Chamber and committees

You are right that a window of opportunity was open to us. The former Chief Secretary to the Treasury, John Glen, was keen to conclude matters in advance of any potential changes to personnel in the Treasury. We understood that the window of opportunity might not remain open for long.

The narrow scope of the review was made clear to us. Of course, over time, we have demanded and requested additional financial levers and the devolution of further taxes. We will continue to do that but it was made clear that a deal could be made on the limited scope that was set out, which I covered in my opening remarks.

There was a judgment to be made about whether to accept the narrow scope to get tangible gains or to continue to argue for a widening of the scope. My judgment was that what was on the table was limited and nothing else was going to be put on the table. Therefore, it was prudent to secure the gains in a negotiation on the narrow scope, which we eventually managed to do. Those are judgments, and it was my judgment that, despite the narrow scope, there were still substantial gains to be made.

As I said earlier, part of the budget process will require me to set out what we are able to do for the remainder of this parliamentary session and, under the infrastructure investment plan, going beyond the longer-term horizon. We have been looking to innovative financing models to try and fill some of the space, but that is not without its challenges around resource costs. There are no easy answers. Again, I would make a plea with respect to the UK Government’s autumn statement tomorrow, when there is an opportunity to make a change of direction on capital. That would be very welcome and my letter to the Chancellor of the Exchequer included the point that there needed to be more support for the capital position. [Interruption.]

Let me be candid. John Glen was perhaps an oasis in a desert. We were able to do business with someone who was very clear about his objectives and was open and straight about them. Treasury officials were in a very productive space. That comes back to the window of opportunity and John Glen recognised that that window might be open only as long as he was in the position, to put it bluntly.

Sometimes it is about relationships and you can find a negotiation and, obviously, that works both ways. We found ourselves in a situation where there was a clear willingness on both sides, despite the limitations, to get business done. John Glen has now moved on. I have not yet met the new Chief Secretary to the Treasury, but hope to have a call with her in advance of the autumn statement.

In the context of the very difficult relationship that we have with the UK Government and in my experience of dealing with a number of ministers, John Glen was a breath of fresh air. I hope that I am not making him blush by saying that; I will probably not do his career prospects much good.

It will probably be at the margins. I think that that would be a fair assessment. The agreement helps, but it will not make a major impact on our ability within the capital picture.

I will bring in Matthew Elsby on that. You have made a really important point, and those issues need to be looked at in the next phase of negotiation.

Earlier on, the point was made that the principles and agreements were established in a very different economic climate. The economic shocks that we have seen since then have exposed some of those issues. In the longer term and in the next phase of negotiation, we need to look at those issues in more detail and expose them to the true light of what we have come to know over the longer period of time rather than what we knew in the earlier years of devolution, which were economically reasonably stable.

I think that it is fair to say that, for most of the Parliament’s committees, the fiscal framework is probably something that lies in this committee’s territory, because of its complexity. I guess that there will be a high-level understanding that there are some changes that are, in the main, beneficial, but the framework is probably not going to feature as a main line of inquiry for committees that are looking at, for example, capital investment in the prison estate, transport or anything else. I guess that where it matters is around resource borrowing, capital borrowing and the reserve drawdown limits, which, taken together, have some limited impact at the margins, rather than being a game changer for the capital outlook of the Scottish public finances. I suspect that the impact will be at the margins rather than at the centre.

The capital outlook is really challenging—you are right to point to that—for a number of reasons, including, essentially that the capital budget has not been inflation proofed, which impacts our capital availability with an almost 7 per cent reduction over the foreseeable future. That has a huge impact on infrastructure investment. Again, there was no option to use other mechanisms—that was not on the table. It comes back to the limitations of what was on the table and the issue of having a recognition, at least, of the capital budget growth. We felt that the limited gain was important, however, changing the mechanism was not on the table.

That word “balance” is important. There is always a balance of who gets what from a negotiation. What came out of the other end had to satisfy some of our fundamental red lines—of which we had a number—but the UK Government also knew how far it was prepared to go and did not want to be seen to go too far because there are those in the UK Government who perhaps did not like some of the outcomes of the fiscal review itself. Everything is a negotiation, but they had red lines too and they were not going to budge on that one.

Our officials and those from the Treasury would push the boundaries with each other before John Glen and I got in the room, looking at where those boundaries actually were and what was acceptable. We had to reach a balance, or it would not have been agreed. Unfortunately, that meant compromise on our part and capital borrowing was one area where we compromised.

Clearly, we have no intention of doing that. The big negative tax reconciliation that we thought that we were facing next year, which has been reduced—thankfully—was, of course, very much related to the forecasting during the pandemic. The figures that Matthew Elsby set out for the percentage risk demonstrate that it would not be anticipated that we would have a negative tax reconciliation of that magnitude very often. It was very much related to the set of circumstances at that time.

We would definitely want to reflect on the process. My predecessors engaged with the committee and stakeholders in the early days of the review, and the independent report was jointly commissioned, which was important for its credibility and acceptance as part of the process. There was then the rapid opportunity to conclude matters. The CST made it very clear that he wanted that to happen in a confidential space. I would not have had any issues at all with having further engagement with the committee and stakeholders but, given the CST’s very clear position, that would have been very difficult. Sometimes in a confidential space, agreements can be reached that might otherwise be difficult. Those are balancing acts.

Going forward, our clear preference would be to have the engagement that preceded the reaching of the agreement, not just with the committee but with external stakeholders, and to have that in a more open and transparent way.