United Kingdom Emergency Budget and End-year Flexibility
The next item of business is a statement by John Swinney on the United Kingdom emergency budget and end-year flexibility. The cabinet secretary will take questions at the end of his statement, so there should be no interventions or interruptions during it.
14:04
I am grateful for the opportunity to set out the Scottish Government’s response to yesterday’s emergency budget. Before doing so, I will take this opportunity to inform Parliament of the provisional Scottish Government budget outturn for 2009-10.
At all times, it is essential that we maximise the value of every public pound, as we take forward programmes to support economic recovery and deliver high-quality, efficient public services.
As a demonstration of this Government’s sound financial management, I can report to Parliament that the provisional outturn for 2009-10 is expenditure of £29,523 million against a departmental expenditure limit budget of £29,570 million—an underspend of just £47 million. That sum is in line with the patterns of recent years and represents approximately 0.2 per cent of our departmental expenditure limit budget, which is equivalent to less than half a day’s spending by the Government. Taking into account the drawdown for 2009-10 and this year’s £47 million underspend, our end-year flexibility balance will total just over £300 million.
The underspend of £47 million represents our headline underspend figure and measures our performance in managing the Scottish block of public expenditure. It ensures that resources are targeted as necessary to support the Scottish economy during these difficult times. However, in announcing that achievement, we recognise that there is no room for complacency. The efficient and effective management of our budget remains a key characteristic of the Government, and it will prove invaluable as we move into a fundamentally different outlook for the Scottish budget in the years ahead. Yesterday’s budget provided further clarity on the scale of the challenge that we are about to face, and I will now respond to the Chancellor of the Exchequer’s statement.
There can be no denying that yesterday’s United Kingdom emergency budget statement outlined the stark reality of the current state of the UK public finances that were left by the previous UK Government, and the sobering outlook for public spending and taxation in the years ahead. Forecasts that were produced by the new Office for Budget Responsibility and published in yesterday’s budget show that net borrowing this year is forecast to be £149 billion, or 10.1 per cent of gross domestic product. That is the highest rate of borrowing in the G20.
Public sector net debt is forecast to peak at 70.3 per cent of GDP in 2013-14, which is its highest level since the 1960s. Central Government debt interest payments are forecast to reach £66.5 billion in 2015-16, which is approximately 9 per cent of total public spending. To provide context, I note that that is equivalent to twice the Scottish Government’s total budget for this year.
That is an unprecedented challenge, and a period of fiscal consolidation is inevitable. The recent crisis and instability in the eurozone highlights the harsh reality of market forces in that respect. The failure to set out a credible plan for reducing debt runs the risk of a sharp increase in the cost of borrowing, higher interest rates and a lack of investor confidence.
The Scottish Government agrees that there is a clear need to deliver sustainable public finances and to set out a credible consolidation plan. However, given the current outlook for the economy, the Scottish Government is concerned that the UK Government has reduced spending too far and too fast, which has the potential to jeopardise our economic recovery. The recovery in Scotland, the UK and most advanced economies has been supported by the co-ordinated actions of Governments through a combination of monetary and fiscal policies. Those actions protected economies during the worst recession since the 1930s. However, cutting back more quickly and more deeply, as the chancellor has set out, increases the risks to recovery.
Figures that were published in the budget show that the policy decisions that the chancellor has taken will lower the short-term growth prospects for the UK by 0.4 percentage points over the three years to the end of 2012. The cumulative reduction in output over the next two years is equivalent to £7 billion, in 2009 prices, of lost output from the UK economy.
Overall, growth is forecast to be modest this year. Reducing public support so significantly and so quickly rests on the assumption that the private sector has recovered sufficiently to drive the recovery. However, that is by no means assured. The full effects of recent increases in unemployment and continuing pressures in bank lending are forecast to continue to weigh heavily on private consumption, business investment and net trade. In the short term, reducing public demand means lower output and lower growth. That will translate into reduced employment, which is now forecast to be 100,000 per year lower between 2011 and 2014 than what was forecast prior to the budget.
Prioritising public expenditure reductions in the short run and pulling even more money out of the economy than was previously planned will run the risk of undermining not only the recovery but the plans for fiscal consolidation. Leading economists such as Danny Blanchflower have already highlighted the risk that cuts that are too deep and too fast have the potential to develop into a vicious cycle of cuts and lower growth.
