Fiscal Sustainability
The next item of business is a debate on motion S4M-02777, in the name of Kenneth Gibson, on behalf of the Finance Committee, on fiscal sustainability.
15:04
I am pleased to open this debate on fiscal sustainability on behalf of the Finance Committee. I refer members to our summary of the written evidence and the paper by our adviser, Professor David Bell, and record our thanks for the work that the David Hume Institute has done in the course of our evidence taking on demographic changes, inequalities and socioeconomic deprivation, universal services and additional funding models. We took evidence from many individuals and organisations and we are grateful for their input and stimulating contributions. I also record my thanks to the committee clerks for their support, hard work and professionalism.
Recent years have seen a severe deterioration in the fiscal position of Governments worldwide. The financial crisis and recession have contributed to the largest United Kingdom peacetime budget deficit and a huge increase in the national debt. The UK macroeconomic situation clearly has implications for the discretionary element of the Scottish budget.
Given that context, the committee identified the four issues that I mentioned as key elements within the fiscal sustainability theme. There are many aspects to this, and we have only begun to scratch the surface, but our discussions were important in identifying key issues to pursue in more detail.
In my speech before Christmas on the draft budget, I said:
“Not everything can be a priority. The challenge of how to allocate funding is acute.”—[Official Report, 22 December 2011; c 5046.]
That is an important point to again highlight. Members will recall that the committee re-emphasised its focus on preventative spending, given the clear links between that and fiscal sustainability.
General projections are that the Scottish population aged 65 and over will increase by 21 per cent between 2006 and 2016 and will be 62 per cent bigger by 2031. The population aged 85 and over will rise by 38 per cent by 2016 and 144 per cent by 2031. The implications of that are obvious in a number of areas, such as the provision of universal services. Consideration must be given and action must be taken now, across the whole public sector, to prevent or limit adverse impacts.
The Office for Budget Responsibility produces an annual fiscal sustainability report, which principally focuses on the costs associated with population ageing, including health and social care, and the sustainability of tax revenues. I highlight the importance of pension sustainability. The OBR looks at the fiscal impact of public sector activity—as reflected in the assets and liabilities that the public sector has accumulated on its balance sheet—and the potential impact of future activity, by examining how spending and revenues may evolve over the next 50 years and the impact that that would have on such assets and liabilities. Broadly speaking, the fiscal position is unsustainable if the public sector absorbs an ever-increasing share of national income simply to pay debt interest.
The International Monetary Fund, in a 2009 report on the international financial crisis, stated:
“In spite of the large fiscal costs of the crisis, the major threat to long-term fiscal solvency is still represented, at least in advanced countries, by unfavorable demographic trends.”
The OBR agreed, and said:
“policymakers and would-be policymakers should ... think carefully about the long-term consequences of any policies they introduce or propose”
to introduce
“in the short term.”
The 2010 report of the independent budget review recognised the influence that demographic shifts will have on our public finances, while Audit Scotland, in its report, “Scotland’s public finance: addressing the challenges”, said:
“There will be a significant change in the demographic profile of Scotland’s population over the next 25 years, which will increase demand for public services in many areas.”
Our budget adviser stated in his paper:
“Demographic change is one of the main prospective pressures on the Scottish budget.”
To outline some of the numbers, from 1951 to 2009 the life expectancy of Scots males increased from 64.4 years to 75.8 years, while that of females increased from 68.7 years to 80.3 years. In 1980, male life expectancy was 69.1 years and female life expectancy was 75.3 years. Males who retired at 65 in 1980 could expect to live only a further 4.1 years, and females who retired at 60 could expect to live for 15.3 years. In 2009, males could expect to live for 10.8 years after retirement, while women could expect to live for 20.3 years. The increase in the average number of years spent in retirement has obvious pension and other costs.
In evidence to the session 3 Finance Committee’s inquiry on preventative spending, the Convention of Scottish Local Authorities stated:
“when we look at the structural problems that we face around health and social care, we often examine the issue in budgetary terms, because it is well known that ... there will be a diminishing amount of public finance available in Scotland. However, that is not the major problem. It is demographic change that will create the primary challenges in the health and social care networks throughout Scotland.”—[Official Report, Finance Committee, 16 November 2010; c 2736.]
Audit Scotland stated in its report:
“Demand for health and social care ... is particularly high among older people, particularly those aged 75 and over. An increasing older population is likely to lead to more people living longer with health problems such as diabetes and chronic obstructive pulmonary disorder requiring ongoing care. At the same time, the public’s expectations of services delivered by the NHS have risen. For example, it may be difficult to maintain recent improvements in waiting times for treatment when there is significantly higher demand for these services.”
That issue is not wholly within the cabinet secretary’s portfolio, but I would welcome his comments on any projections that the Scottish Government has made on the impact of the increase in non-healthy older people on future budgets and its strategy for addressing that impact.
The committee agreed to take forward an inquiry on demography and the ageing population, and health and social care will feature in that.
An issue that was highlighted in oral and written evidence was the provision of housing and, in particular, the number and type of properties that are provided. The Joseph Rowntree Foundation identified the trend whereby our society has more people living in single-person households. In all likelihood, more of us than ever will arrive in old age living alone. The Scottish Government has published “Age, Home and Community: A Strategy for Housing for Scotland’s Older People: 2012-2021”, which looks at the implications for housing and what might be done to ensure that the right type of housing is available in future years. I am sure that the chamber would welcome any update that the cabinet secretary can provide on the projections that the Scottish Government has made on the volume, type and quality of housing that will be required to meet the demands of an increasingly older population.
I want to flag up some points that were made about the impacts on the labour market. Scotland’s working-age population is projected to increase by 7 per cent between 2010 and 2035. Releasing the talents and energies of the over-65s is important, because many people have the abilities and the will to keep on working. That is no bad thing, but we must reflect on the impact that more over-65s in the labour market might have on younger people. The inability of a young person to get into the labour market and to start paying into his or her pension could cause long-term financial burdens. Small pensions are a root cause of poverty among older people, while large pensions create funding difficulties for national Governments.
It would be interesting to hear from the cabinet secretary how the Scottish Government balances the provision of encouragement and support to older people who wish to remain in employment—which has associated positive health and other benefits—and who make a contribution through paying taxes and creating growth and wealth, against the creation of opportunities for younger people to enter the job market. Further to that, it would be interesting to find out what assessment the Scottish Government has made of the extent to which the current economic climate is causing older people to remain in employment for longer.
I turn to inequality and socioeconomic deprivation. Our focus was on improving the employability of individuals who are experiencing high levels of multiple deprivation. The Joseph Rowntree Foundation emphasised the need for “an almost obsessive focus” on employability. We recently took evidence on the Smith group recommendations on youth unemployment, and we will shortly hold a series of round-table discussions on employability.
On preventative spend, the Christie commission said:
“The greatest challenge facing public services is to combat the negative outcomes for individuals and communities arising from deep-rooted inequalities.”
In our budget report, we asked the Scottish Government what plans it had to introduce a new set of statutory powers and duties, common to all public service bodies, that were focused on improving outcomes and which included a presumption in favour of preventative action and tackling inequalities. In its response, the Government said that it had not yet reached a firm view on whether there was value to be gained from introducing such additional powers and duties over and above those that already exist. An update from the cabinet secretary on that would be appreciated.
The value of employment in reducing inequalities was a common theme. The Improvement Service stated:
“If you look at all the data across every community in Scotland, you see that people in employment enjoy far better outcomes in terms of health, wellbeing, safety and so on than people who are not in employment”,
and that
“even if you are on a low income, it is better to be in employment than not to be in employment.”—[Official Report, Finance Committee, 18 January 2012; c 521-2.]
Its report, “Making Better Places, Making Places Better: The Distribution of Negative and Positive Outcomes in Scotland”, highlights the fact that the gap between the top 20 per cent and the bottom 20 per cent is the widest in developed Europe, with the bottom 20 per cent at age 15 performing as if they have had five years less schooling than the top 20 per cent.
A similar point was made in evidence on the initial findings from the growing up in Scotland study, which show that the gap found between the cognitive abilities of children from more advantaged social backgrounds and those of children from less advantaged social backgrounds at the age of three persists at the age of five and beyond. The largest differences in ability are between children whose parents have higher educational qualifications and those who have lower ones. There are clear links between that and how we prepare individuals for later life and their opportunities for securing employment. The issue will feature in our employability evidence sessions, the findings from which will inform our focus on sustainable economic growth as we scrutinise the draft budget 2013-14 in the autumn.
I turn to the provision and funding of universal services, by which I mean concessionary travel, free personal and nursing care, prescription charges, eye examinations, school meals and tuition fees. Audit Scotland has estimated the combined annual cost of free personal and nursing care, concessionary travel, eye tests and prescription charges to be £870 million. Given that we have a rising and ageing population, such costs are likely to increase substantially. Our discussion was not about deciding whether a particular service should remain free, but we must be open to considering the costs of such provision.
The Scottish Government has committed to maintaining universal services over the course of the spending review, but we must consider funding that sustainably. One option may be to evaluate each service to determine who benefits and whether more criteria should be attached to each service, for example by changing the admissibility rules. There is a need for sound and relevant data on that, and we will hold an evidence session next month on data collection.
As the IBR said in its report,
“the issue is not one of desirability but of affordability”.
