Ireland's Economic and Social Research Institute, having been associate professor of economics at Trinity College Dublin. She is widely published in the area of international economic and industrial development.

Professor John Kay is one of Britain's leading economists. The author of several influential books, Professor Kay is a regular contributor to the Financial Times. He is a fellow of St John's College Oxford and has served as director of the Institute for Fiscal Studies and as a professor at the London Business School and the University of Oxford. He is currently a visiting professor at the London School of Economics and Political Science.

Crawford Beveridge is the executive vice-president and chairman of Sun Microsystems in Europe, the middle east and Africa. From 1991 to 2000, he served as chief executive of Scottish Enterprise. He brings a wealth of international business experience.

The final members of the council are two Nobel laureates in economics. Professor Finn Kydland is the Henley professor of economics at the University of California, Santa Barbara. He was awarded the Nobel prize for his work in dynamic macroeconomics. Professor Sir James Mirrlees is professor emeritus at the University of Cambridge and distinguished professor-at-large at the Chinese University of Hong Kong.

It is my view that that list represents the most formidable intellectual firepower ever to have tackled Scottish economic underperformance. It also seeks to embrace the practical experience of some of the country's most impressive business leaders. Its formation sends out the clearest message both domestically and internationally that Scotland is serious about tackling economic underperformance and has asked serious people to advise us on achieving that goal. The council stands as our best chance in several generations to tackle the problem of systemic economic mediocrity.

The council will not have a magic wand, and neither do we in this chamber, but what it will offer is the potential for future generations to reap the benefit of our endeavours. It is time that Scotland finally seized the opportunities for small, flexible, open economies to position themselves cleverly in a fiercely competitive world. If this nation is to prosper, it will be because we have been smarter, faster and more innovative.

The council, and the thinking that will flow from it, can be a lasting legacy for the Parliament. If, in four years' time, we can say that together we have started Scotland on a path to higher sustainable growth and international competitiveness, we will have done something of which every member in this chamber can be justifiably proud.

The First Minister will now take questions on the issues raised in his statement. I intend to allow 30 minutes for questions, after which we will move to the next item of business. It would be helpful if members who wish to ask questions were to press their request-to-speak buttons now. I remind members that they should ask a question, and not give a preamble and then ask a question.

On behalf of the Scottish Labour Party, I welcome the concept of a council of economic advisers. I congratulate those who have been appointed to the council, thank them for taking up the duties of public service and wish them well.

We agree, as I think all parties do, that there is a need to address Scotland's economic underperformance, but I hope that in his work with the council of economic advisers, the First Minister will be a little bit more straightforward in his description of the current position. For every year since 1983, Scotland has been above its long-term trend growth rate and has been closing on the United Kingdom rate. Employment in Scotland is the highest in the UK and is at record levels. Our population decline has been reversed and in recent years we have had the highest net in-migration in decades. In other areas, such as research and development and inward investment, Scotland's performance has been improving.

That brings me to my first question. Much of that success over recent years has come through the engagement of Scottish Enterprise's international advisory board—a group of global Scottish business figures whose expertise has been used, since 2003 in particular, to guide our policy and direction. I thank them for all their work, but I express regret that the only member of the advisory board who has been retained and appointed to the council of economic advisers is the sole member who was a public supporter of the Scottish National Party. I ask the First Minister, as I did last month, whether he envisages any continuing role for the advisory board and whether he has contacted it as a matter of courtesy to thank it for its work and to explain what role it may—or may not—have in future.

Secondly, will the First Minister and the Government publish a full, independent and accurate statement of the starting point for the council of economic advisers, especially in relation to current trends and comparisons? Thirdly, will the council of economic advisers meet the relevant parliamentary committees on, for example, an annual basis, and will it be able to participate impartially and openly in the annual business in the Parliament conference? Fourthly—and most importantly—I presume that the council will not meet in public in order to ensure that its members can express their views independently and without any restraint. However, the monetary policy committee of the Bank of England publishes its minutes. Will the council of economic advisers publish its minutes and a record of attendance, to ensure that the diversity of views that I assume the First Minister has appointed to it is reflected in the public discussion of the advice that he receives?

I will answer the last question first. A communiqué will be published after each quarterly meeting. Crucially, the council of economic advisers will publish an annual report. The idea is to give that report and the council's analysis as wide a public airing as possible. That is one of the factors driving the existence of the new council. When we marshal such economic talent, we want to get the advice to as wide an audience as possible.

Turning to Jack McConnell's other points, Scottish Enterprise's international advisory board is not affected. It advises Scottish Enterprise; the council of economic advisers will advise the First Minister and will give information to Parliament, the Government and wider society.

