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Chamber and committees

Meeting date: Wednesday, November 30, 2016

Meeting of the Parliament 30 November 2016

Agenda: Portfolio Question Time, Autumn Statement, Education, Local Democracy, Policing and Crime Bill, Business Motions, Parliamentary Bureau Motion, Decision Time, World AIDS Day 2016


Contents


Autumn Statement

The Presiding Officer (Ken Macintosh)

The next item of business is a statement by Derek Mackay on the response to the autumn statement. As the cabinet secretary will take questions at the end of his statement, there should be no interruptions or interventions.

14:41  

The Cabinet Secretary for Finance and the Constitution (Derek Mackay)

I would like to take this opportunity to respond to the autumn statement that was delivered last week by the Chancellor of the Exchequer and to set out its implications for Scotland’s public finances and wider economy.

The autumn statement and the accompanying analysis from the Office for Budget Responsibility starkly highlighted the detrimental impact of Brexit and the United Kingdom Government’s approach to the negotiations on the economy and the UK’s public finances. The Scottish economy demonstrated its underlying resilience prior to the European Union referendum in the face of considerable external headwinds, with gross domestic product growing by 0.4 per cent in the second quarter of the year, wages growing in real terms over the past year and the labour market continuing to strengthen. The most recent labour market data shows that the unemployment rate has now fallen to 4.7 per cent, the lowest since 2008 and below that of the UK, and the number of people in employment in Scotland has increased by more than 166,000 since 2010. The Scottish economy is therefore well placed to face the challenges that are likely to emerge over the coming year.

However, it is clear that Brexit has significantly increased economic uncertainty and damaged business confidence and investment intentions. The forecasts set out by the OBR anticipate that Brexit will lead to investment being postponed or cancelled, higher inflation squeezing households’ real incomes and reduced trade with the EU. That is expected to lead to lower economic growth, lower wages and lower tax revenues and, in turn, higher borrowing and debt. As a result of lower growth, the OBR now forecasts that over the next five years borrowing will be more than £110 billion higher than forecast in March, with the OBR attributing £59 billion of that increase solely to Brexit.

It is clear that the deteriorating outlook for the UK economy together with the UK Government’s austerity policies will hit low-income families hardest. Analysis by the Institute for Fiscal Studies shows that, as a result of Brexit reducing growth and increasing inflation, average real wages will, by 2021, still be lower than they were in 2008. That implies 13 years without any growth in real wages, which is the longest period of stagnant wages that we have had since world war two.

The true cost of Brexit has been laid bare by this Tory chancellor. As our nation continues to debate our constitutional future, the choice that we face is becoming clearer. If we are stuck with the hard-right hard Brexit of the Tories, we face lower growth, more borrowing, higher debt and higher inflation hitting hard-pressed families. That is one future that Scotland now faces. I believe that we must build a different future and give Scotland a different choice.

In the face of a deteriorating economic outlook, the chancellor had a choice to make on fiscal policy. He had the opportunity to take a fresh approach and abandon his predecessor’s rigid adherence to austerity. However, despite the rhetoric of resetting fiscal policy, under the chancellor’s plans Scotland will continue to see a real-terms cut to the funding that it receives to pay for public services. By 2019-20, the Scottish Government’s discretionary budget—the fiscal departmental expenditure limit—is expected to be more than 9 per cent lower in real terms than it was in 2010-11, which reduces our scope to mitigate Westminster austerity and invest in growing our economy. That is before we see the impact of £3.5 billion of additional and so far unallocated cuts that the chancellor has confirmed that he plans to impose by 2019-20.

The chancellor announced some welcome capital investment in the autumn statement, which will provide consequentials for Scotland. We will use every penny that is available to us to invest in supporting our economy, but again that simply moderates the cuts that have already been imposed on the Scottish budget. Scotland’s capital budget will still be around 8 per cent lower in real terms in 2019-20 than it was prior to the start of the UK Government’s austerity programme.