There are legitimate questions to be asked around provision and entitlement. However, any such consideration must be balanced against any increased cost in administering such schemes. Saving money by limiting or removing an entitlement but spending a similar amount on means testing makes no sense. It would be useful to hear from the cabinet secretary on the sustainability of universal services in the wider context of an ageing population.
The final issue was additional funding methods. For the Government, social impact bonds can remove the financial risk of services that prove to be ineffective at addressing social needs and improving outcomes. For investors, they offer a mission-aligned investment opportunity, as well as a potential return on investment. For service providers, they provide up-front funding. Finally, for the public and service users, they pay for services that fill a gap in existing provision.
The use of social impact bonds is in its infancy, as is the concept of payment by results, but there is a growing consensus that past mechanisms for investing in deprived communities have not worked. Sound evaluation is required of their use, outcomes and whether they bring greater success, and there is also a need to consider the scalability of such funding methods. Pilots that are being run in England are being monitored by the Scottish Government. Perhaps the cabinet secretary can advise the Parliament of any initial thoughts that he has on social impact bonds and the scope for roll-out in Scotland.
The committee looks forward to delving deeper into some of the issues that have been mentioned. I hope that the committee’s work will inform the contributions of members this afternoon and in the future.
I move,
That the Parliament notes the summary of evidence of the Finance Committee’s series of roundtable discussions on fiscal sustainability.
15:17
I thank the Finance Committee for advancing the subject matter of this debate and for the evidence-taking sessions that it has organised, because the issues relate significantly to the future of public services in Scotland. I thank Mr Gibson for framing this debate in such an open and comprehensive way.
I followed with interest the round-table sessions that the committee held with interested parties earlier this year. I was pleased to hear Mr Gibson say that the issues that were raised will be the subject of further inquiry and investigation at subsequent committee sessions. As the convener said, the committee concentrated on the themes of demographic changes; inequality and socioeconomic deprivation; universal services; and additional models of finance. I confirm to Parliament that those are four major subjects that are considered by all ministers in the Administration in formulating the proposals that we advance to Parliament as part of the Government’s programme.
When debating our approach to issues of fiscal sustainability, we must always have the values of the people of Scotland very much in mind. I believe that the people of Scotland want to live in a country that creates opportunities for people to earn a living and to look after themselves and their families, and that they want us to ensure that we create public services that support our people, particularly the most vulnerable. The Scottish Government’s approach to financial sustainability, to economic growth and to our public services is founded in what I would characterise as those social democratic values.
Sustainable economic growth is not an end in itself but is the key to unlocking Scotland's potential and strengthening our greatest asset, which is the people of Scotland. It is the avenue through which we can deliver a better, more prosperous and fairer society. Growth and jobs are critical not just to our economy, but to achieving and sustaining a range of health and social outcomes that are, in turn, central to continued economic growth and to the effective use of public resources.
On that point, I agree fundamentally with the argument of the Finance Committee’s convener that maximising employment and minimising unemployment in our society must be at the heart of the Government’s interventions and the focus of policy making. Particularly in this current period of acute financial difficulty, maximising employment will be the best way of alleviating some of the wider negative health and social outcomes that are becoming so commonplace in our society.
How does the £100 million cut to the housing budget help to secure either of the two aims, which the cabinet secretary has just highlighted, of economic growth and employment?
The problem with the point that Mr Macintosh frequently makes on this matter is that he wants us to spend money that we do not have. What is beyond dispute is that I have fully allocated the resources that the UK Government has allocated to me for capital expenditure purposes; I have also added some of our revenue expenditure to our capital budgets. To add to our capital programme, we have introduced the non-profit-distributing model, which is one of the alternative sources of finance that the Finance Committee has highlighted. However, despite all those additional components, the capital budget is still lower than previous budgets we have had because of reductions in capital expenditure. I also point out that the capital budget that has been introduced by the UK Conservative and Liberal Administration is exactly the same as that which was proposed by the previous Labour Government.
That is not true.
Mr Macintosh might dispute the point, but I am very happy to confirm to Parliament that the proposal that was taken forward by the Conservative and Liberal Government is the same as that which was proposed by the previous Labour Government. Those are the facts of the matter. I simply cannot allocate money that I do not have.
Of course, that all takes us into the territory of judging whether Scotland should have more capability to raise and have control over revenue, either through the borrowing powers in the Scotland Bill or the wider financial powers that the Government is seeking to obtain for Scotland through constitutional change. However, Mr Macintosh cannot assert that the Government has done anything other than fully allocate the capital resources at our disposal. Indeed, we see that as the means of maximising employment in our society.
As part of our approach to the UK Government, especially now that the UK has moved back into recession, we have put forward a proposal to supplement and expand our capital resources in order to increase employment in our country. Perhaps Mr Macintosh and I can at least agree on that.
The linkages between employment and good health and social outcomes in Scotland are central to the Government’s agenda and are reflected in our policy programme. To ensure financial sustainability, the Government must bring forward proposals that ensure that we use our resources to support our financial commitments. Of course, the starting point in any analysis of fiscal sustainability is the Government’s record. We have balanced five budgets against the backdrop of significant public expenditure reductions; we have pursued and continue to pursue an efficient government programme to ensure that the resources allocated to us are used wisely and effectively in support of the Government’s priorities; and we have decluttered and simplified Government and are working to apply the approach more widely. All that is being done to maximise the sustainability of the public finances.
Adding to all that the guidance supplied by the Christie commission’s findings, which we have accepted, we are building our approach to public service improvement and, in turn, public service sustainability around four key pillars of thinking: first, a decisive shift towards preventative expenditure, which was very much at the heart of the Finance Committee convener’s comments; secondly, stronger collaboration and partnership, which in the short term is being taken forward principally in the proposals that we are progressing in partnership with our local authority colleagues to integrate adult health and social care provision; thirdly, greater investment in the people who deliver public services through workforce development; and, finally, a much sharper focus on improving performance across public services to expand the effectiveness—
Will the cabinet secretary take an intervention?
I must decline, but I will be happy to deal with the issue during my summing-up speech.
We have set out in our programme some decisive measures to support preventative expenditure to realise the ambitions that were set out by the Finance Committee’s convener; I refer to the £270 million early years change fund, the £300 million fund for older people’s services, and the reducing reoffending fund. With all those funds, we are determined to ensure that we reduce the demand on public services by providing more effective interventions.
On employment, we have strengthened the resources that we are putting into the youth employment strategy. Mr Neil has just given Parliament further details on that. That strengthening is being done to ensure that we support the process of employment creation.
The convener of the Finance Committee asked about social housing. I confirm that the number of social houses that have been built in Scotland in the past four years is more than double the rate per head in England and Wales. That demonstrates the Government’s commitment to social housing.
I will be very happy to make more detailed comments about universal services in my concluding remarks. The Government believes that the provision of universal services is an important part of reflecting the values and aspirations of people in Scotland, who want quality public services. Our citizens want to have access to universal services that meet the needs of individuals. The Government has provided the financial resources to ensure that that happens, and we are confident that it can be done in the future into the bargain.
The Government is determined to ensure that we take a sustainable approach to public finance. Many of the Finance Committee’s comments are helpful in advancing that agenda and I look forward to continuing a dialogue with the Finance Committee in the months and years to come.
15:26
Listening to the mellifluous and soothing sounds of the cabinet secretary, for one second I forgot that we are in the middle of a recession and that 100,000 young people and 100,000 women are out of work in Scotland. One would never have believed that from the way in which the cabinet secretary has just described the Scottish economy.
I thank members of the Finance Committee for this afternoon’s debate. In particular, I thank my colleagues for keeping me up to speed with what was clearly an informative and stimulating series of round-table discussions. Conflicting demands for funding on the one hand and the short-term electoral cycle on the other are just two of the many obstacles in the way of good governance, and they can prevent sustainable decision making. I welcome today’s opportunity to look forward into the long-term future.
However, from the start I should highlight my worry that sustainability is not a neutral concept. Certainly, there is not always unanimity about the criteria that we bring to bear in assessing what is or is not adjudged to be sustainable. A current example of that is the Tory Government’s obsession with keeping our AAA credit rating. The Tory Government defends the acceptability or fiscal sustainability of its austerity programme on the basis that it will reduce our indebtedness, but who decides how fast we must reduce our borrowing, or what level of public debt is acceptable?
Will the member give way?
One second.
According to the Tories, we should look to the credit rating agencies, such as Moody’s or Standard & Poor’s, which are the very organisations that gave AAA ratings to collateralise debt, or the sub-prime mortgages that sparked the global recession. Does anyone in the chamber believe that we should assess the sustainability of our economy or society solely, or even primarily, on the judgment and values of credit rating agencies?
Mr FitzPatrick, you will have to put your card in your console.
Oops. [Interruption.]
We still do not have sound from Mr FitzPatrick’s microphone. [Interruption.] Thank you.
Does the member think that Alistair Darling’s judgment was correct when he made proposals to cut the capital budget that are now being implemented by the Conservatives at Westminster.
My colleague Michael McMahon has just pointed out that that intervention was not worth the long build-up.
I refute utterly the suggestion that the current Tory budget is the same as the one that the previous Labour Administration proposed. What a load of nonsense. There is no evidence whatsoever for that. Perhaps Mr Swinney in summing up will produce evidence that somehow the Tory Administration produced the same budget. By the way, it has just borrowed an extra £150 billion from the borrowing markets.
Will the member give way?