Sir George Mathewson has indicated that he would welcome the opportunity to appear before parliamentary committees, which he thinks would be a useful addition to the council's ability to get across its views.

That brings me to Jack McConnell's description of the current position of the Scottish economy. If we were settling for mediocrity, perhaps his description would be adequate. However, only two weeks have passed since the Federation of Small Businesses and John McLaren, the former economic adviser to Donald Dewar and Henry McLeish, issued a study that shows Scotland to be 10th out of 10 comparable European countries, which is down one place from last year, and 17th out of 24 OECD countries on a range and index of economic measurements.

Occasionally in the past, I have disagreed with John McLaren's emphasis and with some of his analysis. However, there must be a basis for the index of success—or lack of success—that was published two weeks ago. One of the things that the Labour Party must do in the Parliament, both politically and economically, is to confront the reality of the circumstances in which it has left Scotland.

As I have previously indicated, the Scottish Conservatives are not hostile to the principle of a council of economic advisers. However, it is now clear from the details that have been given that the council usurps—there is no other word for it—the function of providing macroeconomic advice to Government that is currently discharged by Scottish Enterprise. We cannot continue with the replication, duplication and confusion that would be brought about by the creation of yet another group of economic cognoscenti. The place is positively hoatching with them—it is not a "decluttered landscape", to use the Scottish National Party's jargon. What does the First Minister now propose to do about the urgent need for reform and rationalisation of Scottish Enterprise? When will that reform commence?

A process comprising exactly that discussion and reform is under way. I disagree with Annabel Goldie about the current function and role of Scottish Enterprise. Scottish Enterprise is a delivery mechanism that tries to spread broad Government economic policy throughout the economy. The new council of economic advisers that I have described is a body that will advise the First Minister and Government on economic policy and on how to reach targets that are driven politically by Government and, I hope, agreed by the Parliament.

Given that the analogy that I have used for the success of councils of economic advisers elsewhere is the United States of America, and given the undoubted and unqualified success that such councils have been in other economies, I would have thought that Annabel Goldie would look more favourably on the concept of having such an advisory council here.

I thank the First Minister for advance sight of the statement, and I very much welcome the appointment of the people who are named in it. Many of them have served Scotland well in the past in different roles. There are also new individuals of significant quality.

The First Minister wants the council of economic advisers to transform long-term growth rates. Why, therefore, is there an appointment period of two years? Might that allow a member of the council just one annual report before their appointment ends? How will that work?

Will the First Minister publish the party allegiances of the individuals who have been appointed and any donations made by them, whether to the SNP or to other political parties?

In his statement, the First Minister referred to the second new body, the economic forum, saying that its purpose was "to allow good ideas to flow from the forum to those directly advising the First Minister". That suggests that ideas will go to the forum, then to the council and then to the First Minister. Is that how the set-up will work?

Will the First Minister confirm that the business leaders who serve on Scottish Enterprise's international advisory board will continue to have direct access to the First Minister and to other ministers who are involved in the economy? Why were those business leaders not even mentioned in today's statement, given the importance of the role that they fulfil?

Will the council of economic advisers be tasked with publishing an assessment of the economic damage that is likely to be suffered by the Scottish economy on separation from the rest of the United Kingdom?

In the autumn, the Cabinet Secretary for Finance and Sustainable Growth will publish the spending review, which will have a profound impact on the Scottish economy. It will commit budgets for three years, through to the end of this session of the Parliament. Will the First Minister give an assurance that the council of economic advisers will have an opportunity to assess the spending review proposals before they are fixed by Mr Swinney and presented to this chamber? Will their advice on that important issue be published at that time?

On the last point, I think that Nicol Stephen is confusing parliamentary process with the role of a council of economic advisers. It is the job of this Parliament to scrutinise the Government's budget. The council of economic advisers will exist to offer advice on how to remove obstacles to Scottish economic growth and how to grasp opportunities for Scottish economic growth.

I welcome the fact that Nicol Stephen recognises the eminence of the people who have agreed to serve on the council. I think that Parliament should welcome the fact that people of such distinction are prepared to move into public service in Scotland for no salary whatsoever.

Any donations that are given to the Scottish National Party are on the public record, as per the regulations. If I were going to be really cruel to Nicol Stephen, I would remind him of the whereabouts of the Liberal Democrats' largest donor—he is in jail.

I remind members that, to ensure that as many of their colleagues as possible are called, they should ask questions without preambles.

I welcome the First Minister's announcement of the creation of the council of economic advisers and the national economic forum—the subject of recommendations that were unanimously agreed by the Enterprise and Culture Committee last year and particularly supported by the Scottish Trades Union Congress.

