Chamber and committees

Yes, there are serious issues about the size of our working population, which is why I thought it absolute madness for us to give up free movement of EU citizens. Even if we had to leave the European Union, why we could not have stayed in the single market is totally beyond me. As an act of absolute self-harm, it is beyond belief.

I have been around here for ages and I remember vividly that, 20 years ago, Jack McConnell’s Administration was obsessed by the danger presented by the decline in the working-age population. I take my hat off to those members—they were totally obsessed by the topic. They did all that work on the fresh talent initiative. Jack McConnell phoned me, as leader of the SNP at the time, to ask if I would support the policy so that he could get good cross-party agreement. There was a lot of rancour between my beloved party and the Labour Party at that time—how things have moved on!—but I gave Jack McConnell unreserved support on that. It was a good idea and it made a bit of headway. Then, in 2002, EU expansion took place, free movement of citizens was enabled and our population started rising.

I think about the community that I represent. My son has just left primary school. A third of his class were the children of EU migrants who came here as young people 20 years ago, started working, met people and made their family life here. They boosted our population, and we did not have to worry about that for 20 years. We need to worry about our population now, and the situation is completely and utterly self-inflicted.

If we could have some thawing of the attitude towards migration, that would be of great benefit. I cannot magic up people out of thin air. Yes, we can work hard to try to activate people who are economically inactive, and I commit to doing that. We are doing good work on that—great pathfinder projects have been undertaken in Dundee and Glasgow to activate economically inactive people—but we are still short of people. That change of attitude would help.

Liz Smith puts it to me that there are forecasts of growth in the United Kingdom. That is not quite what we have got yet. We have got rhetoric about growth; we have not got any forecasts. The forecasts will come from the OBR and we will all have to wait to see what that adds up to.

In the mini-budget statement, the single policy initiative that was about growth was on investment zones—that was it. If the chancellor believes that the OBR will come along and say, “Yeah, yeah—these investment zones are going to be the absolute dynamo and that’s going to deliver 2.5 per cent growth,” my response to that would be, “Good luck with that,” because I do not think that that will be the case. I do not want to foresee OBR forecasts too much, but I suggest that the chancellor will have to come up with an awful lot more growth-related initiatives to substantiate an OBR forecast that would get to 2.5 per cent growth, given what we are experiencing now. Indeed, if the chancellor wants to repair the public finances without making spending cuts, the growth assumption will have to be higher than 2.5 per cent.

Lastly—forgive me for the length of my answer, convener; I am not really helping you with your time management, but there is a lot of really important stuff in here—I unreservedly accept the importance of the Scottish Government having an agenda that is about realising our economic opportunities. I mentioned the discussions that I had yesterday about doing that in one part of the country, in the Highlands and Islands. We must take the steps to enable that to happen.

On the housing question, I accept that we must look at what we can do to help. However, housing developers in the Highlands and Islands tell me that one of the biggest impediments to their building new houses is the availability of people—they just cannot find people.

On people’s availability, that has been fundamentally affected by Brexit. There will be other factors, but that is undoubtedly the key factor.

As I said in my earlier answers, we have to make careful judgments about tax policy, because we must be mindful of the legitimate issues that you put to me. However, we must consider those in their proper perspective, which is why I cite the other issues, including the need to consider what the total relevant housing costs are. Property prices are higher in England than in Scotland, so people will have to be able to command much more substantial salaries to afford those properties if they are trying to buy them with a mortgage.

A variety of other measures in place in Scotland provide some degree of difference in the availability of public services, whether that is in relation to lower council tax, no tuition fees, more early learning and childcare, no prescription charges and so on. There has to be careful consideration of all those questions.

My final point is on the mini-budget. The chancellor took the decision to change stamp duty on the basis that it would stimulate the housing market in England. He has done enormous damage to the housing market in England, because of the fiscal recklessness of the mini-budget and what it has done to interest rates. I have read stories in newspapers about people who were all set to buy houses but cannot now do so because interest rates have gone through the roof. Those young people were full of hope about getting on with their lives. With total recklessness, the chancellor has just shattered all that.