Mr Swinney can address the issue in his summing-up speech. I want to make progress.
The committee’s report contains an excellent section on inequality in Scotland. That issue was summed up by the representative of the Poverty Alliance, who stated:
“in our policy making we need to bring economic and social objectives much closer together than we do at present.”—[Official Report, Finance Committee, 18 January 2012; c 530.]
We are not here simply to serve the economy and certainly not financial institutions—it is the other way round. I will return to the social and economic objective of achieving higher levels of employment, which emerged repeatedly in the evidence to the committee.
In much of the committee’s discussions, there was an implicit assumption, or at least a working one, that accepted the current balance that we strike between taxes and spending. I do not suggest that the sustainable answer to every difficult spending decision is to put up taxes—far from it—but I believe that we need to be more transparent and talk more publicly about the relationship between the taxes that we contribute and the services that we share and enjoy. I believe that my party needs to contribute to that discussion.
The minister will be familiar with my anxiety that the Scottish National Party talks constantly about low taxes and high public spending. That is not a sustainable position and, frankly, it undermines the Government’s authority. For example, can we afford care for the elderly? In simple terms, of course we can. We are the sixth or seventh richest economy in the world, so of course we can afford it. The real question is whether we have the public support and political will to do so.
One of the most illuminating contributions was from Dr Jim McCormick, who said:
“One unsustainable faultline that is built into our system is the fact that we spend about four times more on emergency admissions to hospital for the over-70s than on the entire free personal nursing care budget.”—[Official Report, Finance Committee, 11 January 2012; c 472.]
On the surface, that is a perfect example of an issue on which the political parties could work together to make more fiscally sustainable choices. We are in general agreement on the preventative spending agenda. If we could reduce emergency admissions for older people, we could meet health, social and fiscal objectives. Unfortunately, the political reality is that hospital reform, for example, is incredibly difficult to put into practice, as the Labour Party found out to our cost.
I have been trying to work out how to say this delicately, but I do not think that I can, so I will just say openly that many of us in the Labour Party believe that the SNP is opportunistic and populist. Short termism is seen as the hallmark of the SNP Administration. I say that not to raise the temperature of the debate, but simply to highlight the need for us to find a sustainable political mechanism that allows room for such choices to develop. Even when we share objectives, reaching agreement on long-term tax and spending is extraordinarily difficult. I note that the committee did not make specific recommendations, yet it is pretty clear that we must think about fiscal sustainability across a range of political choices right now.
I return to what I thought emerged as the strongest line of sustainable policy development in the evidence to the committee: job creation or tackling unemployment, which was raised repeatedly by witnesses as the key. Colin Mair from the Improvement Service said:
“On the basis of the evidence, I think that the most preventative thing that you can do for people is to ensure that they are employed.”—[Official Report, Finance Committee, 18 January 2012; c 521.]
Those comments were echoed by the Wise Group and others. I found even more interesting the comments about viewing the public sector not just as a provider of services, but as an employer. That is quite the reverse of the UK Government position and flies in the face of the fact that the SNP has lost 25,000 public sector jobs in Scotland alone.
Will the member give way on that point?
I am afraid that the member is concluding.
There were further illuminating suggestions about job creation.
When the Government is faced with difficult decisions, it must make clear whether it is cutting back because we, as a country, cannot afford it, or whether we are choosing not to afford it. I am optimistic that this debate will help to illuminate that perennial and difficult political discussion.
15:34
I suppose that I am slightly biased because I sit on the Finance Committee, but I think that the work that the committee has carried out in the past couple of months is extremely important and will play a valuable role in the work of the Parliament and the Government.
The convener got it absolutely right when he said that we have barely scratched the surface on the subject. We had a number of wide-ranging sessions that covered a breadth of issues, but we barely scratched the surface of what can and must be done in the next few months and years.
The subject of the committee’s first session was demographics, on which a number of members have touched. The OBR put it neatly when it said:
“the public finances are likely to come under pressure over the longer term, primarily as a result of an ageing population.”
At the start of the debate, Kenneth Gibson gave us the statistics about the large increases in the number of people aged 65 and over and even greater increases in the number of people aged 85 and over. The number of people aged 85 and over will have increased by 38 per cent by 2016 and by 144 per cent by 2031. That will have an impact on our public services, regardless of who is in Government and who is sitting in the Parliament. That must be borne in mind for every policy that we put forward from now on and for the existing policies that we need to review in the coming period.
Although that is, in many ways, obvious, I was struck by an observation made by Professor Charlie Jeffery when he gave evidence to the committee. He said:
“A decade or more ago, we were in danger of painting older people as a terrible problem and a fiscal calamity that faced us all. However, we have quite successfully moved to a different concept of older people as active citizens who make a valuable contribution to our society.”—[Official Report, Finance Committee, 11 January 2012; c 473.]
Although policy makers have to take many points on board, Professor Jeffery’s observations are worth having at the front of our minds, because a 65-year-old in 2012 does not compare to a 65-year-old 30 years ago. Because of advances in medicine and the increase in life expectancy, somebody aged 65 today can make a far bigger contribution than someone aged 65 could just decades ago.
Every member who has spoken so far has mentioned preventative spending. I am happy to acknowledge the work done by the Scottish Government and, in particular, John Swinney, in the last budget to try to create a shift of both money and the overall culture towards preventative spending. It is important that that be monitored very closely. The funds that John Swinney mentioned are a positive step, but we must ensure that that money is spent on genuine preventative spend instead of plugging gaps or being spent on emergencies.
That point was well made by the SCVO when it gave evidence to the Finance Committee. It felt that in one of last year’s funds—this is only its view—only 18 per cent of the money was going into preventative spend. I know that the cabinet secretary disputes that figure, but it highlights the point that we must monitor very closely whether the money that we say goes to preventative spend actually goes to it.
That also means that we must have a tighter definition of exactly what we mean by preventative spend.
I reassure Mr Brown that one of the pillars of the public service response to the Government is about strengthening the process of performance assessment of relative provision in different localities and establishing whether the objectives are being met. I am very open to that issue being probed and pursued to guarantee that the objectives, which I think we all broadly agree upon, are fulfilled in the way in which the funds operate.
I accept the cabinet secretary’s point. The fund to which the SCVO referred was in its initial year and was referred to as a pilot, so there were bound to be teething problems.
We need a tighter definition of preventative spend because just about every agency or department that has given evidence to any parliamentary committee claims that what it does is preventative spend and that by investing more money into that department and its policy area money is saved in the longer run. I have yet to meet a single department or agency that will stand up and admit that what it does is not really preventative spend. If, as a Parliament and as a country, we are to focus our resources properly, we must be quite robust about what we consider and do not consider to be preventative spend.
The issue of how important it is to track what we do and to have a clear evidence base for the priorities that we choose and shape has already been touched on. If we pursue this agenda, there will be some losers in the short term. With a finite source of money, if money is shifted to preventative spend from elsewhere, somebody, by definition, loses out in the short term. One difficulty that we all face is that to get results under the preventative spend agenda takes a substantial amount of time, and often the department that puts the money in is not the department that sees the benefit, whether it comes five or 10 years down the line.
There is a broad political consensus about the direction of travel. There will be debate about some of the issues, but the Finance Committee has driven the agenda and I was pleased to learn that it will take it forward in the months to come.
We now turn to the open debate. Speeches will be six minutes long, with a bit of leeway for interventions.
15:40
As a member of the committee, I am delighted to speak in potentially one of the more important debates that we have had since I was elected last year, as the outcomes of the decisions that are made on the issues may well define Scotland as a nation and say something about what sort of society we wish to have.
Members should make no mistake: the debate is not only about cost, but about what values we hold, as the cabinet secretary said. Can we afford to sustain the level of investment that we make in the universal benefits and services? We absolutely can, but that will involve choices, some of which may be difficult.
Sustaining that level of investment also depends on resuming economic growth, as confirmed by Philip Grant of Lloyds Banking Group, who suggested to the committee that our social protection system is sustainable as long as we generate the economic growth to fund it.
Scotland is exposed to Conservative policies inflicted on us by the Tory-led UK Government, and only independence will allow Scotland’s long-term financial sustainability to be in our own hands. While we remain in that unequal union, the creeping privatisation of the NHS south of the border can, through the Barnett formula, have profound implications for the funding of our NHS, even if we are steadfast in our opposition to privatisation. That is grossly unfair, because we should be the masters of our own fate and not be at the whim of policies that are supported by a tiny minority in Scotland.
If Scotland was treated as an independent nation for statistical purposes, as per “Government Expenditure and Revenue in Scotland”—and as acknowledged by Mr Macintosh, I believe—it would be the sixth wealthiest nation per head and one with an exciting future.
I was referring to the UK.
I say to Mr Macintosh that the UK was 16th in that list, not sixth.
If we focus purely on the cost of everything and the value of nothing, the debate will miss an important dimension of the spending about which we are talking and which other members have mentioned: much of it is preventative.
Preventative spending not only reduces negative social outcomes but delivers better value for the taxpayer. For example, our early years investment fund is investment in the future. Short-term savings from pre-birth to five years of age could be as much as £37,400 in the most extreme cases.
We know that education investment, whether in the form of expanding nursery provision from 475 hours to 600 hours or the implementation of improved teaching methods such as the curriculum for excellence, can be hugely beneficial, particularly in the early years. Improved educational attainment can not only lift people out of poverty but make them more confident citizens and move them into a lifestyle pattern that improves their health, increases their longevity and adds years more with a good quality of life.