Despite that and in contrast to the silence and inaction of the UK Government, we have already taken swift action in the wake of Brexit to support the economy by bringing forward an additional £100 million of capital investment. We are working hard to secure Scotland’s continued relationship with Europe, and we have already set out plans for a £500 million Scottish growth scheme to support businesses. Whereas the UK Government failed last week to adjust economic policy for the impact of Brexit, the Scottish Government is using every lever at our disposal to protect Scotland’s economy.

Let us be clear about where the chancellor failed to act to protect Scotland’s economy. Once again, last week’s statement failed to offer support to our North Sea oil and gas industry. Support for exploration would help to secure future investment, but the chancellor chose not to make that support available. I will raise that with him when I meet him tomorrow.

I will also raise the lack of measures to help low-income households, which is perhaps the most concerning aspect of the autumn statement. Instead of supporting households in the face of a deteriorating economic outlook, the policies that the Westminster Government is pursuing are exacerbating the situation. The reforms to tax and social security that the UK Government is implementing are highly regressive, and the limited support that is provided in the autumn statement is dwarfed by the social security cuts that have already been announced.

For example, the Resolution Foundation has estimated that, as a result of changes to the economic outlook and policy measures that are being implemented during this session of Parliament, a dual-earning family on low incomes with three children will be £3,650 a year worse off by 2020. Likewise, it has estimated that a lone parent who works part time and is on the national living wage could be £2,640 a year worse off. That is equivalent to an 18 per cent cut in their household income. Virtually all households would struggle in the face of an 18 per cent cut to their income, but for households that are already dealing with rising bills and have little spare income, a cut on that scale is simply unacceptable.

Hard-working families should not have to pick up the tab for the UK Government’s austerity policies or its decision to leave the EU. Scotland did not vote for Brexit, but the renewed economic squeeze will hit families in Scotland, many of whom are already struggling to make ends meet. Despite those cuts, the UK Government is pressing on with its policy of giving the top 10 per cent of the adult population a significant tax cut by raising the higher rate threshold. There we have the Tories in a nutshell: the lowest-income families are hammered while the better-off are given tax cuts.

The Scottish Government is taking a different approach to growing our economy and building a more equal society. We will set out the full details of our income tax policy in the draft budget on 15 December, but I can confirm today that we will use our tax powers to set Scotland on a fairer and more progressive path than the one that has been charted by the Tories.

Let me be crystal clear: this is not the time to give large tax cuts to those on the highest incomes. We will maintain our commitment to support people in Scotland who are affected by the UK Government’s cuts to social security via the Scottish welfare fund, bedroom tax mitigation and the council tax reduction scheme. When we gain powers over £2.7 billion of social security spending in 2018-19, we will, where possible, seize the opportunity to improve the support that people receive.

In two weeks’ time, I will bring forward my draft budget proposals. Unlike the missed opportunities in the UK Government’s autumn statement, we will ensure that our proposals support our economy, tackle the inequalities in our society and protect high-quality public services for all. We are a Government for all our people, and I will bring forward a budget for everyone.

In the draft budget, we will build on the actions that we have taken by delivering the ambitious infrastructure investment programme that was set out in the programme for government, which will include significant investments in affordable housing, digital, energy efficiency, transport and health. We will take the first steps in our commitment to further expand early learning and childcare to 1,140 hours a year and to increase funding for the national health service over this session of Parliament. We will protect the police resource budget in real terms, while providing direct funding to schools to improve attainment. We will continue to mitigate the worst impacts of UK austerity and build a social security system that is based on dignity and respect.

I therefore look forward to setting out our budget proposals on 15 December.

The Presiding Officer

Thank you. We will move straight to questions.

Murdo Fraser (Mid Scotland and Fife) (Con)

As is customary, I thank the cabinet secretary for the advance copy, but what a dismal statement we have just heard from him. To hear it, one would not think that the UK economy is the fastest growing economy in the G7 and is projected to continue to grow strongly, with economic performance already well ahead of the dire predictions that we heard prior to the Brexit vote—a vote, I will gently remind him, that was supported by at least some of those on the benches behind him.

The autumn statement delivered an increase in personal allowance to £12,500 by April 2020, helping the low paid, benefiting 2.6 million Scots and lifting 113,000 people out of tax altogether. The cabinet secretary’s statement makes no mention of that.