The experience of other countries provides caution. In 1997, Japan increased its sales tax as the economy was emerging from a prolonged economic slowdown; that move contributed to the economy falling back into recession three months later for a further 20 months.
Securing Scotland’s recovery is the Scottish Government’s top priority. That is why we have decided not to impose further cuts on the Scottish budget in the current financial year beyond the £500 million cut that has already been put in place by the previous UK Government.
In his statement yesterday, the chancellor outlined plans for the programme of consolidation. By 2015-16, he plans to implement a combination of tax rises and spending cuts that is worth £128 billion, of which 77 per cent will be from cuts in public spending and 23 per cent will be from tax rises. Almost two thirds of that fiscal tightening was inherited from the plans of the previous UK Government. On taxation, the bulk of the fiscal tightening will come from the increase in VAT and the changes in national insurance that were announced by the previous Government. Those measures will have a significant impact on Scottish households. The increase in VAT alone will increase the tax burden on the average Scottish household by approximately £380 a year, with households in the bottom income decile seeing some of the largest tax rises as a proportion of their income.
The chancellor also set out the broad combination of the spending cuts that will be implemented during the next spending review period. Table 1.1 in the red book details the chancellor’s plans to implement a further £32 billion of spending cuts by 2014-15 on top of the £52 billion of cuts that were announced by the previous UK Government. Cuts in benefits and welfare measures are expected to reach £11 billion by 2014-15, which represents a third of the additional spending cuts that the chancellor announced.
The chancellor also set out his aggregate plans for total UK departmental expenditure limits in the four years of the next spending review. Although we will not know the precise impact that those cuts will have on the Scottish budget until the comprehensive spending review is published in the autumn, it is clear that spending on public services is going to fall sharply. The chancellor’s announcement means that the total UK departmental expenditure limit will fall by an average of 3.5 per cent a year in real terms over the next four years. That means that, by 2014-15, total UK DEL will be 15 per cent, or £59 billion, below its 2009-10 peak. When that is combined with the cuts that have already been implemented this year and the further cuts that are planned for 2015-16, we now face six years of consecutive cuts in departmental spending, which is the longest sustained period of spending cuts since current records began in 1948.
Given the UK Government’s commitment to protect health and overseas aid from cuts, the budgets of some Whitehall departments will be cut by 25 per cent or more during the next four years. That compares with the cuts of 20 per cent for unprotected departments that were planned under the previous UK Government.
It is clear that the major challenge that we face in the years ahead is the fallout from the fiscal consolidation plan. The prospects for consolidation and the likely impact on Scotland are things that we have set out to the Parliament ever since the scale of the fiscal challenge became apparent in late 2008. In April, we published analysis by the Scottish Government’s chief economic adviser that was based on the projections in the previous UK Government’s budget in March 2010. Those forecasts predicted five to seven years of real-terms budget cuts and a total adjustment period of 13 to 15 years. Given the scale of the adjustment that is now planned and the Office for Budget Responsibility’s revisions to the previous UK Government’s forecasts, it is clear that we are likely to be at the upper end of the chief economic adviser’s forecasts.
We have acted early to respond to that challenge. To ensure that our public services are high quality, continually improving, efficient and responsive to local people’s needs, we started to streamline Government, direct more funding to the front line and give power back to local councils and communities. We are already taking action to deliver efficiencies and release cash for front-line services. We are on track to deliver our stretching efficiency savings target of £1.6 billion. We have confirmed savings of £839 million, or 3.1 per cent of the 2007-08 DEL baseline, exceeding our £534 million target by more than £300 million.
Our centrally held marketing budget has been reduced by more than £5 million, which represents a cut of more than 50 per cent. We have cut our administration budget by 5 per cent. We have active control of staff head count and robust limits on the use of consultants. We have reduced central Government travel costs by 25 per cent, and we have set a prudent course on public sector pay, with freezes in ministerial and senior civil service pay and action to reduce bonuses. Ministers have also written to public sector leaders throughout Scotland to emphasise the need for prudence and efficiency now in all our spending to help to prepare for the future.
