Chamber and committees

Do you have anything to add, Vicki? I know that Rob Dickson and I were focusing on capex and the inability to carry that forward, although I also know that you can carry forward revenue. Is there anything more that you want to say about investment before we move on? I am aware that time is of the essence.

I will keep up the debate’s brisk pace. Given the multiple shocks to the economy from Brexit, the pandemic, spiralling energy costs and the impending rise in national insurance rates that the UK Government is to impose, I welcome the fact that the cabinet secretary has not added another shock to our system. By only increasing the starter and basic rate bands by inflation, she has produced proposals that bring a degree of welcome stability.

A significant and constant challenge is the instability of forecasts. Since the Scottish Fiscal Commission’s previous forecasts in August 2021, its forecasts for income tax revenues in 2022-23 have changed by £400 million. That forecasts can change so significantly in the short run should make us wary of laying too much store by longer-term forecasts.

I have in the past pointed out that forecasting, including from the Office for Budget Responsibility and the UK Treasury, is far from an exact science, and in turbulent times when behaviours at the level of both individuals and businesses can change quickly, forecasting models can often be subject to considerable error. My main message is therefore that we must be particularly vigilant on actual outcomes, rather than investing too much faith in forecasts.

One of the weaknesses that we face, however, is that too much of the tax base overall is not under the control of the Scottish Government. As Paul Johnson of the Institute for Fiscal Studies put it in The Times on 20 December this past year,

“We know from the experience of Scotland and Wales that income tax can be at least partially devolved, as can stamp duty on property transactions. There is no reason in principle why a slew of other taxes shouldn’t eventually be devolved to all three nations.”

Indeed, as chair of the Independent Fiscal Commission for Northern Ireland, he has argued for the devolution of corporation tax, for which I know that some members have argued too.

At a time of public health challenges, we too should reflect on Paul Johnson’s independent view of another area of tax. He argues that

“the devolved governments have responsibility for public health but cannot alter duties on alcohol. That’s one reason Scotland was forced down the route of a minimum unit price for alcohol, increasing the profits of those selling alcohol rather than increasing tax revenues.”

In the here and now, the cabinet secretary does not have the type of flexibility that would allow her to use a wide range of tax powers. Given the constraints and challenges of our times, I fully support the Scottish Government’s proposals on tax as strongly as I disagree with the UK Government’s national insurance hike.

In my old world of consultancy, I would also be adding up the hours that are spent on the toing and froing, because it seems extraordinarily inefficient. All that complexity is, in effect, a waste of public funds.

I have a daft wee question that goes back to the Scottish Fiscal Commission and the committee’s comment under point 49 that it

“accepts that there may always be a degree of ‘political spin’ about how the level of UK Government funding affects the Scottish Budget.”

You have come back and made the point that there is no difference between the totality of funding in the Scottish budget document and the Scottish Fiscal Commission one, but that the issue centres around comparison with previous years. You also make the point that the Scottish Fiscal Commission uses estimates of 2021 funding.

My simple question is: given the complexity in those late figures emerging, surely it is better to compare actuals, because the only time that a budget is accurate is when it contains actuals? Will you share some reflections on that? It seems that we are trying to spin plates—and that is not assisting our job. I would appreciate a bit more flavour on that.

I have one final wee question. You talked about prudent assessment of the potential scale of additional funds. That term “prudent” has a particular meaning. What do you regard as prudent? What margin of error have you built in?

The cabinet secretary will be pleased to know that, coming last, I have only a few questions because it has been such a comprehensive session.

We have talked a lot about outcome. Of course, everybody is focused on outcome and efficient and effective spend of public money. To go back to your points about the carry forward, do the limits on carry forward ultimately lead to less effective use of public money? We are talking about the complexities of a budget process, and I am trying to sum up why we should care about that, if we are focused on efficient and effective use of public money. If you agree that the limits lead to less effective use of public money, it would be useful to have some examples of where that has affected decision making—particularly in capital expenditure.

You will be pleased to hear that I am not coming in on that matter, although that was a very interesting conversation.