There is no mention of the increase in the national living wage to £7.50 per hour, of the freeze in fuel duty for the seventh successive year, of the extra £2 billion spending on research and development and of the £3 million extra for Scottish charities, and no mention at all of the city deal for Stirling and Clackmannanshire, which we celebrated last night in this very building.

The cabinet secretary talks about cuts. The Scottish Parliament information centre has told us that in 2017-18 the Scottish Government’s budget will be up, in both revenue and capital, by a total of £140 million in real terms over the current year. Does the cabinet secretary accept that analysis and, if so, can he explain how a £140 million increase in the budget amounts to a cut?

Secondly, the cabinet secretary has signalled again that this Scottish National Party Government intends to make Scotland the highest-taxed part of the United Kingdom. How does he expect our economy and our tax revenues to grow if he is sending out a signal that Scotland is a country where, if you are successful, we will penalise you?

Derek Mackay

I do not know whether meeting me tomorrow will improve his mood, but many Conservatives in the House of Commons describe the chancellor as fairly miserable. I suppose that that is because he has been looking at the financial assessments of the state of the economy as a consequence of the Brexit decision—and not just the Brexit decision but the UK Government’s appalling handling of its negotiating position. Even the OBR has said that it is none the wiser as to the Government’s position.

Murdo Fraser knows that 62 per cent of those in Scotland who voted voted to remain, and that should be respected by the UK Government.

Politics is about choices. Murdo Fraser mentioned tax. We believe that it is the wrong choice at this time to give a tax cut to the richest in our society. The only tax rate that has changed under the UK Government is the additional rate. It is a typical Tory approach to hammer the less well-off and reward the richest in our society with tax cuts. That is not a choice that this Government supports and that was the proposition that we put to the people of Scotland when we won the Scottish Parliament elections earlier this year.

On the budget position, I certainly welcome the fact that there is some capital stimulus—we have been calling for that for some time. I also welcomed the fact that our budget was not opened negatively. However, the increase in the figures from the Barnett consequentials for one year—a marginal increase in real terms for resource for one year—does not undo the 9 per cent reduction over a 10-year period that the Tories have bestowed upon Scotland. The Conservatives are not the generous overlords giving us fantastic new resources. They are simply giving us back some resources that have been taken away over a consistent and sustained period, which has damaged so many parts of our society.

We will make the right choices on 15 December, and they will not include a tax cut for the richest in our society at this time.

Kezia Dugdale (Lothian) (Lab)

Last week’s autumn statement showed us that the old Tory mantra of cut, cut and cut again still holds. The chancellor confirmed that the same cuts to public spending remain in place—cuts that will put at risk the life chances of people who just want to get on in life.

Today, however, the new tax powers devolved to this Parliament mean that we can do things differently, and we should use the powers of this place to stop the cuts and invest in schools and our local services. I agree with the finance secretary when he says that this is not the time to give large tax cuts to those on the highest incomes. It was, of course, Scottish Labour that first made the case not to pass on the increase in the threshold for middle earners last October. However, we should go further and ask those with the broadest shoulders not just to forgo their tax cut but to pay their fair share. When the cabinet secretary is faced with the prospect of the swingeing cuts that he is about to make, why will he not ask those who earn over £150,000 a year to pay a 50p top rate of tax?

Derek Mackay

As Kezia Dugdale is well aware, our position is not simply to pass on the pain of austerity to individual taxpayers through a basic rate increase. On the additional rate increase, our analysis showed that it might end up costing the Scottish Government money. In that scenario, it would be counterproductive to raise tax to the point at which we had less resource.

Our tax position will remain under review, but we set out in the manifesto what we propose to do around tax, which will ensure that Scotland is an attractive place in which to live and do business. We will deliver a package on taxation that is fair and balanced for individual households and taxpayers, and we will also invest in quality public services. That is a divergence from the Conservatives’ proposition.

We will of course continue to engage with society on that, and our proposition on council tax will also raise resources for quality services. We will ensure that we get the balance right with the proposition that we presented to the people.

The Presiding Officer

We move to open questions. I ask for short questions—and shorter answers too, please.