We are committed to transparency in our budgets. Just last week, we published for the first time a detailed record of all expenditures above £25,000. In February, we established the independent budget review, which has a vital role in setting out the way ahead in preparing for a new financial climate. There will be a review report in July. The conclusions that are reached about the choices that we face will be of enormous assistance as we develop and consider our future spending proposals with Parliament and more widely with our local authority partners, public sector organisations, the third sector, the private sector and the people of Scotland.
The Scottish Government welcomes the opportunity to feed directly into the UK spending review over the summer. We will argue for an approach that protects growth in the economy and for spending reductions in areas that we regard as providing poor value, to ensure that support can be targeted towards protecting key front-line services. We will also work with the UK Government on restraining public sector pay.
However, it is clear that, as a country, we face an unprecedented challenge. All of us must play a role and work together in the best interests of the people of Scotland. Our aim is to deliver a budget for 2011-12 that secures the support of Parliament, local government, businesses and the public; which focuses on protecting the livelihoods of those in work and promotes opportunities for those who are out of work or are threatened with redundancy; and which protects, as far as possible, our ability to deliver vital public services. That is why we will engage in an open conversation with all parties and the people of Scotland about how we can protect our society’s values, our front-line services and our economy before we set out our draft budget later this year.
Let me close by setting the budget strategy in a wider context. It is clear that we face significant challenges in the years ahead, but we are once again faced with responding to the actions of a UK Government in Westminster dictating policy in Scotland. Recent developments have emphasised the case more than has ever been emphasised before for much greater fiscal responsibility for Scotland. With greater fiscal responsibility, we would be able to take decisions not only on how we respond to the current crisis but on how we ensure that we are never again faced with the situation that now confronts us.
Today, Scottish Government statisticians published the latest “Government Expenditure and Revenue Scotland” report. That report showed that, in 2008-09, including a geographical share of North Sea revenue, Scotland ran a current budget surplus worth £1.3 billion, or 0.9 per cent of GDP. In the same year, the UK as a whole ran a current budget deficit worth £48.9 billion, or 3.4 per cent of GDP. That was the fourth consecutive year of current budget surplus in Scotland, which is worth a cumulative £3.5 billion.
With greater fiscal responsibility, we could take the necessary steps to support economic recovery and ensure that growth is the driver that moves us out of the current difficulties. Despite cross-party support throughout Scotland, the chancellor has, for example, decided to reverse plans to use the tax system to secure the international competitiveness of Scotland’s world-renowned games industry. The commitment in the budget to investigate how the tax system can be used to introduce a fuel price stabiliser and to offset the high cost of road fuels in rural areas is a welcome step forward, but it could be delivered with greater certainty and more quickly if the Scottish Parliament were responsible for such choices.
It is not just about business and growth, although they remain key levers. Full fiscal responsibility would also give members of the Scottish Parliament the opportunity to make our own choices about welfare reform, public spending and the fairness of the tax system. I am heartened by the growing body of people throughout Scotland who recognise that fact and make the case that we should exercise those responsibilities for ourselves.
The cabinet secretary will now take questions on the issues raised in his statement. I will allow 30 minutes for such questions, after which we must move to the next item of business.
The UK budget is a traditional right-wing Tory budget. For purely political reasons, the Tories are going further and faster in closing the deficit than is necessary. In doing so, they are damaging the recovery and putting people at risk. The budget includes regressive measures that will have the biggest impact on those who are least well off. The VAT increase, which the cabinet secretary highlighted, is a good case in point. The richest 10 per cent spend £1 in every £25 of their income on VAT but, for the poorest 10 per cent, the figure is £1 in every £7. Of course, it is not just the tax measures that affect those who are least well off—there is also the impact of the massive cuts that are proposed for our public services. The Office for Budget Responsibility’s own figures show a reduction in economic growth for this year and next and the loss of 100,000 jobs as a direct result of Osborne’s budget.
Here in Scotland, for the past three years, the Scottish National Party has been trailblazing on behalf of the Tories. Even though its budget has been increasing by more than £1 billion per annum, and despite the fact that it enjoyed an inheritance of £1.5 billion from Labour, the SNP cancelled the Glasgow airport rail link and cut jobs in our hospitals and schools. Instead of planning to waste millions of pounds on referendums and spending money on the disaster that is the Scottish Futures Trust, which has brought us the Salmond slump, should it not allocate that precious resource more appropriately? [Interruption.]