The Scottish National Party Government is committed to introducing an integrated health and social care system—an objective that members in other parties share. It will help to sustain a system that better flags up when individuals and families are at risk. I am particularly pleased—as are other members of the committee—that we are rolling out family nurse partnerships to ensure that the needs of the children who are most at risk of negative social outcomes are addressed and that we break the cycle of transgenerational poverty.
Our preventative spend agenda will help us to cope with a growing elderly population despite Westminster’s cuts. We are committed to a change fund for older people’s services worth £300 million over 2011-12 to 2014-15. We are also committed to free personal and nursing care, as well as more general schemes, such as the warm homes fund, which allows our elderly and other vulnerable groups to enjoy a warm home as well as tackling fuel poverty.
We heard from independent academic and third sector organisations that investment in concessionary travel and free personal and nursing care, which benefits more than 50,000 older vulnerable people, will allow our older citizens to enjoy greater independence in their later life and will avoid hugely expensive and often suboptimal solutions, such as delayed discharge.
In that respect, Charlie Jeffery, who has been quoted already, said to the committee:
“we can get fixated on the headline costs of things such as free personal and nursing care without thinking of the money that we would have to expend if such care was not there.”—[Official Report, Finance Committee, 11 January 2012; c 481.]
One serious issue that needs to be highlighted from the oral evidence is that we mistakenly assume that, in future, people who are, say, 85 years old or more will be just as healthy as those of that age whom we see today, when the opposite may be the case. Years of poor lifestyle choices, higher consumption of alcohol, bad diet, a lack of exercise, sedentary working practices and environmental influences will mean that many more of us can perhaps look forward to our later years being affected by one or more chronic medical conditions, compared with those who are 85 or older today. As Gavin Brown said, strong growth is projected in the number of people over that age up to 2031.
Although many witnesses were reluctant to volunteer areas of spending that we should cut in order to grow spending on prevention, it is clear that we will face some hard choices in the future and that, as the need for acute services falls, some remodelling might be needed.
We need to engage with stakeholders and challenge civic Scotland to think big and throw aside the silos, whether they are financial or organisational. We need to think carefully about what we can deliver by using funds more creatively so that we can sustain preventative spend in the face of the demographic change that we expect. As we heard in the committee’s discussions, we must also consider the cost of administering means testing. Many of the witnesses who talked about cancelling universal benefits were unable to quantify the costs that administering means testing might generate. We must look not only at the costs and benefits of services, but at the costs that we avoid by not means testing them.
In conclusion, the social wage and the protection of the most vulnerable people in our society must not merely be about money.
15:46
I joined the Finance Committee just as its evidence taking on fiscal sustainability was starting, so I am not congratulating myself in saying that the sessions were very worth while and that they produced some extremely thought-provoking evidence. As others have said, the four main themes—demographic change, inequality and deprivation, universal services and additional methods of finance—are all worthy of more detailed consideration, and indeed they will receive it, than was possible in the four evidence-taking sessions that led to today’s debate.
I hope that members who speak in the debate will be able to refer to the evidence that witnesses presented to us without ridiculous accusations being made that that evidence is the policy of the party to which the member belongs. Unfortunately, such accusations were made in one of our debates earlier this year. Members of Opposition parties should be able to listen to and refer to evidence that is presented to committees without ministers making inferences about the policies of those parties either in the Parliament or on television programmes. However, I am hopeful that the Cabinet Secretary for Finance, Employment and Sustainable Growth is less likely to do that than some of his colleagues are. The issues that were flagged up to us are serious and we ought to be able to discuss them properly.
As we all know, constitutional change is under way. The UK Parliament has now passed the Scotland Bill and there is much discussion about the degree of future change. Many of us would like to go further and some of us would like to go in a different direction, but we all know that there will be change. That means that there needs to be a debate about what the change is for. Given that the Parliament will have more control over its budget, how do we want to use that power? That discussion needs to take place more widely than simply here in this Parliament.
The committee’s budget adviser, Professor David Bell, provided us with a preparatory paper that included information on tax take as a percentage of gross domestic product. In Scotland and the rest of the UK it is about 35 per cent, in the United States it is about 25 per cent, and in Scandinavian countries it is around 45 per cent, or up to 48 per cent in Denmark. Any changes that we decide to make regarding personal or business taxation will affect the way in which we can sustainably provide services and the degree to which free universal services can be provided. It is a difficult choice, but we have to accept that.
Audit Scotland advised us that the cost of the universal free services that the Scottish Government provides is £875 million and rising. Both Professor Bell and Professor Jeremy Peat expressed the view—I make it clear that this is their view and not my view—that those services should be reviewed periodically, including consideration of the other options to which those funds could be applied, although Professor Peat also reminded us of a point that Paul Wheelhouse made, namely that the administrative cost of applying criteria to eligibility for services must also be taken into account.
One of the themes that came from the evidence was the need for better data on which to base decisions, and the need for data to be available at the appropriately local level. For example, we know—others have referred to this—that over the past 60 years, life expectancy has risen by 18 per cent for males and by 17 per cent for females. Unfortunately, healthy life expectancy is lower in Scotland than it is for the rest of the UK; therefore, people will be living longer in poor health, requiring medical intervention. That is not uniform throughout Scotland, though—it is more likely in some areas of the country than in others.
Other members have referred to the advice to the committee that the cost of emergency admissions to hospital for the over-70s is four times the budget for personal care of older people. That is an astonishing statistic. However, although interventions that prevent emergency admissions could have significant benefits to the NHS, we were advised by Professor Bell that, for example, the evaluation on telecare interventions was insufficient.
Other interventions that enable older people to live a healthier life at home, such as aids and adaptations, and sheltered accommodation, are provided by other agencies that do not benefit from the health service savings. Gavin Brown referred to that.
Dr Murray makes a substantive point about emergency admissions to hospital for the over-70s. I encourage her to decouple her view from the telecare link and focus more on the adult health and social care integration proposals from the Government. Those proposals will be a more decisive contributor to reducing emergency admissions than the telecare proposal, which is much more about sustainable access to health care services throughout the country.
That is one example where there is insufficient data.
The point was also made about single outcome agreements being at council-wide level, when councils sometimes need to have the data at a much more granular level to be able to make specific interventions, particularly in areas of deprivation.
The committee took evidence on payment by results and social impact bonds as alternative methods of funding, particularly of preventative spend. That was interesting, although they sounded a bit like private finance initiative for services, which might make people feel a bit cautious about them. There are also issues about how they are evaluated and over what timescale, how the payments are made, and how long the investor will be prepared to wait for results.
Finally, as others have said, the evidence could be a starter for totally new inquiries. Some of the ideas presented to us were controversial and some challenged accepted ways of doing things. However, we need to give them consideration, even if, in the end, the solutions offered are not accepted. There is a lot of material that is worthy of consideration in this inquiry.
15:52
I, too, thank the Finance Committee for its work on the report. The summary of evidence clearly identifies the key issues and highlights the challenges ahead for the Scottish Government and the Parliament.
Like Paul Wheelhouse, I think that we must start by looking at our values. What are the values of our people and what are our ambitions for our people and our country? The Scottish Government has the right vision, which is of a Scotland that is economically secure, prosperous, healthy and socially just. We should never forget that that is what we are aiming for.
The preventative spend agenda, which has cross-party support, is supported by all the witnesses who gave evidence to the Finance Committee. Focusing on preventing problems by intervening earlier is the right approach to tackling many of the social issues facing us. It also secures better value for the taxpayer and ensures the sustainability of our public services.
Several members have mentioned the Government’s preventative spend agenda, which will support adult social care with the introduction of an integrated health and social care system. If it is done properly, the hope is that the system will reduce emergency admissions to hospital and give children the best start in life with the early years and early intervention change fund. There are also plans for improved childcare provision, and the system will help us to cope with a growing elderly population. Everyone so far has mentioned that.
We should not consider the growing elderly population to be a problem and it concerns me that we do. As someone said, older people can contribute to the workforce. We should welcome the fact that people are living longer and should ensure that they have quality of life. Preventative expenditure should mean that as people get older they will need less help from the NHS and social services. If we use preventative spending correctly at this stage, it should bring savings at the end of the day.
I was interested in what has been said about tackling inequalities despite the Westminster cuts. I will focus on inequalities and universal services, which were topics of the committee round-table discussions. I was struck by the evidence of Peter Kelly of the Poverty Alliance, who said that unless sustainable growth was inclusive, we would retain the poverty trap and the gap between the top and the bottom 20 per cent. We must focus on that, because unless we remove the poverty trap and have real employment and jobs for people, we will not move forward and, as the report said, people will move in and out of poverty and will have no real advantage.
James McCormick of the Joseph Rowntree Foundation highlighted that more children in poverty in Scotland live in families in which someone is in work—it is important to remember that. We should continue to promote the living wage because it is a way out of poverty for many who are in work, but I recognise the value of the social wage for many of our hard-pressed families. In addition, the council tax freeze, free prescriptions and free eye tests keep many families out of debt and poverty.
There has been criticism of universal benefits such as free prescriptions, but we need to remember that many low-income families and people on long-term incapacity benefit had to pay for their prescriptions. Those with long-term illnesses and chronic conditions who required a number of medications found it particularly difficult to afford to pay for them. Some people went without because they did not have the money for their prescription. As Andrew Walker said in evidence, there is no evidence that free prescriptions or free eye care cost more. The point has been made that means testing some benefits could negate any saving that might be made. I consider free prescriptions to be preventative.
