Chamber and committees

Thank you.

Good morning. I have just one question, which is related to inflation and, therefore, debt payments on PPI-type models. I have not heard a lot of talk about that. Obviously, various public sector bodies have seen massive increases in their repayments. Although we can take a view on what the OBR predicts about future inflation, I imagine that it will need to be considerably more cautious, in that when inflation goes down, it goes down. There is a clear link. Can you give me some more guidance on that? Also, what behavioural impacts—if any—will there be for finance executives in public sector organisations who are managing those greatly increased PPI payments?

It sounds as though, collectively, we do not know a great deal about the data and the impact of it. It strikes me as quite interesting that, if we are looking at the longer-term trajectory, even though we all assume that inflation will come down—which I think is correct—we also agree that it will not come down to the historically low levels that we previously had. It strikes me that it would be interesting to work through the impact of that on a variety of public sector organisations. I realise that I do not know about the issue, so perhaps it is heartening that you do not, either—I do not know. Anyway, thank you.

In fairness, it might be; the issue might be my ignorance. If we have the data, we can start to interrogate what the impact could be, and how that plays into the real economy, which is why I am asking.

That long-range looking back and the figures that you have set out are very helpful. I was not entirely clear from the autumn statement what the significant trigger factors would be that would make the change from what you have set out as the position over the past 15 years. In fairness, some of that is because of the lack of flexibility for all the areas that we have discussed, such as debt servicing and so on. Correct me if I am wrong and being somewhat pessimistic.

Will the cabinet secretary advise what attention is being given to the qualitative commentary in the PISA report, which gives a much more nuanced understanding than the simple, raw statistical data?

Will the member take an intervention?

Will the member give way on that point?

Starting at the beginning, there was much commentary during the Covid crisis that some of the lending that was being made available was merely propping up zombie businesses. What do we mean by “zombie businesses”? Investopedia says that zombies are countries

“that earn just enough money to continue operating and service debt”.

They

“have no excess capital to invest to spur growth.”

They

“are typically subject to higher borrowing costs and may be just one event ... away from ... a bailout”.

I said “country” instead of “company” deliberately, for that is the UK today—a zombie country. It is the UK that had the slowest recovery from the pandemic of all the large advanced economies. It is the UK where growth lagged behind the average for both large and small advanced economies for the 40 years before the pandemic. It is the UK that, only today, was ranked last in UNICEF’s table of child poverty, with the worst rise in child poverty between 2012 and 2019 of the world’s 39 richest countries—thank goodness for the Scottish child payment. It is the UK that had Government debt equivalent to 97.8 per cent of GDP at the end of October 2023. Economically, the UK is not okay, and anyone who says otherwise is either a fool or utterly disingenuous.

I was personally wary about participating in this debate and shrinking my thinking to the tinkering with a fiscal framework when it is designed to ensure that, if it is heads, the UK Treasury wins and, if it is tails, the UK Treasury wins. The amendments to the motion are mostly ridiculous and show the paucity of vision that is encapsulated in the zombie deniers who are seated opposite. The vast majority of monetary and fiscal policy resides with Westminster, and we must not forget that macroeconomic framing.

In my remarks, I intend to focus on the limitations for capital expenditure and the lack of prudential borrowing powers. Capital expenditure is a vital tool. Infrastructure development creates jobs, improves productivity, brings longer-term economic benefits, has a multiplier effect, and is typically—and normally—used to encourage growth. Instead of our having to look down the barrel of a 7 per cent cut over the next few years, the capital borrowing amounts have been retained, with a mechanism to uprate them by inflation, but they are tied to a GDP deflator, which is nowhere near inflation.

The Deputy First Minister noted to the Finance and Public Administration Committee:

“the biggest challenge that we face comes from capital borrowing limits ... We got as much as we could achieve, but were just not able to expand the basket of measures that were being looked at.”

Interestingly, the DFM’s comments were followed by comments from one of her officials, who explained:

“the Treasury viewed that as a zero-sum thing, as anything that it gave us would be a loss to its fiscal position”.—[Official Report, Finance and Public Administration Committee, 23 November 2023; c 11, 12.]

That is a working example of no detriment. That comment, more than anything else, explains my opening remarks about why the UK is a zombie country and why we are locked into low growth.

We cannot look forward to a change from the Labour Party, either. Sir Keir Starmer has clearly indicated his intention to follow exactly the same macroeconomic policies that have led us to this point.

That leads us to the alternatives. I am grateful for the report that Jim Cuthbert wrote for Common Weal, which he sent to the Finance and Public Administration Committee. In it, he reminds us that PPP schemes and their variants, such as private finance initiative schemes, were used enthusiastically by Tory and Labour alike. He also reminds us of the frankly staggering cost to the public purse, the lack of value and the conclusion that was reached by the House of Commons Public Accounts Committee, which said:

“Treasury cannot produce evidence to support its claims that PFI is worthwhile for any reason apart from the fact that it takes debt off the balance sheet”.

The UK Government has now retreated from the use of those schemes, but it has left Scotland and Wales with the ability to use more modern yet still expensive variants, such as a mutual investment model, instead of providing proper capital borrowing powers.

I will make one final remark. The convener of the Finance and Public Administration Committee noted how ridiculous it is that local councils can access prudential lending yet the Scottish Government cannot do that, despite it being part of the Smith commission’s recommendations. I agree. Regrettably, that was not on the table, presumably because it might have brought significant benefit to the people of Scotland.

To be honest, I would like to hear you say that you have definitive plans to get to an equitable split the next time that you have two people stepping down. The problem with the perception of meritocracy is that if women never get the chance, they never get the chance to demonstrate merit. We have had that cyclical problem for a long time and it is heavily pronounced in financial services. I am interested to know a bit more about your specific plans. Given where we are, what target do you aim to reach in two years’ time? Do you have a target?