Order. The cabinet secretary’s statement was listened to with total courtesy. I ask that the questions be treated in the same way.
You will be lucky, Presiding Officer.
If the SNP cannot be trusted in the good times, when there were £1 billion increases every year and there was £1.5 billion in the accounts—it blew the lot—how can it be trusted in the tougher times? There is also the mythology around the GERS report, through which the SNP Government has skewed the figures so that they suggest that our Scottish economy should rely disproportionately on the price of one single commodity—oil.
Will Mr Kerr take an intervention?
No, Mr Kerr will not—Mr Kerr needs to ask a question.
The Finance Committee, including its convener, the SNP’s Andrew Welsh, has said that it is time for the Government to come clean on the measures that it will take in Scotland.
I must press you for a question, please.
Is it not about time that the cabinet secretary engaged seriously with the Parliament and the people of Scotland? Will the Parliament see a draft budget by September this year—not “later this year”, as the cabinet secretary said in his statement—to allow us to plan for the years ahead?
Mr Kerr mentioned the use of end-year flexibility, which, if he will pardon the pun, is a point that he has laboured for some considerable time. There was £1.5 billion of end-year flexibility available when I became the finance minister, but the previous Government had already committed £655 million of that to be spent during 2007-08. In the succeeding years, I drew down £313 million in 2008-09 and £400 million in 2009-10, as I have set out to Parliament. That strikes me as an orderly use of resources compared with the way in which the £655 million was committed by the previous Government in 2007-08.
Mr Kerr asked when the Government will set out its budget measures, but even he would accept that I cannot set out my budget until I know what the numbers from the UK budget will be. The chancellor—helpfully, I must say—confirmed that the comprehensive spending review will be announced to the House of Commons on 20 October. I imagine coming to Parliament with my budget within about four weeks of that announcement, which will allow me to formulate and finalise the Government’s plans for its budget once the full financial information is to hand. No one could object to ministers waiting to have the numbers that matter on this occasion.
Mr Kerr rails against what he described—if I wrote it down fast enough—as a “right-wing Tory budget”. As I said in my statement, the current UK Government inherited a financial mess from its predecessor. The UK Government is certainly accelerating the pace of public spending cuts. As I said, the chancellor has announced an additional £32 billion of spending cuts by 2014-15. However, that is on top of £52 billion of cuts that were already announced by the Labour Government before it left office in May 2010.
I thank the cabinet secretary for the advance sight of his statement.
The looming spending reductions will be a big test for the Government, but they will be more than that—they will be the biggest test for the Parliament since devolution. How we deal with the cuts and engage with the public will be the real test of whether devolution has made a difference to the way in which politicians engage with the public on difficult issues.
Given that we now know the date of the UK comprehensive spending review and the limit of what the spending reductions will be, and given that the cabinet secretary has rightly pledged to engage with the UK Government over the summer—he has suggested that he will argue for spending reductions in areas that he regards as providing poor value; I presume in the UK Government budget rather than his own—could we not have something similar for the Scottish Government budget? I appreciate that he cannot publish the whole thing, but could we not have an indication of where the spending squeeze might be? Is it time to drop the overallocation, which was designed to minimise the underspend? Finally, did I just hear the representative of a party that left this country with a £160 billion deficit this year criticise the Scottish Government for a £1 billion deficit?
Mr Brownlee heard correctly, but I will leave the Official Report to speak for itself on that point.
On Mr Brownlee’s first point about wider engagement with Scotland and how the cuts will test the Government and the Parliament, it is important that we have the broadest possible discussion about the challenges that we face. That is precisely why I established the independent budget review in February in response to a suggestion by Mr Brownlee and why that body has invited contributions to its deliberations from across different sectors, the political parties and a range of different communities in Scotland. I certainly intend to ensure that the conclusions of the independent budget review will be the subject of intense debate in Scotland after the review is published. The Government will be fully engaged and active in that debate with the people of Scotland.
Mr Brownlee will understand that some material factors will affect the outcome of the UK comprehensive spending review. How the UK Government decides to undertake its spending review and how it intends to change budgets at departmental level in the UK Government drives directly the composition of the spending settlement for Scotland. That is why I intend to take up the opportunity that has been given to us by the UK Government to engage in discussion about the comprehensive spending review. That did not happen with the previous spending review, so I welcome this opportunity. It will have a material effect on our final budget numbers.
