Borrowing Powers
Good morning. The first item of business is a Liberal Democrat debate on motion S3M-3383, in the name of Tavish Scott, on borrowing powers for the Scottish Parliament.
This debate is not about constitutional change; it is about Scotland having powers for a purpose. We face a recession, rising unemployment and the worst gross domestic product figures in recent times. The lack of fiscal powers confines the Scottish Government's ability to respond to changing circumstances. With no borrowing powers and a total budget determined at Westminster, the options for change are limited. The choice between making tax reductions for low and middle-income families, increasing public spending or bringing forward public sector investment needs to be fully available to this Parliament. There can be no doubt that additional powers would enhance the Parliament's autonomy and accountability.
Today, we Liberal Democrats have initiated a debate in our time to develop those political and economic arguments so that we can tackle the recession and find new ways to fund the Forth estuary crossing and further road and rail investment across Scotland. I recognise the Scottish Government's welcome change of position, not on powers but on how to get there. This week has been politically significant and economically progressive. The First Minister, the Cabinet Secretary for Finance and Sustainable Growth and their colleagues have recognised that being part of a coalition for change, and arguing the case through the Calman commission, is the best way to deliver the additional responsibilities that we need.
I hope that Labour and Tory members will raise their game from yesterday's pitifully low level. They appear to be impaled on the fence of conservatism. [Interruption.] There is no better example of that than Mr Whitton. However, there are voices of reason and change in those parties. Wendy Alexander and Murdo Fraser have much to contribute, which I entirely welcome. I hope that the breadth of their approach rubs off on their colleagues. As always, I live in hope.
Borrowing powers would give the finance minister of the day more fiscal latitude and more political and economic choice. How would additional borrowing powers work? The Treasury could agree specific applications for borrowing consent, which would amount to the same prudential borrowing regime that is used by local government in Scotland. A better approach would be for the Governments of the United Kingdom to agree a framework of rules and broad principles for the use of borrowing powers. By definition, a Scottish Government cannot bankrupt the UK. There needs to be a broadly defined and agreed fiscal approach, but the rules must be agreed by the national states of the UK; they must not come through Treasury diktat.
I am grateful for Mr Scott's recognition that, as part of the debate on borrowing powers, there must be a fundamental change in the dynamics of how devolved Administrations interrelate with the UK Government and, in particular, with the Treasury. Does he accept that the devolved Administrations need to be viewed as being in a different category from Whitehall departments? Unfortunately, that is not how they are currently viewed.
As a politician who believes in a federal approach to the United Kingdom, I fully agree—acceptance of that point is implicit in the Liberal Democrats' approach to change. I am sure that the cabinet secretary deals with the present position day in, day out, just as former finance ministers in previous Scottish Governments did. As a former junior finance minister, I acknowledge the point that the cabinet secretary makes about the manner in which that engagement takes place. There are a number of mechanisms that we could work through in the coming years to enhance and improve that relationship. I do not think that that is a constitutional point in particular, although it involves a bigger and broader constitutional issue. There is a practical element to the approach that we must adopt.
We favour the Governments of the UK working together to agree a framework on the use of borrowing powers. It is inevitable that there will be disagreements—that is the nature of such debates. We advocate the setting up of a finance commission for the nations and regions, which would not be a UK Government body but would be created from the constituent parts of the UK. It would be jointly owned by the nations of the UK on a federal basis. That might not happen immediately following the recommendations of the Calman commission, but it is the approach that we should seek to adopt in the longer term.
Borrowing powers must be additional to the Scottish budget and should not be used to fill any funding gap. What should they be used for? It would be reasonable to borrow for current expenditure on capital projects, but there should be flexibility. As Chancellor of the Exchequer, Gordon Brown said that his golden rule was unbreakable, but first he changed the cycle over which it was judged and then, in the face of financial meltdown and recession—among many other factors—he ripped it up completely. Although it was the current chancellor who had formal responsibility for that, it was Gordon Brown's golden rule that was shattered beyond redemption. As the nations of the UK negotiate the operating parameters with the Treasury, flexibility must be built in. The argument that such golden rules are sacrosanct is not credible.
Where would a Scottish Government borrow from? Again, there are two choices. It could approach the international finance markets through the UK Government, or it could approach the markets directly.
Do the Liberal Democrats propose to allow the Scottish Government to issue bonds, such as patriotic bonds?
I am not into the application of patriotism to matters of finance, although I am sure that Mr Brownlee makes a serious point about the bond market. That is an aspect that would be explored through the structure that we envisage.
The proper answer to the borrowing question is that both avenues would be open to the Scottish Government. It would be necessary to adopt the approach that provided the better deal for the taxpayer, and flexibility would have to be enshrined in whichever approach was adopted.
Yesterday, I held discussions with the German ambassador—I am sure that you did, too, Presiding Officer—in which I asked about the Länder system. He pointed out that the German Länder have no borrowing limits but are limited by their ability to cover their borrowing proposals financially. In other words, there is a market discipline. The ambassador observed that that can lead to the Länder having more financial discipline than the federation. Some say that if the Parliament had borrowing powers, the reality would be profligate borrowing, but I counsel against such scaremongering.
There would be a significant international upside to the adoption of a prudent and careful approach in Scotland.
You must close, please, Mr Scott.
I will be blunt: this country must rebuild its shattered reputation for financial expertise, probity and integrity in international circles. The banking crisis has seen to that.
The approach that I have outlined is the right approach. I hope that it commends itself to other parties, and I commend it to Parliament.
I move,
That the Parliament believes that the acquisition of borrowing powers would enhance the autonomy and accountability of the Scottish Parliament and improve the Scottish Government's ability to respond to changing economic circumstances; notes that borrowing powers would allow the Scottish Government to phase the funding of major capital projects such as the new Forth Replacement Crossing sensibly and efficiently, and therefore welcomes the Scottish Government's commitment to give permission for civil servants to engage fully with the Commission on Scottish Devolution to assist the delivery of borrowing powers for the Scottish Parliament.