I also consider concessionary travel to be preventative spend. As I said earlier, we welcome people living longer, but they need to have quality of life. Free bus travel has definite health benefits. It allows people to get out and meet other people and get fresh air; and it keeps them mobile, because they get around and walk to bus stops, for example. Means testing that benefit would mean that people on the margins would lose out.
During the recent local elections campaign I talked to three people in their 70s who said that they could not do without the bus pass, which was a life saver for them. They are on the margins and do not qualify for pension credit, so they would not qualify for a bus pass under a means-tested system. They value their bus pass highly and know that it keeps them going. One said to me that if they did not have their bus pass and could not get out, they would be sitting at home looking at four walls. Is that what we want for people? That will not help, because it will cost us more at the end of the day. Individuals in such circumstances will require more healthcare and more interaction with our social services. As Paul Wheelhouse said, it is about values. We do some things because it is right to do them, and that is the case for the bus pass.
I am sorry that I have to wind up, because I have a lot more to say. I agree with Paul Wheelhouse that we are living within a fixed budget and that only when we get independence and have fiscal autonomy will we get the Scotland that we want.
15:59
Before addressing the crux of the debate, I thank the Finance Committee for the debate. It is useful that the Parliament can hold debates that are on not a committee report but the evidence that has been presented to a committee. The Education and Culture Committee has held a similar debate. Such debates are useful in allowing committees to take a better-informed approach to their work programmes, having heard what the Parliament has to say. I look forward to the Finance Committee looking at fiscal sustainability in more detail, and I hope that other committees will follow its approach in bringing to the chamber subjects for debate.
Today’s debate is about an important issue. It is self-evident that we must ensure the sustainability of public expenditure. However, the term “fiscal sustainability” could be thought to be loaded, as Ken Macintosh said, and could mean different things to different people.
I say clearly from the outset that I do not share the UK Government’s perspective on fiscal sustainability. Its hawkish approach to deficit reduction is harming the economy. Mr Macintosh referred to the fact that the UK economy has re-entered recession. It is evident that the UK Government’s approach has contributed to that. Indeed, Paul Krugman has referred to the
“death spiral of self-defeating austerity.”
As the Scottish Government has said, there is a clear need to inject capital spend to get the economy moving. However, we cannot act in a long-term spendthrift manner. It is clear that any public expenditure must be sustainable in the long term. That applies particularly in the devolved context, where we have a fixed budget and our fundraising capability is legally constrained—John Swinney set that out usefully in his response to an intervention from Ken Macintosh. Thankfully, I do not think that that will be a long-term problem for us. I share the perspective of my colleagues Paul Wheelhouse and Margaret Burgess that independence is the solution to that issue.
We must look at the sustainability of public expenditure—fiscal sustainability—in the context of the society that we are in and the current spread of public expenditure. The Finance Committee took a useful approach by focusing on four overarching issues: demographic changes; inequality and socioeconomic deprivation; universal services; and additional models of finance. It was useful to hear that the Scottish Government always considers those aspects. If time allows, I will look at the first three aspects in more detail.
On demographic changes, the Office for Budget Responsibility has said that
“the public finances are likely to come under pressure over the longer term, primarily as a result of an ageing population.”
A Scottish Government report said that the population that is aged 65 or over
“is estimated to increase by 21% between 2006 and 2016 and will be 62% bigger by 2031.”
An acute increase will also occur in the number of people who are aged 85 or over.
It would be unfortunate if people who were listening to us felt that we felt that that section of the population was in some way a burden. It is self-evidently a good thing that people are living longer and healthier lives—how can it be anything other than that? People should not feel that they are a burden.
Free personal care is rather important to fiscal sustainability. Some might conclude that free personal care should be cut, because it could create an increased burden on the public purse, but Margaret Burgess and Paul Wheelhouse made the point well—this picks up on evidence to the committee—that we should look at that as preventative spend, because emergency admissions cost about four times more than the entire free personal and nursing care budget. Free personal care should be seen as preventative spend that contributes to fiscal sustainability.
The statistics on inequality and socioeconomic deprivation are well known and have been well rehearsed. I do not think that anyone in the Parliament is proud of our statistics on deprivation. With declining budgets and the need for fiscal sustainability, tackling inequalities will be a greater challenge. The Christie commission noted that point and said that
“Part of the problem has been a failure to prioritise preventative measures”.
Again, the issue of preventative spend is highlighted as being important.
I want to touch on universal services, as much as time will allow, because they are important. Indeed, the Finance Committee’s summary of evidence states that
“Audit Scotland has estimated a combined annual ... cost for free personal and nursing care, concessionary travel, free eye tests, and free prescriptions of £870 million.”
I have already touched on free personal care, but I want to touch on two of the other issues, too.
There could be a quiet—in some cases, not so quiet—assumption that we should try to bring down expenditure on all those areas. However, the national concessionary travel scheme, for instance, contributes positively to the physical and mental wellbeing of the people who benefit from it. It also allows them to get out and about and make an economic contribution. On free prescriptions, the evidence was clear—stopping the policy could be a case of throwing the baby out with the bathwater, because cutting back on universal prescriptions will not make the savings that people think will be made. That perhaps challenges some of our assumptions about fiscal sustainability.
It is clear that preventative spend is going to be important. I look forward to hearing what the cabinet secretary has to say at the end of the debate.
16:06
This is a vital debate on how to get the best out of our public services in times of economic difficulty. Now that we have re-entered recession it is crucial for the Finance Committee to assess how to protect those public services—a lifeline for many—that bear the brunt of cost cutting by government: in Westminster, in Edinburgh and locally.
Although the debate is not specific to any one report from the Finance Committee, it is timely. With the Tories in Westminster cutting whatever they like, the deficit hawks in the coalition have waited for the financial crisis and subsequent recession to implement their ideologically driven cuts. Their slash-and-burn approach will destroy many of the public sector services that we desperately need in the UK.
In Scotland, we have the SNP, which has passed on the Tory cuts to local authorities without haste, and has acted as carrier pigeons for the Tory coalition. Then we have the Lib Dems, who—I am going with my previous comparisons—are dodos and soon to be extinct, especially after last week’s elections. They are propping up a right-wing Government that is intent on destroying the lives of the most disadvantaged in the name of deficit reduction.
We can all agree that to many people in Scotland, public services are a lifeline—whether through employment in the public sector, the education that our children receive, the hospital care that we need, or the home help that our elderly require.
We have to start looking at how we continue to fund public services, and although the Scottish Government has claimed that it will not use private finance, that position is not shared by the Minister for Local Government and Planning, Derek Mackay. In response to Michael McMahon’s question on the Scottish Government’s consideration of social impact bonds, Derek Mackay said:
“The Scottish Government is committed to working with stakeholders to find new ways of adding value to, and improving the delivery of, public services.”
Of course, the private sector has a huge role to play in improving the delivery of public services in partnership with the public sector.
Mr Mackay added:
“This includes exploring the potential of innovative approaches from social investment.”—[Official Report, 19 April 2012; c 8227.]
I believe that social impact bonds could be extremely useful in getting the best out of our public services. However, I await the results of the trials of the scheme in England.
Partnerships between the public sector and the private sector could be essential in dealing with the complex problems that many people have, and where the responsibilities overlap, partnerships are a must. Such partnerships are also vital when engaging with the local community.
We all know the problems that we face due to the changing demographics. However, the biggest challenge is how we, as policy makers, manage that change. There needs to be a greater focus on bringing social and economic objectives together in deciding policies, as was highlighted by the Poverty Alliance at the Finance Committee.
However, when policies are adopted to serve the economy and the financial markets, those at the bottom will always suffer, as will public services. Ken Macintosh made the excellent point that the Tory Government has an obsession with maintaining the UK’s AAA credit status, yet the credit rating agencies failed massively in the financial crisis. While the SNP Government focuses on its separation agenda, it fails to tell the Scottish people the realities of independence. What would be the credit rating of a separated Scotland?
I cannot resist the temptation. Mary Fee has just told us that the Conservative Government is obsessed with credit ratings and should not bother with them, but she then suggests that we should bother about them. Which is it to be?
I point out to the cabinet secretary that I did not say that the Tories were obsessed with credit ratings—that is not what I said. If the cabinet secretary has chosen to take it that way, that is up to him.
What would be the credit rating of a separated Scotland? What would be the sustainable tax rate, and what would be the level of public spending under the currency union that the SNP boasts about? Those are questions that the Government cannot answer, and the result is uncertainty for the Scottish economy.
Will the member give way?
No, I am in my last minute.
Those issues inhibit the long-term fiscal sustainability of our services at a time when we need to manage the demographic changes that further threaten our public services.
What we need to do—and what we have the powers to do—is to target policy towards social goals. Reducing child poverty, creating full employment and improving public services are three targets that the Government should be working towards. Instead, the decline in child poverty has stalled under the SNP; unemployment—especially female unemployment—has increased, causing child poverty to increase; and public services are under attack due to cost cutting by the deficit hawks. One of the main themes to come out of the Finance Committee appears to be that job creation is essential for fiscal stability. Reducing unemployment is a target that we must all share—but apparently we do not, given that jobs for the new Forth crossing are going abroad.