I want to ask the First Minister about two areas of policy that the council should examine. Can the council examine the dearth of reliable statistics on the Scottish economy and examine whether something can be done to rectify that anomaly? Will the council consider the damaging impact of some aspects of UK macroeconomic policy on the Scottish economy, which result in there being much higher interest rates than we need and—according to the UK Government—our subsidising the running of UK departments to the tune of £550 million a year? If that money were to be spent in Scotland, it would add a great deal to Scottish economic growth.

I avoided the temptation to get drawn in by Nicol Stephen's party-political points about what the council will do—I will take the same approach to Alex Neil's question.

The council will be looking at how, across a wide canvas, we can improve the performance of the Scottish economy, examine what is holding us back and what opportunities we have for moving forward.

Alex Neil has drawn attention to something important, which is the existence of the national economic forum. He is right to point out that, when he was the convener of the Enterprise and Culture Committee, it called for such a forum. When we were consulting on the formation of the council of economic advisers, the idea of a forum to accompany it was strongly put by the STUC. I am delighted to say that I believe that the STUC will welcome the addition of the forum. Interest groups such as the STUC, the Federation of Small Businesses, the CBI, chambers of commerce and a range of other organisations play important roles, and I regard the forum as being very much a part of the wider conversation and discussion that is required throughout Scottish society if we are to agree joint objectives on lifting economic growth from the mediocre to the successful.

From the much more lowly position of a back bencher, I endeavoured to bring Nobel laureates to Scotland to talk about our future opportunities. In that regard, we should all whole-heartedly welcome the establishment of a council of such standing and repute.

As the First Minister knows, one of the strengths of the council of economic advisers in the United States is its power to review the Government's activities to examine whether they support national economic objectives. I would welcome clarification on whether the Scottish council will have the same reach. In that light, and given that the most hotly contested economic measure at the recent election was the wisdom or otherwise of the introduction of a local income tax—on which a bill is planned—might the First Minister invite the council of economic advisers to consider the wisdom of a local income tax? His Minister for Enterprise, Energy and Tourism suggested that raising income taxes is naive in a knowledge economy.

Parliament, in its wisdom, will consider the local income tax before long. I thank Wendy Alexander for acknowledging the breadth and strength of the council that I have announced today and the importance not just of mobilising people who have attachments to, and track records and careers in Scotland, but of international Scots and people who have no specific Scottish attachment except that they want Scotland to do well and better. I thank Wendy Alexander for her important point on that.

When Wendy Alexander said

"From the … position of a back bencher",

I thought that there had been a development of which I was unaware. However, whatever the differences between us on how the constitutional situation affects the Scottish economy—we have valid political differences on that—there has never been difference between us on the fact that the Scottish economy's performance must improve. We must improve our international competitiveness. The series of lectures in which Ms Alexander was deeply involved a few years ago was a substantial contribution to the debate. I hope that she can see that the council will take that forward in a more organised and long-term way.

Will the council of economic advisers consider only the impact of devolved powers on economic performance? Will the First Minister undertake to report to Parliament whenever he rejects the council's advice? If he is as keen on the United States model as he seems to be, will he consider giving Parliament the right that the US Senate has to confirm members of the council? What do the creation of the council and of the forum mean for Scottish Enterprise?

There is not just one model in the United States. I mentioned that we have taken the Californian initiative.

It will not be only for me to deliver the council's announcements and proceedings to Parliament: on the contrary, the idea is for them to be widely available so that Parliament can deliver them to me, rather than such things coming only from the Executive. That is one of the key reasons why the initiative is important. We might call it the announcement effect. It is a major matter for the Scottish economy that such distinguished people are prepared to devote their time to analysing not just our problems, but our opportunities. The point is to broadcast those messages to as wide an audience as possible—not just to parliamentarians, but to the public—and to send a message internationally that Scotland is now serious about tackling economic underperformance.

Like many members—indeed, I hope, like all—I am delighted to hear that such an array of talented individuals is participating in the council. Will the council also have the opportunity to draw on the experiences of other talented academics at home and abroad?

Yes. The council will be able to commission work from whomever it pleases. However, we should remember that there are talented economists in the Scottish Government who will analyse information for the council. Given the council's breadth of interest, range of activities and quality, we will find that most topics that we wish to go into will be well served by the council's membership.

I welcome the First Minister's commitment to have the council's chairman appear before the relevant parliamentary committees and I hope that he will undertake to work with Parliament on the best way in which to bring that about.

The First Minister was keen to mention the FSB study and the league table that is produced therein. Where, on that league table, does he expect Scotland to be in four years?