I speak in favour of the amendment in the name of my colleague Andy Kerr.
At the outset, it is fair to say that we in the Labour Party are interested in discussions on borrowing powers for the Scottish Parliament. Indeed, one reason why we established—with the support of the Conservative party and the Liberal Democrats—the Calman commission was so that it could consider how this institution, which is now in its 10th year, is funded. I suppose that I might be accused of being tongue in cheek when I say how delighted we are that the Scottish National Party has now abandoned its ideological opposition to the concept of strengthening devolution, given that, as of yesterday, it will participate in the work of the Calman commission.
It is clear that Mr Whitton has not raised his game.
Oh dear. A night's sleep has not done much for Mr Swinney.
Nor for Mr Whitton.
Touché.
Furthermore, Scottish Government civil servants will be allowed to engage fully with that work, which is a good thing.
Devolution has delivered for Scotland, as has the Barnett formula. As we celebrate the Scottish Parliament's first decade, it is a good idea to review how it is working and to find out whether any adjustments are needed, particularly in how it is funded.
As I mentioned, Labour has engaged positively with the Calman commission from the outset. I was particularly intrigued by the report of the independent financial experts group, which is chaired by the eminent professor Anton Muscatelli. The group made it clear that as the Parliament's powers, including its financial powers, are intertwined with its accountability, they should be considered together rather than in the piecemeal fashion that the Liberal Democrats are suggesting today.
A key observation from Professor Muscatelli's group, which also includes Professor David Bell, the adviser to the Finance Committee—
When does the Labour Party in Scotland plan to submit any evidence to the Calman commission?
I am interested to hear that Mr Scott takes such a keen interest in the workings of the Labour Party. We will make our observations known to the Calman commission in due course.
Shortly or soon?
Order.
Shortly or soon—Mr Swinney can use whichever word he likes. He will no doubt read with interest all the observations when they arrive.
Professor Muscatelli's group said that the powers of an institution—the Parliament, for example—are fundamentally connected to the constitutional model that one believes in. The Liberal Democrats are federalists. That is a perfectly reasonable position to take, but it has always been a minority view in Scotland. Labour believes in strengthening devolution within the union, and as such we want to identify the principles that should underpin any financial changes that the Calman commission might come up with.
The debate that the Liberals have brought to the chamber today is taking place too early. It is about only one element of potential financial powers for the Parliament, and as the Calman commission's final recommendations have not been published, the Liberal motion puts the cart before the horse.
During various debates and at question time, we have of late heard a growing chorus of members who highlight the fact that the Northern Ireland Executive has borrowing powers—
Will the member give way?
I ask Mr Purvis to allow me to finish.
The Northern Ireland Executive has borrowing powers, as do Scottish local authorities. My colleague Peter Peacock will say more about local authorities in his speech.
As Mr Purvis has my sympathies following his change in policy yesterday, I will give way to him.
Will the Labour Party make a submission to the Calman commission before it makes its final recommendations, or would that be jumping the gun?
I will just ignore that point, which I have answered. Mr Purvis's intervention is a reworking of Mr Scott's intervention, just as Mr Purvis reworks Mr Scott's policies.
The cry is that if those powers are good enough for another devolved Administration in Northern Ireland, why are they not good enough for us? Keith Brown—who I see is in the chamber—and Alex Neil both made that point in yesterday's debate, and if Keith Brown speaks in today's debate, he will no doubt make the same point. However, they did not mention the fact that the Northern Ireland Executive has to pay back what it has borrowed from its annual budget. It is not really extra money, and the Northern Ireland Executive's borrowing powers—such as they are—simply reflect the different constitutional arrangements that exist there. The Executive may have borrowing powers, but local government in Northern Ireland has very limited powers and responsibilities. It is a case of horses for courses.
It is wrong of the Liberals and the SNP to present the idea that granting the Scottish Parliament borrowing powers would somehow be a silver bullet that would resolve not only the current economic challenges that Scotland faces, but the issue of constitutional change. Labour is interested in debating borrowing powers as part of the Calman commission's deliberations—[Interruption.] It is amazing to get applause from the Opposition halfway through my speech.
We will not support parties that want to divorce borrowing powers from the wider debate. There are attractions attached to the Parliament having borrowing powers, but there are wider implications. As in Northern Ireland, any money that was borrowed would have to be paid back, unlike what happens under our existing capital arrangements, which are supported by the Barnett formula.
Paragraph 6.81 of the Calman commission's first report states:
"Borrowing is sometimes suggested however simply as a way in which to add to the spending power available to Scottish Ministers. This needs more careful thought."
A bit more careful thought from the Government and from Liberal members might do wonders.
The Muscatelli report considers case studies involving sub-national finance in five countries: Australia, Germany and Canada, which have federal systems, and Switzerland and Spain, which are unitary states that have decentralised government. Members will be pleased to hear that time does not allow me to go through each of those in turn, but I am sure that any members who have an interest in the matter will have read the report carefully.
I commend the Muscatelli report to Mr Swinney, if he has not already read it, but for now it is sufficient for me to say that the key lesson is that most systems in other countries are more complex and often blur lines of accountability. As we know, the financial arrangements for Scottish devolution broadly continue the pre-devolution system, with the addition of tax-varying powers.
The Liberals should, by all means, make a contribution to the Calman commission, but the time to have a proper debate about borrowing powers is when the final outcome of the commission's work is known.
I move amendment S3M-3383.2, to leave out from "believes" to end and insert:
"welcomes the examination of the use of borrowing powers by all the parties and the Scottish Government's willingness to engage with the Commission on Scottish Devolution."