As I and others have pointed out, the public services on which we depend also provide people with jobs. Our fiscal sustainability is hampered by the Tories’ wish to slash up to 500,000 jobs and especially by the SNP’s cutting of 25,000 of those jobs.
16:13
I welcome the debate and the Finance Committee’s approach to and discussions around fiscal sustainability.
We live in demanding times and I subscribe to Gandhi’s belief that we should live and be the change that we wish to see in our world. The time is right to change the balance in this world. In the past, too much time has been taken up by processes, institutions, organisations and funding in a race to the top. I believe that we have set about changing that. Of course finance is crucial, but it is time, rather, to put our hearts, our motions, our contributions and our ideas into the individual and into our communities as the basis of a new fiscal regime.
Today, I seek to give some personal focus to four fundamental areas that will underpin only part of the fiscal sustainability that we want to achieve going forward. First, the demographics demand support for a programme—which has already started—to serve an integrated health and care system. Secondly, they demand investment in our future through intervention and through preventative spend on our childcare and our young. Thirdly, there is an overarching need to close the gap in incomes. Finally, the fundamental point is that intervention through social enterprise—the voluntary and third sectors in the economy—will secure both a culture of preventative spend and economic and entrepreneurial advances at ground level.
On care of the elderly, as Professor Jeffery told the committee and as Paul Wheelhouse said, there is a fixation on care costs without consideration being given to what the costs would be if the care were not provided. We must, through the change fund, shift the balance of care from institutions to community and primary care and we must enable the elderly to be active citizens, as Gavin Brown said.
On children, as the First Minister said last week, in the context of declining child poverty during the past 10 years and in the face of Westminster cuts, it is our aim and our duty to demand the full powers on tax and benefits that will enable us to protect all children from poverty and from London excesses.
Will the member give way?
I am sorry, I do not have time.
It is not acceptable that 120,000 kids—our kids—should be kicked into the touch of poverty by indiscriminate welfare cuts. Our investment of £270 million in the early years and the early intervention fund is a measure of our caring and forward-looking community, and our improvements to childcare provision through increased nursery provision are a measure of a sustainable society.
Fiscal sustainability can and will be achieved only when we secure an income spirit level that reflects a fair society. The societies of Sweden, Norway and Japan, where top earners’ income is four times that of the lowest earners, are far more equal than the UK, where the difference is more than sevenfold. The pernicious effects of inequality on societies are clear: eroded trust, increased anxiety and illness, and excessive consumption. The runaway train of executive salaries and institutional financial bonus debauchery has to be stopped by the buffers of outcome attainment, payment for performance and contributions to society. If we want fiscal sustainability we can and should apply the 80:20 rule to all major incomes and items of expenditure in the public and private sectors.
I have described challenges, which are being met, but I fundamentally believe that the basic financial answers lie in our communities—in social and community enterprise and in the voluntary and third sectors. Those are the keystones of long-term fiscal rectitude and sustainability and the drivers of creative, innovative and preventative spend. Entrepreneurial ideas do not come just from our universities and research factories. I am talking about social investment, proven social impact finance, ideas flowing up and across society, and a heterogeneous mix of the very young and very old sharing community facilities, which allows people to bond more closely.
We agree that national economic success and jobs will depend on a large degree of metropolitanism, and large exporting businesses and sectors, but our fiscal ship of state will be steadied by the fundamentals of individuals in our communities, as I have outlined.
16:18
As I am a member of the Finance Committee, I am pleased to speak in the debate, although I was able to attend only two of the four round-table sessions that took place. The debate comes at an appropriate time.
Mary Fee might want to listen to her front benchers before she gives a speech. Ken Macintosh asked why on earth we are listening to Moody’s and Standard & Poor’s and getting so obsessed by credit ratings, but she said, “I’m obsessed by the credit rating for an independent Scotland and I want the question answered.” The Labour Party might want to do some work on joined-up thinking when it has its next away day. That might help the party with its narrative in the Parliament.
Given Mary Fee’s sustained invective against the Conservatives, I am sure that she will be the first to welcome the many council coalitions that Labour is striking with the Conservatives across Scotland. She will be more than happy with that, given what she has had to say about the Conservative Party today.
On the independence debate being bad for the economy, I accept that perhaps Ms Fee could not watch the Finance Committee meeting this morning, but Lloyds Banking Group’s top Scottish executive, Philip Grant, said not only in that meeting but in The Scotsman that the independence debate is benefiting Scotland by giving us an increased international profile, making us a talking point across the world—including in boardrooms across the world—and attracting potential investment to Scotland. Perhaps that counters the relentless negativity that we have heard from Labour members.
I want to focus on a couple of areas that the committee looked at. The thread of the demographic change that lies ahead—particularly the ageing population—has run through all the speeches that have been made thus far. I agree that we should not look at demographic change as a negative in and of itself. Our elderly population still have a great deal to give society—through the provision of grandparental care, for example, which is one of the functions that those who have retired often perform, allowing working parents to get back into work and stimulate the economy.
The points that Gavin Brown and Paul Wheelhouse have made do not necessarily act against each other. Gavin Brown was quite right: people in their mid to late 60s are much more active than such people were in previous years. However, Paul Wheelhouse identified that, because we are living longer, the likelihood—or potential—of our having serious health complications obviously increases. I stand here as a shining example of Scotland’s bad diet. We have particular problems with diet and lack of activity, and we need to consider them. People might live an extra 20 or 30 years, but that does not necessarily mean that problems will not arise as a result.
During the round-table discussion on demographic change, I raised the issue of migration and the need to attract skilled working-age migrants to Scotland. There is a real clash in that area between the policies that are being pursued at the UK level and the need to develop Scotland-specific solutions. I think that both Professor Jeffery and George MacKenzie of the National Records of Scotland, who produced a table that looked at the prospects if we have low net migration and an ageing population, agreed with that point. We have to focus on how we can engender a culture change within the UK Border Agency so that it can see the need for a particular set of solutions for Scotland in the short term—until, of course, we control our own migration policy, when we can develop solutions for ourselves.
On universal services, there is often an obsession with popular policies, such as those relating to bus passes, free prescriptions and the council tax freeze. We are always told that we cannot afford such policies, but members should look at how much we spend on those individual policies in the context of the global budget. A huge proportion of the global budget is not being spent on those policies. Some people have the mindset that somehow in difficult times, Governments should not do popular things. The UK coalition Government might be pursuing that policy—if it is, it is doing so very successfully—but the Scottish Government is quite right to stick to its guns and say that universal services policies are not just popular but have wider social benefits, which Margaret Burgess specifically highlighted.
A lot of work still needs to be done: for example, to change attitudes across Scotland, particularly in relation to deprivation and how we target particular services and funding towards areas of deprivation. If tackling deprivation was easy, we would have done it by now—and we would have done so much better in the good times. We are now in very difficult economic circumstances, but that does not mean that we should not strive to effect change in our most deprived areas to ensure that children who are born in those communities do not find that, essentially, they have been born to fail. All members should unite behind that.
16:25
I make the observation that the debate might have been slightly better had the percentage of time that was spent on independence and Westminster been reduced and the amount spent debating the comprehensive issues that were examined by the Finance Committee increased. I hope that closing speeches spend more time on the latter than on the former.
Regarding the substance of the debate, I will focus my closing remarks on improvements to data, evidence and tracking. I will look at some of the challenges that have been outlined and I will speak about universal services. The debate, thus far, has been a little one-sided on services and does not reflect the evidence to the committee, so I will begin with universal services.
It was fascinating to observe the round-table evidence session, because the panellists and the arguments they put forward were finely balanced. There were strong arguments in favour of retention of universal services and there were equally good arguments, not on the abolition of universal services—far from it—but on reform of some universal services.
The points in favour of universal services have been well made by a number of members. One point was in relation to administration costs. A move to a system of means testing, as Jeremy Peat pointed out, could save £50 million on benefits, but the spend on administration could be £40 million, which would almost entirely wipe out the saving. A quotation from Professor Jeffery about the fixation on headline costs came up several times.
That view has to be balanced against other contributions that were made by equally eminent people on the panel. Professor Bell said that they are “open-ended commitments”. The fact is that they increase year on year—sometimes dramatically and sometimes out of proportion to what was expected when the bill was passed and the measure was introduced. In many cases that increase is likely to be accelerated. His view is that universal services ought to be
“revisited every five years to see whether they remain affordable.”
Jeremy Peat, who made the point about the cost of administration, put forward his view that the benefits should remain in place until “year X”—as he described it—
“and would continue beyond that date only if the Parliament took a positive decision to that effect.”—[Official Report, Finance Committee, 25 January 2012; c 578, 581.]
He therefore put the burden on Parliament to make a positive decision and to examine the policy properly, instead of allowing it to continue automatically.
The costs of concessionary travel, for example, have increased year on year and out of proportion to what was expected when the policy was introduced. There are difficulties with means testing, to which Margaret Burgess referred when she spoke about the people in their 70s who rely heavily on their bus passes. However, there are ways to restrict access to the scheme without using what might be defined as means testing related to income. For example, one could move the age up from 60 to reflect the fact that many people who are in their early 60s are working. One of the professors who gave evidence in committee pointed out that he has a bus pass, which he thinks is a waste of public money because he is earning what is, in his view, a perfectly good salary.