Mr Brownlee asked me whether it is appropriate to have an overallocation in the budget in the years to come. That is a material point that I will consider in setting the budget. The overallocation has helped us to manage the public finances to low levels of underspend, but we have to keep that facility under review in the years to come.
I, too, thank the cabinet secretary for advance sight of his statement.
Will the cabinet secretary confirm that the budget was overallocated by £100 million, which means that the underspend was £147 million? Although he has deferred £320 million of reductions in this year’s budget, £348 million is sitting in deposit. People will be confused by that. What are people to make of yesterday’s Government press release that says that we are facing the threat of “a spiral of decline” when today’s press release says that
“Scotland’s public finances are in a very healthy position”?
Am I right in saying that, in his 15-minute statement, the cabinet secretary must have forgotten that another result of the budget is that 2 million basic rate income tax payers in Scotland will gain from the increase in the personal allowance, lifting nearly 100,000 of the lowest earning people in Scotland out of income tax? Did he also forget to mention that the link with earnings has been restored for pensions, helping 1 million pensioners in Scotland? Finally, if he now points to the urgent need for independence in the managing of the Scottish economy—he said in his statement that he thinks that the top priority for the people of Scotland in the current financial situation is independence—when will the Government introduce a referendum bill?
As Mr Purvis clearly knows, overallocation is an open point in the Government’s budget-setting process, and I seem to recall answering questions about it from the Finance Committee. I am not sure whether I have answered such questions in the chamber, but Mr Brownlee just referred to the overallocation. The overallocation was clearly and prominently set out as part of the Government’s financial management strategy. It was designed to ensure that we minimise underspend. I make no apology for setting up a financial management arrangement that allows us to deliver manageable underspends and, as a flipside to that performance, to deploy resources effectively to support economic recovery and front-line services.
Mr Purvis contrasted my words yesterday about the UK budget and the dangers contained within it, and what was said about the output of Government expenditure and revenue in Scotland. I simply point out to Mr Purvis that the GERS report sets out a dispassionate analysis of the current state of the public finances of Scotland. The UK budget accelerates a process of public spending reductions which, in the judgment of the Scottish Government and various other people, involves a fiscal consolidation that is too fast and too far at this stage in the economic recovery. I know that Mr Purvis is an avid reader of all my press releases, given his question today. He would have seen in the press release that I issued yesterday that I welcomed a number of measures that the UK Government set out, including protection for people on low incomes and pensioners.
This Government will bring forward its independence referendum bill to Parliament at the appropriate opportunity. I assure Mr Purvis that we are actively engaged in making the argument to the people of Scotland that one of the opportunities that have been lost to Scotland is the ability to control our own resources and generate the type of economic growth that we should be able to deploy and which we could expect to have if we had control over the financial levers. That opportunity was restricted for us by the decisions of the UK Government yesterday, and I have set out to Parliament my regret about the decisions that have been taken.
We come to open questions. We will get everybody in as long as questions and answers are reasonably tight and focused.
Labour cut Scotland’s funding and the Lib Dems and Conservatives are cutting it even further. Scottish growth is seriously threatened by all the UK parties. Meanwhile, as the cabinet secretary said, the latest “Government Expenditure and Revenue Scotland” report shows that Scotland’s public finances generate far more income than we spend—a Scottish surplus, as opposed to a UK deficit. Does the cabinet secretary agree that now, more than ever, the case is made for Scottish independence?
I agree with Linda Fabiani. The inherent issue, which I raised in response to Mr Purvis, is that if we have control of the financial levers, we can take responsibility for delivering the type of economic growth that can deliver the prosperity for which people in Scotland are crying out. That is the very straightforward prospect that the Government offers the people of Scotland.
I am sure that, being the reasonable man that he is, the cabinet secretary recognises that a surplus is shown only if one does not include spending on schools, hospitals and roads. In fact, Scotland’s budget actually shows an estimated net fiscal deficit of £3 billion when the necessary capital is included, rising to £3.8 billion when one includes just a per capita share of the money that the UK Government spent saving Scotland’s two biggest banks. Does that not just make a complete and utter nonsense of the cabinet secretary’s campaign for fiscal autonomy?