As we see at a United Kingdom level, borrowing is not the answer to every problem—indeed, it is the cause of many of them. In the context of the management of public finances, borrowing can play an important part in providing flexibility for the public sector, but if it is overused or mismanaged, it can prove to be a millstone.
The Conservatives do not believe that borrowing powers are a panacea, nor do we believe that they should be ruled out. They ought to be considered seriously by the Calman commission as part of the review of devolution, but such consideration would be more sensible if it was carried out in the context of the broader review of other financial measures that the commission is considering, rather than in isolation.
Alex Neil made that point in yesterday's budget debate, when he said:
"the debate on borrowing powers is not a naked debate, because it relates to powers over taxation."—[Official Report, 4 February 2009; c 14685.]
He was making a serious point, which the Muscatelli report also raises. The report makes it clear that a Government that is more dependent on tax revenues and less dependent on block grant is automatically more likely to need borrowing powers. The scope and scale of borrowing powers will inevitably be set in some context by the other financial powers that are available to the Scottish Government. It is right that we consider those issues in the round, because it is clear from the report of the independent financial experts group that the Calman commission is, at the very least, considering issues that relate to fiscal powers.
We have heard mention of the borrowing powers that are available to the Northern Ireland Assembly, which are set at £200 million a year for 10 years. In addition, provisions in the devolution legislation grant a power for temporary borrowing—albeit at the discretion of the relevant secretary of state—at a level that is set for Northern Ireland at £250 million and for Scotland and for Wales at £500 million.
The £2 billion borrowing powers have various strings attached—as far as I recall, they are linked in some way to the flexibility in the regional rate in Northern Ireland. However, they show that there is scope for different arrangements within the UK and the devolution framework, and I concede that there is scope for borrowing powers to be granted without any other change being made to the fiscal arrangements for Scotland. Nevertheless, as the Calman commission is considering broader changes, it is sensible to consider everything at the same time.
As Tavish Scott conceded, there are other issues around borrowing powers. For example, would external borrowing be permitted, or would the money come from the UK Government? Would the borrowing be restricted to borrowing for capital investment, or would it cover the ability to borrow for unexpected pressures on spending or a decline in revenues? A Parliament that had a greater dependence on fiscal measures would arguably have a greater call on borrowing to cover any shortfalls.
Mr Scott also raised the issue of the limits that the UK Government could or should be able to impose on the level or the terms of borrowing. I was interested to hear what he said about the German Länder, but even if we get past the hurdles of the legal power to borrow and Treasury controls, there is a further issue. In the current climate, we need to consider what scope there is for borrowing, on what terms we can borrow, and how borrowing ranks in relation to other financing options. We need to address those fundamental questions.
Our amendment invites the Government to make a submission to the Calman commission not only on borrowing powers, but on all the aspects that are under consideration. We are concentrating on the financial aspects, but I extend an invitation to the Scottish Government to include consideration of the non-financial aspects, on which it could make a useful contribution. Mr Swinney, in his intervention on Mr Scott, raised the idea that the Scottish Government is treated as merely another Whitehall department. That is, in the context of Mr Swinney's statement of funding policy, an area in which the Scottish Government can make a valuable contribution to the Calman commission, and I strongly encourage it to do so.
I move amendment S3M-3383.1, to leave out from "would enhance" to end and insert:
"could enhance the autonomy and accountability of the Scottish Parliament and improve the Scottish Government's ability to respond to changing economic circumstances; notes that borrowing powers could allow the Scottish Government to phase the funding of major capital projects such as the Forth Replacement Crossing sensibly and efficiently and therefore welcomes the Scottish Government's commitment to give permission for civil servants to engage fully with the Commission on Scottish Devolution on the issue of borrowing powers for the Scottish Parliament; also notes the consideration by the commission of other financial and non-financial powers that might be made available to the Scottish Government, and calls on the Scottish Government to confirm that it will permit civil servants to engage with the commission on all such matters."
In my constant role as the most generous-spirited member of the Government, I say to Mr Whitton that he should listen carefully to the way in which I approach these issues, so that he can broaden his perspective to include other members' views.
As I listened to Mr Whitton's speech, I heard all the usual excuses being trotted out about why we should not do something and why there are so many obstacles and barriers to overcome before we have an open, commonsense and—as Mr Scott said—practical debate about whether the Parliament has all the responsibilities and the powers that would allow it to operate in an efficient and effective financial fashion.
I welcome the Liberal Democrats' motion on borrowing powers. On many occasions, the Government has made clear our belief that there is a compelling case for greater fiscal autonomy for the Scottish Parliament, and that the ability to manage our own budget is vital in ensuring that we are able to respond swiftly and effectively to changes in economic circumstances.
I part company with Mr Brownlee on his point that we should consider such powers only in the context of the action that we could take in the current economic downturn, or in any other economic scenario. He misses the point about Parliament being equipped to deal with whatever emerging economic situation presents itself. Obviously, we are presented with a particularly acute scenario today.
I was pleased with our discussions with the Liberal Democrats in recent days on how we can make progress on the question of borrowing powers, on which the Government will, of course, submit material to the Calman commission.
When we discuss borrowing powers, we have to look at the financial framework within which we operate. Unless we get the arrangements for borrowing powers correct within existing United Kingdom financial frameworks, they will not deliver the flexibility that we require. If, for example, the Treasury were to maintain the same approach that it takes today to constructing the departmental expenditure limit on the total financial commitments of the Scottish Government and the Scottish public sector, there would be enormous constraints on the effective use of borrowing powers.
There are other examples. Members have cited the situation in Northern Ireland and have referred to the prudential borrowing regime in local authorities, which provides greater flexibility than the Scottish Government has at its disposal. The key point, however, with reference to Northern Ireland or local authorities is that there is an obligation on the relevant authority to act prudentially and with wise financial judgment in exercising its borrowing powers.