The threads of the debate were pulled together in the phrase “opportunity costs”, which struck a chord with many committee members. If we start to do one thing, what can we no longer afford to do? We should not be considering simply whether what we are doing is a positive use of public money, but whether it is the optimum use of public money. For that reason, we ought to debate universal services in greater detail. The debate in committee was much more balanced than the views that have been put forward so far in today’s debate.
On the challenges, I return to some of the comments that were made earlier in the debate. When we move to a preventative spending agenda, we must accept that it takes time to get results. It can take five or 10 years to do so, which is way longer than electoral or political cycles. In addition, I reiterate that the agencies that gain are not always the ones that invest. For example, a local authority might make an investment but see no benefit to its budget, even over the course of time, while the financial benefit to the NHS in that area might be huge. Similarly, an intervention by the NHS might not benefit it at all financially, but might save the justice system a considerable amount.
My final point is one to which I hope the cabinet secretary will return in his closing remarks. The convener talked eloquently about social impact bonds, on which the committee spent a considerable amount of time and on which the National Endowment for Science, Technology and the Arts, Apex Scotland and Addaction gave positive reports. The convener asked the cabinet secretary to update the chamber on the Government’s position on social impact bonds, and I hope that he will take the opportunity to do that.
I call Michael McMahon. You have a very generous seven minutes.
16:31
Thank you, Presiding Officer.
Just as I enjoyed the discussions that the Finance Committee held on fiscal sustainability, I have enjoyed this afternoon’s debate, which has looked at the range and diversity of opinions and information that were brought to the committee during its deliberations. I found that process to be stimulating, and I am sure that not only will individual members have benefited from being challenged on many axioms but that, collectively, the committee will profit from having acquired such a body of instructive depositions.
Some of the areas that we looked at were non-contentious and can be taken almost as givens. For example, there is no doubt that the OBR could win the award for stating the blindingly obvious when it advised us that the public finances are likely to come under pressure as a result of an ageing population, but there is no harm in emphasising that reality, as a number of members of the committee, including the convener and Gavin Brown, have done.
Underpinning almost all the evidence that the committee received was the need for good and reliable information to inform the choices that Government and other public agencies make when they allocate resources and set policies to address the challenges that society faces. Elaine Murray referred to that, and it is interesting that Dr Lena Wilson re-emphasised the point at this morning’s meeting of the Finance Committee.
It is all well and good for us as politicians to set policy directions or to pursue agendas that are based on our ideological or political interests, but without verifiable evidence, we cannot know whether those decisions are justified, or even whether they are achieving the aims that we set for them. The point has been well made that although the public sector collects a great deal of data for different purposes, often best use is not made of it.
For example, we all know that the Government believes that the hundreds of millions of pounds that it has spent, and which it intends to continue spending, on the small business bonus scheme is helping our economy. That may well be true, but producing figures that show how many businesses get the SBBS is vastly different from producing analysis that shows in what way local economies are benefiting and how many jobs are being created. Without the latter, all we have is assertion. Without evidence to back it up, all that we are left with is knowledge that a lot is being spent and that the recipients are happy with that.
In the context of fiscal sustainability, it is entirely right to ask whether we can continue to fund a policy, the efficacy of which we have no evidence of, when we have to find resources to address the facts that, according to numerous witnesses, in educational terms the gap between the top 20 per cent and the bottom 20 per cent in Scotland is the widest in Europe; that Scotland has one of the highest proportions of people not in education, employment or training among the Organisation for Economic Co-operation and Development countries; and that levels of relative poverty have remained stubbornly high, even though they initially fell in the years immediately after devolution. My conclusion is that we certainly have a populist policy, but we have no verifiable evidence of the policy intent being achieved or of its being sustainable.
Various witnesses indicated that, within the devolved powers, there was action that could be taken, and they pointed to the role that the private sector could play. An extremely interesting round-table discussion addressed the issue of additional models of finance—on which Elaine Murray, Mary Fee and Gavin Brown, among others, have commented. Again, that is a real challenge to the Government, which has consistently set out its stall against the use of private finance and has pledged to prevent private involvement in delivery of public services, particularly in the NHS.
However, we know that the Scottish Government is now using the NPD form of private finance initiative and is considering the nascent idea of payment by results across various social service areas. It is also investigating social impact bonds, which involve the Government using investment that is raised from socially motivated private investors—I emphasise that they are private investors—to fund a range of interventions to improve a set of mutually agreed social outcomes, and in which the financial returns that the investor receives are dependent on the degree to which the outcomes are achieved. Like Mary Fee, I am not averse to such innovations being examined, but I wonder why ministers keep telling us that they are opposed to private investment in public services while we know that they are considering ways of securing it.
Ken Macintosh questioned the short-term populism of the current Administration. In closing, therefore, I would like to quote what Thomas Frank, a former commentator on The Wall Street Journal, said about the inherent hypocrisy of populism. He opined that it
“only benefits the people it is supposed to be targeting”
and said that populist politicians march
“irresistibly against the arrogant ... shaking their fists at the sons of privilege ... laughing at the dainty affectations of the toffs”
and that
“while the millionaires tremble in their mansions, they are bellowing out their terrifying demands. ‘We are here,’ they scream, ‘to cut your taxes.’”
For me, that sums up this Government. It wants to be seen to be progressive and to be on the side of the poor and the disadvantaged, but the reality is quite different. A cut in corporation tax, a cut in this tax, a cut in that tax and free services for wealthy families are all dressed up as benefits to disadvantaged groups. However, at some point, the populist largesse will prove to be unsustainable and the SNP, or someone else, will have to pay the bill. The denial will have to give way to reality and the tough decisions will have to be made. At some point, this SNP Government will be made to pay for getting its priorities wrong.
Mr Swinney, you have a generous nine minutes.
16:37
First, I would like to correct a reprehensible statement that I made earlier. When I was dealing with the intervention by Ken Macintosh, I said that the Conservative Government had taken forward the same capital spending plans as the Labour Party proposed to take forward. That did a disservice to the Conservative Government, because the OBR said that the capital departmental expenditure limit plans of the Labour Government were to spend £157 billion, in real terms, between 2011-12 and 2014-15, and that the Conservative Government plans to spend £161 billion, in real terms, in the same period. That means that, in fact, the Conservatives are spending more on capital—just a little bit more—than the Labour Party had planned to spend. I think that Mr Macintosh should stop peddling the fallacies that he peddles on such issues.
In the 13 years during which we have both been in this Parliament, I have never felt any ill will towards Dr Elaine Murray and do not want to deploy any ill will today. However, the sooner the attitude of those on her front bench is replaced with her thoughtful contribution to the debate, the better Parliament will be. The contrast between the continuing outpouring of miserabilism from Messrs Macintosh and McMahon compared with the thoughtful contribution of Dr Murray was well illustrated.
Dr Murray talked about the cost of emergency admissions to hospitals and the avoidability—if I may use that term—of those admissions through the use of other interventions. That is a point that the Government absolutely accepts, and which was made powerfully by Dr McCormick of the Joseph Rowntree Foundation. It is why we have made the adult health and social care integration proposals. To address one of the points that Mr Brown made in his summing-up speech, that is one of the key elements in how we avoid public organisations resisting change because they are concerned about the implications for their own compartmentalised budgets. I accept that there has been a history of that within public services, but the Social Care (Self-directed Support) (Scotland) Bill is designed, essentially, to remove that supposed disincentive by having a positive impact on reducing hospital admissions that could probably come about by the provision of different local services, but of which local authorities would feel they were carrying the strain.
Will the cabinet secretary give way?
I will give way in one moment. The co-operation between local government, the Scottish Government and our health boards in implementing the agenda is enormously welcome. It tackles some of the issues that were raised by Dr McCormick and echoed by Dr Murray in Parliament.
I accept what the cabinet secretary says in relation to that specific policy area, but I was making a more general point about preventative spend. A host of departments could be involved and there is still a danger that they will worry about their own budgets.
I concede that such a danger always exists, but we are trying to focus the Government on the achievement of outcomes and to discourage budget holders from thinking that it is “their money” that might be being spent on sorting out someone else’s problems. I accept that that can be a reality in the debates around public services, but our approach is about focusing on integrated policy making and implementing the agenda across the Government in a number of areas, which I will list for the benefit of Mr Brown and of Parliament. They are the early years change programme; the getting it right for every child programme, which is part of the education portfolio; integration of health and social care; police and fire reform; and post-16 learning and training. I should add reducing reoffending, because if we reduce reoffending, it will affect not just the justice budget or the prisons budget, but wider local authority and service budgets and the health service.
I assure Parliament—Mr Brown, in particular—that we are making a determined effort to focus cross-Government activity on solving the problems; the preventative spending interventions are designed to do a great deal of that.
I move on to universal services. The debate has been thoughtful and can be characterised by Professor Jeffery’s comment about being
“fixated on the headline costs of things such as free personal and nursing care without thinking of the money that we would have to expend if such care was not there.”—[Official Report, Finance Committee, 11 January 2012; c 481.]
I will give Parliament an example of how that case has been made in a compelling way. The cost to the Government of a free eye test is between £37 and £45. The tests are provided by high street opticians, which means that the service is readily accessible to members of the public in all the communities that we represent. That £37 to £45 could allow the optician to identify a number of conditions that could present as acute conditions if they are not intercepted early enough. So, although we call it a universal service, it has a clear preventative character because it is looking proactively at eye care and other possible health conditions that could affect individuals in our society.