Forgive me for wanting to be careful about the tax decisions that I take, but on the basis of what the chancellor has done, a lot of misery has been created for people who were about to take big steps in their lives and have had that taken away from them.

We are contributing towards the financing of some of that new housing activity but the fiscal model has to be sustainable.

It is an issue that the Parliament and the Government have to be careful about in relation to the rent freeze question and what implications that has. We have to be open about any potential implications that come from that, but undoubtedly it is an example of an approach to co-investment where we need other parties to be able to undertake fiscally sustainable measures.

I come back to my answers to Liz Smith on the challenges that we face around realising economic opportunities. The housing challenges that we face are not just about the Highlands and Islands; the convener’s constituency will face acute challenges in relation to housing availability and workforce, and the necessity to ensure that there is accommodation to contribute towards economic growth. The last thing I want to see is any lack of constancy in the housing investment programme. It is not a capital saving that I would be particularly interested in pursuing.

There are a number of issues in your question. First, there is a legitimate and proper place for borrowing for investment in our economy. We have borrowing powers. Mr Mason asked me whether the value of those should be increased. There is always an argument for that, but there must also be fiscal sustainability. When finance ministers set budgets, they must be confident that we can service the debt that we take on. However, borrowing for investment in the infrastructure of the country is total common sense. We do it successfully.

There is then the scenario of borrowing to deal with the dynamics of change and fiscal shocks. We have a small degree of borrowing capability to deal with a Scottish economic shock and we have some fiscal flexibility about how much money we can carry over from year to year to deal with a shock. We are using some of that flexibility to the maximum now. That still does not prevent me from having to redirect £560 million of public expenditure from previously expected projects to meeting the in-year costs of pay demands and inflationary pressures that are much greater than were anticipated when the budget was set. Therefore, I am planning on the basis that I have to find about £700 million more than I anticipated in this financial year to fund pay deals. That is why I am having to make the changes that I am making.

There is an argument for saying that, in the circumstances that we have, with inflation at, currently, 9.9 per cent compared to 2 per cent when the comprehensive spending review was undertaken or even 5 per cent at the start of the financial year, we should have some resource borrowing power to avoid having to take some of the dramatic decisions that we have to take. We do not have that flexibility just now. It would be helpful to have it but I come back to my fundamental point that those powers must be exercised in a climate of fiscal responsibility and sustainability, whichever way we exercise them.

There is an immediate short-term issue that revenue from LBTT might not realise our expectations. Equally, it might exceed our expectations. However, there is a substantial interruption to the housing market just now, so I think that it is likely that revenues will be undermined as a consequence. The forecasts that we undertake are designed to provide as much certainty as possible about the implications of the policy decisions that we make. Essentially, we will be mapping out what our policy approaches will be, securing projections on the basis of those and making financial decisions accordingly. However, those factors are material to the performance of the budget.

It might be helpful if we could write to the committee to give absolute clarity about those details.

Some of the same issues apply. We are still in discussion with the UK Government about the agreement that was reached earlier about having two green freeports in Scotland. Bearing in mind my point about displacement, if we have too many of these things, it is all—to be blunt—just swirling around. I hope that you understand the point that I am making.

Potentially, but those obviously flow into the level of growth that we can assume within Scotland, along with a range of other factors.

I suppose the best way to express it is to say that it will affect the purchasing power of the Scottish budget in the years to come.

If we are undertaking future borrowing—if we are in any way co-investing in a proposition with other interested parties, which the Government does from time to time—that will be a factor that we will need to consider.

If we take, for example, some of the investments that our enterprise agencies or the Scottish National Investment Bank might make, these are invariably co-investment propositions. The ability of other parties to co-invest, which we rely upon so that there is a sharing of risk, might be jeopardised because of those factors. There are a variety of knock-on effects that we may face as a consequence.