I am not surprised that Mr Whitton has such a depressing outlook on the world. The figures are really pretty clear: in the 2008-09 financial year, Scotland had a surplus of £1.3 billion and the UK had a deficit of £48.9 billion. To me, that makes the case very clearly that Scotland is in an inherently strong financial position and, therefore, should not be put off by the doom-mongering of Mr Whitton and all his colleagues.
I congratulate the finance minister on securing a record low underspend yet again.
Does the minister agree that, given that the economy is still in an extremely fragile state, it is vital that as much money as possible is invested in sustaining economic recovery? What progress has the Scottish Government made on securing borrowing powers and a guarantee from the chancellor that we will be able to draw on the £185 million of fossil fuel levy moneys that the Treasury holds and were denied to Scotland by the previous Labour Government? With declining resources while we remain in the UK, how will the Scottish Government optimise public expenditure to ensure the continued delivery of services?
Borrowing powers are material to the discussions that we have undertaken with the UK Government. Those discussions are on-going. We will keep Parliament informed of the progress of those discussions, just as I am sure that the UK Government will make its announcements on the fulfilment of the commitments that it set out in the Queen’s speech.
Mr Gibson also raised the issue of the fossil fuel levy. Again, the issue remains a work in progress. There is a commitment in the coalition agreement to review the treatment of the levy. I have suggested to the Treasury a mechanism that could be utilised to ensure that the fossil fuel levy is deployed as part of public expenditure in Scotland in a fashion that is additional to the departmental expenditure limit that is the nub of the issue. I hope to receive a positive response to that suggestion.
The cabinet secretary indicated that he may not be able to publish a final Scottish budget until the second half of November, which is later than ever before in the history of devolution. By doing so, he will deny every parliamentary committee a proper scrutiny role. Is his mind open to receiving representations from the Parliament, business organisations, local government and the rest of Scotland on the desirability of a draft budget as usual in September? That would allow proper scrutiny of what he himself called
“the longest sustained period of spending cuts since ... records began”.
On committee scrutiny and the timetable, it is a bit absurd for me to be criticised for suggesting the orderly process of me bringing to Parliament a draft budget a month after the comprehensive spending review that gives me the numbers that underpin that budget. My predecessors always set out the importance of relying on the budget numbers from the United Kingdom Government. We can all make estimates and assumptions about the numbers, but the numbers that matter are those that we get from the UK Government. Also, as I said to Mr Purvis, many of the questions can be affected by the way in which the UK Government conducts its spending review process.
I have been in correspondence with the convener of the Finance Committee about the fact that I expect the budget to be available later this year. I have assured him of the Government’s willingness to be available for committee scrutiny in the most open way possible. As I confirmed in my answer to Mr Brownlee, I am open to representations in light of the publication of the independent budget review report and some of the choices that it will throw up for us. As I said in my statement, when the independent budget review report is published, I will listen very carefully and engage actively in discussion with business organisations, local authorities, the third sector and the private sector. In light of that, and with the information from the comprehensive spending review, I will set out the budget to Parliament.
The cabinet secretary said:
“we will engage in an open conversation with all parties and the people of Scotland”.
When he gave evidence to the Finance Committee, I understand that he stated that his department had carried out work to plan for a potential in-year budget reduction. Will he publish that work?
As Mr Brown knows, I have taken the decision not to make in-year reductions to budgets. That is the position of the Government and we will adhere to it. I am committed to engaging in a wide discussion with the broadest range of stakeholders on how we will address the challenges. Clearly, that must involve dialogue within the Parliament, given that the Parliament ultimately has to take the decisions on the composition of the budget. A willingness to engage in that broad discussion should be broadly welcomed in Scotland.
After years of lobbying, the previous Westminster Government finally conceded the need for tax incentives for video games development. However, the cabinet secretary will be aware that, in his final budget, the previous Labour chancellor made no financial provision for such incentives. Does the cabinet secretary agree that that made it easier for the Conservative-Liberal coalition to renege on the cross-party pre-election promises that were made to the industry, thereby placing Scottish jobs, especially in my constituency, at risk? What representations does the Scottish Government intend to make to ensure that one of Scotland’s exciting new industries is allowed to compete fairly on the international stage?