What is the minister's assessment of current borrowing powers under section 66 of the Scotland Act 1998? That provides for the exercise of £0.5 billion of borrowing powers, with the agreement of the Secretary of State for Scotland and the chancellor.
The value of those powers is to provide cover for
"a temporary excess of sums paid out of the Scottish Consolidated Fund over sums paid into that Fund".
It is a completely limited cash-flow power that does not allow us to use it to invest in capital infrastructure, which would be the wise and sensible thing to do, or—if I may deal with the lofty economic analysis that Mr Whitton gave a few moments ago—to commit ourselves to pay back a sum of money over the longer term. I do not think that those powers are effective; we need additional borrowing powers. I welcome the Liberal Democrats' contribution to the debate.
As I said in the economy debate two weeks ago, although I support the introduction of borrowing powers for the Scottish Parliament, we have to consider them as part of the more general debate on fiscal powers. We also have to beware of regarding them as a panacea.
There are two obvious but important reasons why borrowing powers cannot be a panacea. First, we would have to pay back any borrowing from what will inevitably be tighter budgets over the next few years. Secondly—the SNP might not be happy about this—any borrowing that we undertake would be part of UK borrowing, which cannot expand without limit, partly because of our membership of the European Union and partly for sound macroeconomic reasons.
We benefit substantially from UK borrowing at the moment. It is important to say that in this debate because the impression might be given by some people that because we do not have borrowing powers we cannot benefit from borrowing. The reality is that because of the UK Government's borrowing, which the Conservatives have been so critical of, Scottish consumers, Scottish banks and Scottish public services are benefiting, as we heard once again in the budget debate yesterday.
The Liberal Democrats will be pleased to hear that the Scottish Labour Party will make a submission to the Calman report, so they do not need to intervene during my speech to ask about that. My view is that we should support borrowing powers for Scotland, but only as part of a package of fiscal changes. Individuals can contribute their views to that debate, but I believe that we need a combination of fiscal changes that would involve some assigned taxes, some devolved taxes and some remaining grant for this Parliament. If Calman produced a package of that kind, we would need borrowing powers to smooth over revenue fluctuations. Obviously, one of the purposes of borrowing powers even at the UK level is to deal with declining tax revenues.
As the Calman report implies quite clearly in the section on borrowing powers, the main purpose of borrowing powers is to benefit capital spending. The Forth bridge is the example that has been quoted most recently. The debate is important in the context of public-private partnership projects going on balance sheet, but the effect of that move on the Scottish budget is perhaps not as simple or as stark as the Scottish Government has been saying. We have not yet had the Treasury guidance on that, but it would be helpful if it were produced as quickly as possible.
I am grateful to Mr Chisholm for his acknowledgement that it would help the Government if the Treasury were able to share with us not just the rules on how the international financial reporting standards will be treated but the implications that that will have for the structure of the Government's budget. That is the material piece of information that we still require.
I agree that that guidance would be helpful, but the corollary is that the Scottish Government should not speak publicly as if it knows for certain that the move will have the drastic effect that it has described.
I have only half a minute left in which to say that there has been a significant change since 1998. David Stewart referred to the limited provisions in sections 66 and 67 of the Scotland Act 1998. Since then, the growing awareness of the need for more financial powers for this Parliament and other, related developments, such as prudential borrowing for local authorities, mean that the time is right for the Parliament to have some limited borrowing powers. However, they must be considered in the round and in the context of the Calman commission.
I had hoped that this morning's debate would be the start of a new chapter in the development of Scottish democracy. It is long overdue and, having waited during 10 years of devolution, we have to move on more rapidly than at the pace set by the Calman commission, which is sending out mixed messages.
The basic right to democratic borrowing powers should be available to all levels of government. That is a natural condition in most countries—but not this one. Although such powers would be constrained by our ability to meet the overall borrowing requirements and constraints of the state in which we work, it is essential that we are able to deploy them at this time.
Yesterday John Swinney said in his budget speech:
"Challenging economic times require a country to draw on all the mechanisms at its disposal to assist recovery."—[Official Report, 4 February 2009; c 14652.]
We have only a few of the mechanisms that we require to assist the full recovery of Scotland—or, indeed, to run the country in normal times.
I will offer a couple of examples that concern me and demonstrate the problem. This morning, I read that Councillor David Alston, the Liberal finance spokesperson in Highland Council, deplores the potential need for 111 job cuts in the council due to budget constraints. He said that he would prefer a "modest increase" in the council tax, although that goes against the historic concordat to which he agreed. Nevertheless, those budget constraints are due to the excess charges for PPP that were racked up by a system that was forced on the council by the forms of borrowing used by central Government. That is the real culprit in this case.
Another example is the debate on the Forestry Commission's estate and our need to contribute to tackling climate change. The Minister for Environment has proposed that we raise money by letting out parts of the estate to bring in cash for planting new trees. That is a classic case of the constraints of devolution forcing us down a route that we might not have wished to take, but which could be productive. Nevertheless, it is a problem.
There has been so much misinformation about the Scottish Futures Trust that we ought to look at it again in the context of today's debate. We must have aggregated borrowing requirements that make it possible to deploy our borrowing ability in the best way that we can. That part of the debate about borrowing requirements will not go away.
Although the SNP believes ultimately in tax-raising powers—natural borrowing powers are part of that picture, too—we recognise that the public sector has triple A credit ratings. If that is so, it need not be a constraint; indeed, it is a great benefit to be able to use that as the means to move forward.
The wider debate on the constitutional future of our country has taken place—through Calman, to an extent, but to a greater extent through the national conversation. There has been huge public involvement. People want us to have more powers so that we are able to live a normal life. As it is, having one hand tied behind our back every time we go out in the morning to try to deal with the government of Scotland makes the task very difficult indeed. That is why I am keen for non-profit distributing models to be part of the debate on borrowing powers.