I realised that I missed something earlier. Kate Forbes made a point about the additional costs of grid connections when Daniel Johnson was probing about the net present value of ScotWind. So that I am clear, are you saying that those costs are baked into the ScotWind estimates? The cost of grid connections are historically skewed and we know that that has been subject to a long-running dispute. That could run for another 50 years, even if there is subsequent change. Have you had to factor the additional costs of grid connections into the figures that you mentioned?

When I was an MP, I sat on a Finance Bill committee and on the Business, Energy and Industrial Strategy Select Committee, and my entry in the register of members’ interests shows that I remain an ambassador for the all-party parliamentary group for fair business banking. In those roles, I dealt directly with UK Treasury ministers, so it is a pleasure to join this Parliament and to deal with such a competent finance and economy team.

However, the greatest contrast is not at the personal level, but at the level of the powers and constraints imposed on the budget-setting process.

We face major supply-side shocks caused by Brexit and the pandemic as well as significant climate issues requiring sustained action towards our net zero ambitions. Those three challenges have one element in common: the need for significant investment in Scotland’s infrastructure and economic development. To that end, I commend the provision of significant support for the three economic development agencies, with spending at its highest level since 2010 despite the wider financial challenges of setting this budget.

However, the constraints on the Scottish Government mean that we do not have sufficient powers to borrow to invest on the scale that is required.

Perhaps after I make this point. That is not just my view but also that of Nigel Wilson, the chief executive of Legal and General. At the recent launch of Legal and General’s latest version of the rebuilding Britain index, he called for a massive investment boom and for increased borrowing powers for the devolved Administrations.

The political narrative thus far from the Tories is to ask Scotland to give thanks for their largesse, but they fail to mention the ways in which the Scottish people have, for generations, bankrolled the UK Government.

According to the UK Debt Management Office, UK Government borrowing currently stands at more than £2 trillion. Most of that is funded through the issuance of gilts, with purchases made by pension funds, investment trusts and some individuals. That is just one of the ways in which Scots lend money to the UK Government.

Not at the moment.

There is another route whereby we Scots, in return, show our largesse. Some of the more mature members of the Parliament may hold premium bonds, which provide cheap borrowing for the UK Government, given that only about 1 per cent per annum is distributed through winnings. At the moment, the total value of UK premium bonds is £114 billion, which represents about 5 per cent of UK Government debt. We can therefore estimate that, through that relatively small financial vehicle alone, Scots are currently lending the UK Government almost £9.5 billion.

If we consider that in another way, we can see that, through premium bonds alone, Scots have on loan to the UK Government twice as much as the Scottish Government is allowed to borrow in total for capital and revenue combined. The borrowing limits represent a quite ridiculous constraint on the Scottish Government and they are dwarfed by the amount that ordinary Scots lend to the UK Government.

When they ask me, I will be delighted. I thank the member for suggesting that.

Another area where the Scottish Government is denied the power to act is financial crime. Stopping institutional crime is predominantly the preserve of UK authorities such as Companies House and HMRC, which do a poor job of preventing abuse of the financial system. Only this week, Lord Agnew, who was a Treasury and Cabinet Office minister, resigned over the UK Government’s lamentable track record on Covid fraud, stating that the Treasury shows no interest in tackling the issue.

On the same day, Spotlight on Corruption published a report estimating that financial crime costs the UK economy £290 billion per year. The UK Government has consistently failed to act on multiple calls over years to tackle large-scale financial corruption, as I know only too well from my work with the APPG that I mentioned. To put that figure another way, I note that the UK Government is failing to act on financial crime that costs approximately 276 times the annual borrowing powers of the Scottish Government.

Presiding Officer, excuse my frustration about being boxed into a system in which our people in Scotland lend to an incompetent Tory Government that shields large-scale financial corruption, denies our Scottish Government access to proper borrowing powers and subjects our budget to constant cuts.

That is why I remain passionately ambitious for change in Scotland. We seek powers for a purpose. Scotland is our business and the SNP means business. Only by having the normal financial powers of an independent country can we better fund the Scottish National Investment Bank, invest more in our infrastructure and increase our support for new developments such as hydrogen technologies.