Prescription charges were previously free for some people in our society and there were, of course, exemptions, but the following is a list of some of the conditions that were not exempted before prescriptions were made free: Parkinson’s disease, asthma, rheumatoid arthritis, cystic fibrosis, coeliac disease, eczema, psoriasis, dementia and Crohn’s disease. Those are all relatively mainstream conditions that affect individuals in our society. As she always does in such debates, Margaret Burgess made the point powerfully that such conditions often affect individuals who are on low incomes. We have to view some of our measures as directly contributing to the welfare of individuals.
Whether we are talking about free prescriptions or free personal care, I was left a bit bewildered by Mr McMahon’s comments about the fact that the Scottish Government only does such things because we believe them to be “populist”. If I remember rightly, Mr McMahon supported, as I did, the Labour Government when it brought in free personal care for the elderly. Was it grubby and “populist” for the Labour Government to do that at that time? I am a bit confused.
Will John Swinney give way?
Of course I will take an intervention—but I want to put on record the fact that I am confused by Mr McMahon’s point.
I will help the cabinet secretary and disabuse him of his confusion. I asked for evidence that policies have achieved the intended outcomes. Of course there will be policies that are populist just for the sake of being populist. The point is that the Government cannot just assert that it has got things right. All the witnesses who spoke on the issue said that there must be robust evidence to show the efficacy of policies.
Roughly translated, that probably means that it is all right for the Labour Party to introduce policies, but it is not all right for the SNP to introduce them.
My final point relates to Mr Brown’s comment about the suggestion that Professor Bell and, to an extent, Jeremy Peat made that we should periodically review universal services. Ultimately, Parliament must decide whether it wants to spend money on proposals—that is the purpose of the budget process. In formulating the recommendations that I make to the Cabinet and Parliament, provision is made for those services. Clearly, Parliament must judge whether it wishes to support such provision. If the suggestion is that somehow we do not actively choose to carry on with those provisions, that does not give a full account of the parliamentary process and the process of decision-making. As the finance secretary, I have to make the financial provision for those services.
Very lastly, I want to answer Mr Brown’s question about social impact bonds. The Government is continuing to investigate that issue. It is being considered by the preventative spending group, which brings together internal players from the Government and external players. When we have further proposals to set out, we will advise Parliament.
16:47
I welcome the opportunity to close this debate on fiscal sustainability. In the convener’s opening remarks, he referred to the stimulating contributions that were made during the committee’s round-table discussions. We have had some stimulating speeches this afternoon, but before I respond to some points that have been made, I will outline some of the committee’s work for the coming months.
The Finance Committee has developed a coherent and relevant work programme, with the bulk of our work sitting under the broad theme of fiscal sustainability. There are clear and useful linkages between the various work strands, all of which are focused on the annual budget scrutiny to which the cabinet secretary referred. We will continue to identify, listen to and work with key individuals and groups who can focus our scrutiny on fiscal issues. As the convener said, our work with the David Hume Institute has been extremely useful and we look forward to further discussions with its members in the coming months.
We will shortly hold a series of round-table discussions on employment and employability. As has been mentioned, this morning we took evidence from Dr Lena Wilson of Scottish Enterprise, Professor Jim McDonald of the University of Strathclyde and Philip Grant, following their recent articles in The Scotsman on increasing sustainable economic growth. During the debate, it has been asked whether we should be completely pessimistic and pulling our hair out, or be more optimistic. This morning’s panel, who came from various fields, was incredibly optimistic. Our future round-table discussions on the topic will hear evidence from businesses, business groups and the Minister for Youth Employment.
We have taken evidence from the Institute for Fiscal Studies and the Office for Budget Responsibility on the impact on Scotland of the UK budget. We might repeat such meetings as we consider the wider economic and fiscal issues and their influence on Scotland.
The committee plans to take evidence before the summer recess on how to improve data collection and measure outcomes, which has been touched on during the debate. Our initial evidence session will, we hope, inform our future consideration of the issue and allow us to consider the issue’s relevance to other work that is before the committee.
The need for relevant and sound data, which are generated and shared across the public sector, has been raised with the committee on numerous occasions and has been mentioned frequently in the debate. We highlighted the point in our summary of evidence on preventative spend. It has arisen during our discussions on fiscal sustainability and in our initial discussions with the OBR on forecasting Scottish taxes. It has to be said, to be reasonable, that we often get evidence on both sides of an issue. A lot of issues end up being about political choices because there is not a clear cut right or wrong answer.
Our evidence session with the OBR discussed its methodology paper, which describes how it plans to forecast the proposed Scottish tax receipts. We will discuss the matter with HM Revenue and Customs next month; there is no doubt that data gathering will form part of that discussion. It will be interesting to consider how data that are used for that purpose can be shared and utilised for other purposes within the broad consideration of fiscal sustainability. I do not know what thought the Scottish Government has given to that opportunity, but it may be something that we can discuss during our round-table meeting next month.
There is clearly a need for relevant and reliable data. For example, the convener mentioned the benefits and the positive outcomes that arise from providing free universal services. However, as a number of members have said, we need to be clear about what the outcomes are, and we need to gather relevant data on them if we are to persuade the public in general and, especially, sceptics. We must be clear about what motivates and informs a policy strategy, and about how we measure its effectiveness and establish whether it has achieved the desired results and secured all the intended benefits.
Before I turn to individual points that have been made by members, I will highlight pensions, which are relevant in the context of fiscal sustainability and which may be considered in our work programme. Clearly, within our consideration of demography and an ageing population, the fiscal impact of pensions liability is particularly relevant.
The committee’s budget adviser, in his report to us on the 2012-13 draft budget, stated:
“The Scottish Government is to implement the public sector increases in pensions mandated by the UK Government. On average, pension contributions will increase by 3.2% over the next three years. The Scottish Government argument is that not to introduce these pension increases would cause cuts in its own budget leading to falls in employment and/or further pressure on public sector wages. It has also been informed by HM Treasury that if it does not introduce the changes, its block grant will anyway be cut. Clearly this is a somewhat unsatisfactory situation. It reinforces the argument that the Scottish Government should be responsible for the pension arrangements of public sector employees in Scotland.”
He also made the point, in his briefing paper on fiscal sustainability, that
“Public sector pensions are a potential source of significant pressure on the Scottish budget in the next decade.”
I suspect that that will be discussed in Parliament in greater detail in the months and years ahead.
I turn to points that members have made during the debate—some of which have been raised by several members.
The convener of the Finance Committee, Kenneth Gibson, quoted the perhaps slightly unfortunate phrase that was used by the IMF: “unfavorable demographic trends”. A number of members, including Gavin Brown, Margaret Burgess, Jamie Hepburn and Mark McDonald have said that the phrase could be taken to mean that we would prefer that older people did not live longer, which is obviously not the case. I am glad to say that I have not heard anyone suggest that in the debate.
John Swinney raised a number of issues in his opening speech. He talked about social democratic values that emphasise the importance of helping the most vulnerable people. In particular, he highlighted the need to maximise employment and minimise unemployment. That sentiment was echoed by other members.
However, we must emphasise the point—which I think was made by the Joseph Rowntree Foundation—that employment in itself does not guarantee a move out of poverty. Many children are in poverty although at least one of their parents or carers works. That matter is currently outwith the powers of the Scottish Parliament, because it takes us into areas such as the minimum wage and tax credits.
John Swinney also mentioned preventative expenditure and said that it needs to be collaborative. The committee has picked up on the need for the third sector to be included. Rightly or wrongly, the third sector sometimes perceives that it is not treated equally—especially by local government—and that there is sometimes a difference between what is said about treating everybody equally and what happens in practice.
John Swinney also made the point that expenditure on social housing in Scotland is double what it is in England. However, there is widespread agreement in the committee and Parliament more generally that we would like it to be even greater.
Gavin Brown quoted Professor Jeffery’s point about older people making a huge contribution, with which we completely agree. He also talked about the need to ensure that spending is genuinely preventative. I agree with him to a large extent on that, because almost everybody talks about how their expenditure is preventative and how spending £1 in a particular place will save £9 in another or £16 somewhere else. Clearly, there are different levels of return and different timescales for how quickly that return comes about. However much work we might do on the matter, there is probably no easy answer, because the reality is that much expenditure—even on services for older people as well as younger people—is genuinely preventative.
Elaine Murray said that universal services should be reviewed, which other members also touched on. However, we must be careful when we talk about universal services. Some witnesses said that they want the universal services of the NHS and school education to continue, but questioned whether others—perhaps the newer ones that Parliament has introduced—should continue. A close examination of that question will be required. There is some fear that, if some universal services are attacked, others might be susceptible later on.
Mary Fee talked a lot about independence. Certainly, on the surface, it appears that, if more money is available with independence, there could be better services. However, as she spoke, it struck me that the committee should perhaps consider the finances of independence in more detail. I am certainly happy to speak to the convener afterwards and see whether he is up for that.
In the closing speeches, Gavin Brown talked about universal services. He said that the debate had been a little bit one sided whereas, at the Finance Committee, we had heard evidence on both sides. Perhaps that shows the difference between the committee, where we seek evidence from both sides in a fairly balanced way, and the chamber, where most of us express our opinion—although I am trying to be balanced—and take one side or the other. Gavin Brown probably finds himself in a minority when it comes to universal services.
I thank all members for taking part in the debate, which has been fairly constructive. The committee commits itself to taking the issues forward.