The Scottish Parliament should have borrowing powers; we should build on them from the base up. That would be a strong step forward for the democracy of Scotland. It is essential that we move forward as fast as possible.
I welcome the opportunity to contribute to the debate. My mind is open to all the arguments that will be expressed as the debate develops both in the Parliament and throughout Scotland.
I am always interested to learn how other major nations deal with such issues and I note that the expert group headed by Professor Muscatelli has studied Austria, Spain, Germany and Canada.
The Barnett formula gives Scots £1,600 per head more of public spending than the UK average. I am concerned to learn what impact any financial changes might have on the formula. Until now, the block grant has provided certainty and unparalleled levels of public spending. Would that be affected in a way that was detrimental to the people of Scotland?
In our response to the Calman commission, we will have particular regard to opinion throughout Scotland, especially from the trade unions, such as the GMB, Unite and Unison, the Scottish Trades Union Congress, the churches and the voluntary sector.
We all know that when we borrow we sacrifice future spending opportunities in the requirement to service the debt. That means that the funding to build new homes and hospitals and carry out other public sector works would have a question mark against it. The benefits and disbenefits need to be weighed carefully in the balance.
Will Helen Eadie's version of the Labour Party's contribution to the Calman commission be the same as Malcolm Chisholm's version?
The Labour Party will make its response and we, as individual members of the Labour Party and MSPs, are also able to submit our views—indeed, I have already made known to the appropriate people some of my views on particular aspects of the Calman commission's work.
I am interested to learn why the SNP wants borrowing powers, instead of using the Scottish Futures Trust, which it trumpeted so much in opposition over the years. Why is the SFT disappearing like snow off a dike at the first opportunity—the need to finance Scotland's biggest project in recent decades? We agree that a new Forth crossing is badly needed. Why, then, has so much effort been put into pursuing borrowing powers to finance the project and why has so little effort been put into discussing funding from Europe? At a recent meeting with Fife Council, John Purvis, the Tory MEP, explained that when he asked Scottish Government officials why they had not discussed European funding for the project, they replied that it was not worth the effort. I cannot believe that someone could say that discussing financing one of Scotland's biggest projects for years through European funding, as part of the trans-European road network, was not worth the effort.
I have a major problem with the proposition that the Labour Party is not open-minded on this subject. We have an open mind and we want to hear people's opinions. I will listen to those opinions before I reach a conclusive view on where we go.
I apologise for missing the first couple of minutes of the Liberal Democrats' opening contribution. I welcome the motion but, at the risk of offending the Lib Dems—something I should never dream of doing—I point out that the Proclaimers put a similar message rather more effectively in their song "Cap in Hand":
"I can't understand why we let someone else rule our land
We're cap in hand
We fight—when they ask us
We boast—then we cower
We beg
For a piece of
What's already ours".
How is it possible that we can let someone else rule our land even to the extent of denying us borrowing powers? That the Northern Ireland Executive is better trusted to look after its finances is, at the very least, anomalous. That local authorities in Scotland should be trusted to control their borrowing, but the Scottish Government is not, is peculiar. That English parish councils should be allowed to borrow, but the devolved Government of a nation is not, is ludicrous.
Would any other nation or people tolerate such a situation? Could we imagine asking a Norwegian or a Swede, "Do you think that your nation should be allowed borrowing powers?" It wad gar ye gyte. Of course, I do not suggest that the superior economic performance of Sweden and Norway is solely a product of their borrowing powers. After all, the UK has borrowing powers and, if the International Monetary Fund is correct, the UK has the worst-managed economy in western Europe.
On consideration, perhaps my earlier comments were a little unfair. Perhaps it is not peculiar that councils and the Northern Ireland Assembly can borrow. Perhaps the only peculiarity is that Westminster can borrow. Look what it wastes the money on: foreign wars, nuclear weapons and building large data sets that it promptly loses.
I am a reasonable man, so let me suggest a compromise. In order to avoid the proliferation of borrowing powers, let Westminster surrender the power to borrow to the Scottish Parliament and the National Assembly for Wales.
The truth is that the present situation cannot be described as anything other than bizarre. Not only are we not allowed to borrow on our own account, the UK Government appears to take a perverse pleasure in turning down our requests to spread the costs of borrowing on major infrastructure projects. Who benefits from its refusal to let Scotland spread the costs of a new Forth road bridge over 20 years? More bizarrely, it not only refuses our request for public borrowing but suggests that we should use PPP. Yes, we might still be able to spread the cost over 20 years, but it would be at a much higher rate of interest than would otherwise be necessary. It is irrational to refuse us borrowing powers and then decide that we can borrow, but only if we accept an obscenely expensive option such as PPP.
The UK Government's response is even more incomprehensible when we consider the effects of the change in financial rules that will come into play in April. The UK Government's attitude looks rather like childish gamesmanship. Westminster should cease to seek conflict with the Scottish Government and, instead, start to work with the Scottish people for the wellbeing of the Scottish people.
Will the member take an intervention?
No, sorry, but I have only a short time.
A Scottish Government with borrowing powers might be able to work to reinflate the economy without lining the pockets of the already wealthy, which is the primary purpose of PPP and the private finance initiative. However, a Scottish Government without the powers of taxation, the powers to amend the social security system and the powers of an independent nation cannot truly tackle poverty and its resultant ills.
In the past 50 years, 17 European nations have declared independence. In the past 50 years, 17 European nations have taken control of the basic economic levers, such as the power to borrow. In the past 50 years, not one European nation has surrendered its independence or its power to borrow.