What will be the council's position in relation to the existing office of the chief economic adviser, which is at the First Minister's disposal? Will the council be allowed input to standard economic publications, such as "Government Expenditure and Revenue in Scotland" and the "Scottish Economic Report"?

The statistics branch and the economics branch have certain responsibilities, which include the publications that Tavish Scott mentioned, and those responsibilities will continue. The council will analyse and identify obstacles to economic growth and opportunities for the Scottish economy. It will not produce statistics, although it may say that the statistical base is incomplete, as Alex Neil said.

When I said that Sir George Mathewson was prepared to appear before the relevant parliamentary committees, I did not say that he was inviting himself. It is up to parliamentary committees to decide whom they wish to invite to appear. I was just indicating his willingness to appear.

Where is the league table?

The First Minister will be aware that there was significant cross-party support for trade union representation on the council of economic advisers, so I am a little concerned that the workforce is not represented on that body. However, I am sure that the establishment of the national economic forum will have the full support of the Scottish Trades Union Congress and trade unions.

The previous session's Enterprise and Culture Committee's business growth inquiry recommended the establishment of a national economic forum, but by no means did that have wide support among business organisations. Given that, will the First Minister please explain how less-enthusiastic partners will be encouraged to participate in the forum?

I think that huge enthusiasm will be expressed, not just by the Scottish Trades Union Congress, which pushed the forum hard in consultation, but by a range of organisations. I do not believe or expect that anyone will refuse to serve on or to attend such a forum, given its importance and the links that it will make. People will see a more organised sequence in how we develop economic policy through the announcements that are made, but I expect the forum to be extremely well attended, and not just by the STUC.

Liberal members chided me for not referring directly to Tavish Scott's question about the league table. I promise Tavish Scott that we will not do worse than 10th out of 10, which is where we were under the Administration on which he served.

I congratulate the First Minister on his announcement. Does he envisage the council of economic advisers feeding into the UK central bank mechanism, which currently deals with the monetary and fiscal policy needs of the Scottish economy?

That is a good question. As I said, it is important for the council's viewpoints on the issues that it identifies and analyses to be made widely available not just to Parliament, but to the United Kingdom Government. Regardless of how John Wilson and I would like the situation to be, we must acknowledge that, currently, many levers of economic influence are held at United Kingdom level. It is therefore all the more important that a council of such distinction can comment publicly and analyse broadly what requires to be done to improve and enhance our economic competitive position.

I thank the First Minister for the advance copy of his statement. He will perhaps not be terribly surprised that I am going to ask about the advice that he may receive from Frances Cairncross. Is the First Minister aware of her view that environmental resources—particularly those that can be overconsumed or, indeed, polluted without particular cost—can serve as limits to economic growth, and that Government intervention is needed to prevent the depletion or pollution of all such resources? If that is the advice that he receives from Frances Cairncross and others, what does it say about the need for greater Government intervention to prevent the depletion of environmental resources that are important to Scotland, such as oil and fish?

As Patrick Harvie might expect, Frances Cairncross was appointed because of her range of activities and abilities and her distinguished career. Her interest in environmental economics and the book that she has written recently were factors that led us to identify her as somebody who might be willing to serve on the council. However, I think that I should wait until the council has had its first meeting before I start responding to its views. The council members would consider it surprising if I anticipated their first report before their first meeting.

Given that it is the chairman of the council who will be the most important person—the driving force—in the council, is it really the right way forward to choose as chairman someone who thinks that the politician who has done most for the Scottish economy is Margaret Thatcher?

I prefer my Sir Georges to my Lord Georges. I will ask the most prominent Scottish businessperson of his generation to try not to appear before a parliamentary committee on a Tuesday—when George Foulkes will be in the House of Lords.

The First Minister said that the council will provide a communiqué after each quarterly meeting. The First Minister will know that a communiqué is not the same as a verbatim report. There are substantially verbatim reports of the proceedings of Parliament and its committees. I have only a higher in economics and I am sure that I could learn a lot from Nobel laureates, so I would welcome the First Minister publishing a full verbatim report of meetings of the council of economic advisers, which might in turn advise the committee of which I am privileged to be a member.

There will be a communiqué from the quarterly meetings and a fully published annual report with as much public disclosure as possible. To be frank, I do not think that it would take a Nobel laureate to teach David Whitton a few things about economics.

If any other member feels like asking a question, I would be minded to take it.

Will the First Minister answer it?

Order. As members know, I have no say over the substance of answers.

We have come to the end of questions. I have no choice other than to suspend the meeting until 5 o'clock.

Meeting suspended.

On resuming—