In advance of the budget, I raised with the chancellor Mr FitzPatrick’s point about the importance of the tax incentives that the previous Government committed itself to consider. As I said in my statement, it would have been preferable if those incentives had been provided. I will be happy to make representations to the UK Government on the issue. We must ensure that we find adequate opportunities to encourage the development of innovative industries in our country. That is at the heart of the Scottish Government’s agenda. We will discuss the issue with the UK Government.
Can the cabinet secretary explain why he spent so long poring over “Government Expenditure and Revenue Scotland” to find the one figure that backed his case, while ignoring all of those that referred to the capital budget in Scotland? More important, in his statement he made significant criticism of the UK’s public finances, especially the estimate for public sector debt of 70.3 per cent of GDP. What percentage of GDP does he think public sector debt should be, and how quickly should we get to it?
Mr Smith must consider the evidence that I have set out today, which indicates that the rapid reduction in public expenditure will injure economic recovery in Scotland. Sadly, that will become increasingly clear over time. I am not arguing that there should be no fiscal consolidation—I accept the need for it—but I question the pace at which the United Kingdom Government has moved in that respect. When we make our representations—I know that Mr Smith has some influence in these matters—it is important that we do so with a view to ensuring that the interests of the Scottish economy are protected and assured. That is the Scottish Government’s approach to the debate on this question.
Is there any inkling in the emergency budget of the influence of the Liberal Democrats regarding means to support the exciting prospects for developing our green energy interests, such as a reduction in transmission access charges, which are most acute in the Highlands and Islands?
The issue of transmission charges is a significant part of the dialogue that we have pursued with the United Kingdom Government. At the start of the week, I received a letter from Chris Huhne, the Secretary of State for Energy and Climate Change, in which he set out a co-operative approach to resolving such questions. We look forward to co-operation in that respect.
On a number of occasions, I have made the point to Parliament that the fossil fuel levy offers us a focused and specific opportunity to invest in the development of the renewables sector in Scotland. Statute requires us to spend the resources from the fossil fuel levy on renewable energy development; that is the obligation on and the intention of the Government. I hope that we can find a mechanism for achieving that. As I said in an earlier answer, I have suggested such a mechanism to the United Kingdom Government, to ensure that we have access to resources from the levy but in such a fashion that they are additional to the departmental expenditure limit total.
Does yesterday’s budget not show that, if we are to have fiscal responsibility that provides the Parliament with real—not pretendy—power, so that we can customise economic policies to suit our distinctive and different needs, as opposed to the needs of the economy south of the border, we will need not only tax-raising powers but control of pensions and benefits, as those have a significant influence on the level of demand, especially when we take into account the size of our public sector and the cuts that we know are coming? I am interested to find out what the cabinet secretary thinks about that suggestion.
At the conclusion of my statement, I think that I addressed Margo MacDonald’s point, with which I am in agreement. Full fiscal responsibility would give Parliament the opportunity to make our own choices about welfare reform, public spending and the fairness of the tax system. I accept Margo MacDonald’s point—all of those questions are interrelated. Given the limitations on our powers and responsibilities, we cannot take the set of comprehensive decisions that we would wish. However, the approach that I have set out today and the clearly advertised aspiration of the Government address Margo MacDonald’s point.
As the cabinet secretary has said, the GERS report sets out the case for independence, and I agree. Does he agree with me that that case is further strengthened by the figures from the Organisation for Economic Co-operation and Development, which show that the UK’s national debt is 59 per cent of GDP this year? It is only 1.6 per cent in Denmark. Sweden has a 13.1 per cent surplus, Finland has a 46.4 per cent surplus and Norway has a 143.6 per cent surplus. Is it not the case that Scotland could not only survive but thrive with independence?
Mr Hepburn’s question underlines the point that I have shared with Parliament—that the details of the economic condition of the United Kingdom are hardly an advert for the fiscal prowess and stability of the United Kingdom. We were told on many occasions—I certainly was during my political activity—that somehow the United Kingdom was in a much stronger financial position. No objective individual could look at the financial mess that the previous Labour Government created and say that the United Kingdom is in anything other than a very poor financial state. That strengthens the argument that Mr Hepburn has put forward for Scottish independence.