It is anomalous, peculiar and irrational that Scotland cannot borrow. The only problem with that statement is that, having used the words "anomalous", "peculiar" and "irrational" to describe Scotland's lack of borrowing powers, it is difficult to find suitable words to describe Scotland's lack of independence.
I will make my speech from the perspective of someone who has had the opportunity in his political career to be a council leader, a finance convener of a regional authority, and a finance minister for about three years. As a council leader, I had borrowing powers but, as a finance minister in the Scottish Executive, I did not. Some might find that entirely paradoxical, but I did not, for reasons that I will set out. I do not approach this argument from a constitutional perspective, as Bill Wilson does, but do so from a purely practical perspective.
When I was a local authority leader with borrowing powers, there were the heavy controls of borrowing consent. There was a process of constant debate and negotiation with the central Government of the day to extend those borrowing powers. They were never sufficient for all that we wanted to do, partly because we wanted to do more, but also on occasion because we had huge items of expenditure that created a bulge in our pattern of expenditure and we required additional borrowing consent to overtake it. We even got into the system of trading consents with some authorities that were underspending their borrowing consents while others were overspending them. The situation was dynamic and fluid and we were in constant negotiation.
My point is that any system of borrowing involves limits and controls, whether the borrowing powers rest with local or national Government. In Germany, although there are no specific limits for the Länder, as Tavish Scott said, consensus has been reached between the Länder and the federal Government about that. In Switzerland there is a form of the golden rule. In Australia there is a loan council of the six states. In the context of the Maastricht agreement and the convergence criteria that were thrashed out in relation to the euro, there are in effect borrowing controls on every national Government in the EU.
There is no escaping the rules. Borrowing powers are not a panacea and do not produce extra cash; they permit a drawing forward of cash, which must be paid back, with interest, and interest payments eat into capacity on the revenue side of the account and affect services. No one should think that borrowing powers offer a free ride.
When I was a minister I never felt the need for borrowing powers. The issue did not arise in the context in which we were operating, so I was not bothered about it. That was partly because local authorities, which were delivering a large part of the services and infrastructure, had borrowing powers so that they could build schools, roads, social work establishments and so on. It was perhaps also partly because we did not have to find a huge sum of money for a large national project. Situations in which sums for such projects are needed highlight the practical challenges to do with the instruments that are at ministers' disposal.
Does Mr Peacock accept that, when he was a finance minister, public expenditure was rising remorselessly, which affected the circumstances of his tenure?
I absolutely accept that.
In the context of a large national project or a series of such projects, borrowing is just one potential solution. We must also consider how public expenditure is scored and whether it all counts in one year, irrespective of when borrowing took place. There are many nuances and subtleties that must be addressed.
Is what I have said an argument for having no borrowing powers in the Scottish Parliament? Absolutely not. It is clear that there is an argument to be made for borrowing powers for the Parliament and that there needs to be a debate on the matter. We need to keep an open mind—that is true of my party as much as it is true of the nation as a whole. We must also enter into the debate with our eyes open. Borrowing powers are not a panacea or a free ride and we cannot escape control systems. However, it is worth having the debate.
The debate has been interesting and members of all parties have made intelligent speeches. Peter Peacock's speech, in particular, was thoughtful.
Derek Brownlee outlined the Scottish Conservatives' approach: we are open-minded on and have no strong ideological objections to borrowing powers. Derek Brownlee also said that in the context of the Calman commission, which is considering the devolution settlement, borrowing must be considered in the round. As Alex Neil said in the Parliament yesterday, the debate on borrowing powers should not take place in isolation.
The Conservative amendment would replace the word "would" in the motion with "could". The difference might seem small to some members, but it is important. The acquisition of borrowing powers has the potential to lead to better accountability but would not necessarily do so.
A number of members said that, given that councils can borrow money and the Northern Ireland Assembly has borrowing powers—albeit that there are the caveats that members mentioned—the Scottish Parliament's inability to borrow money is an anomaly. The Chartered Institute of Public Finance and Accountancy made that point in its submission to the Calman commission. It is a fair point and a reason for considering the situation. The Liberal Democrats have made a fair point in raising the issue.
The timing is apposite, as I think that Mr Scott said during an intervention. We had double-digit growth for quite a long time after the devolution settlement and the budget doubled over eight years, to the extent that the Scottish Executive was unable to spend £900 million. We are in different times now. The financial settlement is tighter and is likely to remain so for some time. There is also the important matter of the replacement Forth road bridge, which is the most important economic infrastructure project for Scotland. I say again to Mr Swinney that the offer is open from the Conservative shadow Treasury team to discuss ways forward on the issue. Perhaps Mr Swinney will agree to a meeting when he speaks later in the debate.
I offer a word of caution. We are in the middle of a debt-fuelled crisis, so piling on more debt cannot be the entire answer. The UK Government is facing national debt of £1 trillion. Therefore, the word "could" in our amendment is important. The acquisition of borrowing powers might well lead to more autonomy and accountability, but it might well not do so—it would depend entirely on how the borrowing powers were exercised. We need only consider the Audit Scotland report "Review of major capital projects in Scotland: How government works", in which 43 infrastructure projects over a seven-year period were considered. Almost all the projects were delivered late and about two thirds of them went over budget. If we are to borrow money to fund infrastructure projects, we must do so very sensibly indeed, just as a consumer must consider carefully an offer of a credit card that would give them short-term flexibility on spending but perhaps less flexibility in the medium and long term—I appreciate that that is a crude analogy.
We have no great ideological objection to the acquisition of borrowing powers. It is critical that the issue be considered in the round as part of the devolution settlement and we wait with interest to hear what the Calman commission has to say.
I call David Whitton.
You do not have to say anything, Mr Whitton.
I—
That's enough.
That was a sedentary intervention from the "reasonable man" of the SNP, which showed how reasonable he is.
As Gavin Brown said, we have had an interesting debate, which was no doubt the first of many on the topic. I refer members again to paragraph 6.80 of "The Future of Scottish Devolution within the Union: A First Report", in which the Calman commission said:
"A number of suggestions have been made that the Scottish Government should be able to exercise borrowing powers. Some evidence on this has been drawn together by the Independent Expert Group and the Commission wishes to give further consideration to this."
Indeed. The Liberal motion is fairly unequivocal and makes claims for borrowing powers that are as yet only a matter of opinion. The claims are untested. Indeed, an eminent group of experts in financial matters would question whether the statements in the motion are accurate. The issue is a mebbes-aye-mebbes-naw question.
Let us consider some of the views that we heard in the debate. Rob Gibson seems to think that the Scottish Parliament, with its budget of £34 billion, is operating with one hand tied behind its back. Heaven knows what he would do if his hand was untied. Bill Wilson, the "reasonable man" of the SNP—heaven help us—has a peculiar take on the relationship between the UK Government and the Scottish Parliament, but I am sure that he will not be surprised to learn that I do not share his view.
The best contribution was from Peter Peacock, who explained in his wise speech what can happen and what dynamics are involved when a finance minister has to struggle with the borrowing powers of local government. I have not had the pleasure of having such a role and maybe I never will—who knows?
Some issues have been missing from the debate. The Liberal Democrats made no mention of their much-vaunted policy of a 2p cut in income tax, which was dropped so suddenly. There has been no mention of the local income tax policy, whereby a 3p tax increase would be dropped on the people of Scotland. There has been no mention of the Scottish Parliament's ability to use existing powers to raise and lower income tax. Such issues should be part of a debate about financial powers for the Scottish Parliament.
As things stand, the Scottish Parliament operates within the UK's macroeconomic framework. Our being in that framework led to the £37 billion bail-out for our two biggest banks. Questions about how to finance the building of a bridge should not be used as an excuse to force through an agreement about borrowing powers.
I assume that the Liberals agree with the findings of the Steel commission, which recognised that any Scottish Government borrowing would need to be done within the UK macroeconomic framework. I would be interested to hear what rules and limits Mr Scott would suggest for Scottish borrowing. Perhaps he will tell us in his summing up.
As I said in my earlier speech, we on this side of the chamber believe that the debate, worth while as it is, has come too soon. We will continue to co-operate with the Calman commission. No doubt, we will return to the issue of borrowing powers at a later date, once the commission's final report is published.
I commend the Liberal Democrats for lodging the motion for debate. I note that George Soros would probably agree with it, as he said recently:
"the current system favours countries in control of the international financial institutions".
He made the point that the unfairness of the system is demonstrated by the fact that problems that originated in the US and London are doing more damage elsewhere. He went on to say that elsewhere
"Governments will also need long-term financing to enable them to engage in counter-cyclical fiscal policies."
I agree with him on that. Indeed, we can see it happening across Europe, where countries such as Portugal and Italy are giving fiscal autonomy to autonomous areas such as the Azores. It is also happening with Gibraltar. There is also the example of Northern Ireland's borrowing powers and its claim of right for a 12 per cent corporation tax, which remains to be retrieved from the long grass.
The debate continues. The Scottish Government started the dialogue with the people of Scotland on our constitutional and fiscal future through the national conversation. Our position on borrowing powers is crystal clear: we should move to a position in which the Scottish Government and Scottish Parliament are responsible for all public spending and revenue in Scotland. There is growing support across the political spectrum for greater fiscal autonomy, which would, of course, create the opportunities to give the Scottish economy a competitive edge and boost growth. For example, Scotland could lower corporation tax and respond to changes in economic circumstances such as the economic downturn.
The experience of small independent countries such as Norway and the financially autonomous areas of Spain, including the Basque Country and Navarre, demonstrate the significant advantage of fiscal autonomy. Those areas can tailor fiscal policy to enhance strengths and address weaknesses. Of course, Scotland does not have those tools, but the Government has consistently demonstrated its commitment to use all the available levers to support economic growth.
Nevertheless, it is now clear that the Scottish economy will follow other countries into recession. Scottish GDP figures for the third quarter of 2008 show that Scottish output declined by 0.8 per cent on the previous quarter. The latest labour market figures also show a decline in employment of 13,000 between September and November and a rise in the Scottish unemployment rate to 5.2 per cent, albeit that that is better than the experience across the rest of the UK. With greater fiscal autonomy, the Scottish Government could have deployed the full range of economic and fiscal levers that it needs to tackle the economic downturn in the way that is best for Scotland and without having to rely on decisions that are taken elsewhere.
The Government has agreed to submit evidence to the Calman commission on extending the powers of the Scottish Parliament. We are prepared to set out not only for the commission but for the Treasury and other bodies the unanswerable case that the Scottish Parliament needs the full range of financial and borrowing powers that would allow us to manage our finances more effectively and efficiently than we can at present. We are happy to co-operate with the Liberal Democrats on the formulation of a Scottish Government presentation to the Calman commission and other relevant bodies.
I welcome the Liberal Democrats' long-standing commitment to debating greater fiscal autonomy for the Scottish Parliament. I welcome in particular their stance on borrowing autonomy for the Parliament, which is an issue that is now of even greater significance in light of the recession and the introduction of the international financial reporting standards. We want borrowing powers not only to address whatever changes in economic climate lie ahead but to enable us to achieve our goal of increasing sustainable economic growth.
Borrowing powers would also be used to address Scotland's clear infrastructure needs more quickly; not least, they would enable us to progress with critical projects such as the new Forth crossing. If the Scottish Government had the ability to borrow, its borrowing would be cheaper and more transparent than under alternatives for funding infrastructure investment.
We believe that the case for increasing the borrowing powers of the Scottish Parliament is unanswerable. The lack of such powers inhibits transition and growth and is a glaring omission. We have to ask which successful countries and nations have not used borrowing powers to effect change. That crystallises the case. At the moment, the Scotland Act 1998 prevents Scotland from borrowing, albeit that—as Peter Peacock so eloquently said—our local authorities have the power to borrow, as do our colleagues in Northern Ireland. The Scottish Government has no such power.
The debate is an important milestone on an important journey. We have the wholesome aspiration that acquiring the power to borrow will move us yet further towards a position in which Scotland can release its full skills and assets and become a genuinely thriving, competitive and sustainable 21st century economy. It will help us to come through the recession fitter, leaner, more competitive and more able to move forward. We will do everything that we can to achieve that end, including continuing to use all the levers that are available to us. For that reason, the Government welcomes the Liberal Democrat motion and looks forward to the continuing debate on the constitutional and fiscal framework for the future of Scotland.
As Gavin Brown rightly said, this has been a good debate in which many excellent speeches have been made. In closing for the Liberal Democrats, it is proper for me to say that we welcome into the debate the voices that we have heard today. However, the kindest thing that I can say about David Whitton's two speeches is that I hope that the voices that we hear in future from the Labour Party on the subject are those of Malcolm Chisholm and Peter Peacock.
There are occasions on which the subject matter, cause or issue has a wider resonance than the party divisions in the chamber, because it chimes with the public mood and hits a wider core of recognition that it is an idea whose time has come. So it was with the debates on the establishment of the Scottish Parliament, on the Iraq war and on free personal care, and so it is for today's debate. Borrowing powers for the Scottish Parliament are an idea whose time has come. A home-rule Parliament manifestly ought to have such powers in order to carry out its functions effectively. Borrowing powers are a weapon that should be in the toolbox of fiscal and economic powers, which the Liberal Democrats have rightly described as "powers for a purpose".
The immediate occasion for today's debate was offered by the challenges of the Scottish budget and the financial and economic crisis that darkens all our doors. Like the Parliament itself, borrowing powers are something that has been inevitable from the beginning. I stress that the Parliament assuming the power to borrow is neither a licence to print money nor a get-out-of-jail-free card for every project on our wish list, as others have wrongly suggested that it is. It does not provide a load of lolly for nothing. As Tavish Scott said earlier, borrowing powers must be exercised within a responsible framework and within rules about what we can afford and what we can use them for.
Borrowing powers for the Scottish Parliament are relevant to the fiscal responsibility of the United Kingdom; indeed, they would impose fiscal responsibility on us all. In some ways, their exercise would call for greater partnership with Westminster than before. We would need to jointly develop new rules on how and when they would be used. Liberal Democrats have long proposed the establishment of a joint Exchequer board with the UK Government—a finance commission, ideally of the nations and regions of the UK in a more developed federal system. However, even if that were to be a development of the current Scotland Act 1998 settlement, it must be a proper constitutional arrangement between partners and not some form of diktat from the Treasury.
I did not agree with most of what Bill Wilson said, but he made a good point in asking in whose interest it is to refuse powers to borrow for the new Forth bridge.
Of course, the strategic challenge is how to get from where we are now to a position where the Scottish Parliament acquires borrowing rights. In that respect, the bridge is the Calman commission. The Liberal Democrats, Labour and the Conservatives have already signed up to the Calman process. As part of the budget discussions between the Liberal Democrats and the SNP minority Government, we now have sign-up to the Calman process by the SNP on the objective of obtaining borrowing powers.
If, as Mr Brown says, the Liberal Democrats are signed up to the Calman commission process, why did they not wait until it reports before coming forward with the debate?
I am sorry that I gave way to Mr Whitton. He should read the motion. That is the context in which the debate is being taken forward.
It is significant and important that the SNP Government is now signed up to the Calman process. Potentially, we have a powerful coalition of the major political parties in Scotland that can give informed evidence—I use the word "informed" in response to David Whitton—to Calman, backed by the Government and the civil service, on an issue on which Sir Kenneth and his team have said they are interested in taking further evidence.
Will the member give way?
I had better make some progress.
We did not expect Labour and the Tories to sign up fully to the concept today, and the amendments that they have lodged are equivocal. As so often on the constitutional question, it falls to Liberal Democrats to be the brokers and catalysts for progress. I hope that soon we will be joined on that important journey by others and that the faint hearts in some other parties will draw vigour and inspiration from the points that have been made in today's debate. We can achieve a majority in the chamber today, but they can make that majority the voice of Scotland. That is an important point.
We Liberal Democrats are committed both to acquiring borrowing powers for the Scottish Parliament and to Calman's fundamental concept that a partnership exists between the constituent parts of the United Kingdom. I am not sure whether SNP back benchers knew that, in agreeing to give evidence to Calman on borrowing powers, they were signing up to a concept of United Kingdom partnership, but I make the point to them that that is rather better than their current policy of sticking with the pound sterling in an independent Scotland, which would tie them into United Kingdom monetary policy and the Treasury rules.
The Scottish Government has already encountered severe challenges in seeking a means of funding the new Forth bridge that does not have a damaging impact on other much-needed infrastructure projects. Paying for such projects over 30 years or so, as we would our houses, is not a particularly revolutionary idea. A united Scottish view to that effect would be a powerful and irresistible driver towards securing a positive outcome from the UK Government.
I will finish where I began. Borrowing powers for the Parliament are an idea whose time has come. A number of speakers have made the point that there is much work to do on the detail and on securing widespread political and professional sign-up to the principle. However, yesterday's agreement with the Scottish Government and the existing majority support for the Calman process are the building blocks for a process that can and must achieve success on a reasonably urgent timescale. I have great pleasure in supporting the Liberal Democrat motion this morning.