Bruce Crawford (Stirling) (SNP)

We have heard all the posturing attempts by the Tories to put the best possible spin on what are, to be frank, chaotic public finances. Let us cut to the chase. In the longer term, what will be the real decrease in the Scottish budget as a result of the announcements that were made in the autumn statement? How damaging will that be to public services?

Derek Mackay

The figure that I gave is accurate. There will be a 9 per cent reduction in the Government’s overall discretionary spend over a decade, and that will continue to be challenging, particularly around resource for protecting front-line services. We will do our best to achieve protection of those public services with our balanced approach, but it is a 9 per cent reduction in the Government’s overall discretionary budget spend.

Dean Lockhart (Mid Scotland and Fife) (Con)

I welcome the new city deal for Stirling.

The autumn statement provides us with a timely comparison of the state of the UK economy under a Conservative Government and the state of the Scottish economy under the SNP. There is 2.1 per cent growth in the UK economy compared with SNP growth of just 0.7 per cent in Scotland. There is a UK budget deficit of 4 per cent of GDP declining to 1 per cent, compared with an SNP notional deficit of 9 per cent of GDP. Productivity in the UK was in the second OECD quartile while productivity in Scotland under the SNP was in the third OECD quartile, and Scotland is seeing the lowest growth in employment rates of any region in the UK under this SNP Government. Will the cabinet secretary explain what steps he will be taking to address that increasing underperformance of the Scottish economy?

Derek Mackay

Dean Lockhart would be wise to look at some of the underlying issues in the Scottish economy. A major challenge for us has been oil and gas—I would be surprised if the Conservatives were not aware of the pressures there. Many of the economic levers in that regard and other parts of our economic policy still rest with the UK Government, and the UK Government has to take some responsibility for Scotland’s economy. On oil and gas, this Government specifically asked for interventions to assist the sector with investment and support, but there was nothing in the chancellor’s statement to support the oil and gas sector in Scotland. I will certainly raise that issue tomorrow. There is good news in the forecasts for oil and gas revenues, but much more could have been done to support the sector.

On the positive steps around city deals, this Government has worked constructively with local authorities and the UK Government on city deals and will continue to do so.

We are recalibrating our economic policy, focusing on export opportunities and other areas, as the economy secretary and the First Minister have said, and we will do even more to support the economy, for example through the Scottish growth scheme, through which we want to support private sector entrepreneurs to grow. We are undertaking a range of actions to support Scotland’s economy.

I am sure that it will not be lost on members that the greatest threat to Scotland’s economy right now is Brexit and the UK Government’s mishandling of our membership of and access to the single market. The UK Government should take the issue far more seriously and become far more mature in its engagements with the European Union, so that we can remove some of the uncertainty and volatility that is impacting on the economy, as even the Conservative chancellor acknowledged.

Maree Todd (Highlands and Islands) (SNP)

Does the cabinet secretary agree that the autumn statement illustrated the gulf between the political rhetoric and the reality from the Conservative Party? Just last month, Theresa May promised to confront social injustice and said that the Conservatives were

“the party of the workers, the party of public servants, the party of the NHS.”

That was not evident in the statement. There was no mention of the NHS, and we learned a great deal more about how badly hit the most vulnerable in our society and many working families will be as a result of wage freezes, welfare cuts and rising inflation.

Derek Mackay

That is a fair analysis of the issue. During the EU referendum campaign, people were told that there would be an extra £350 million a week for the NHS, but, as Maree Todd said, the chancellor did not announce a penny in new resources for the NHS—that is another aspect of the sham around the EU vote. This Government will continue to protect the NHS and support low-income households, through the range of measures that we are taking. The Tory chancellor has failed to reset economic policy and end austerity in the way that many of his colleagues suggested that he would do.

Neil Bibby (West Scotland) (Lab)

The finance secretary welcomed the capital investment that was announced in the autumn statement and said that he will use every penny that is available to support our economy. Given the link between economic growth and our future revenues, it is imperative that every penny of capital spend is invested wisely. What areas of capital spend will he prioritise for new projects to boost economic growth? In the interests of transparency, will he commit to providing the Parliament with information, when he publishes his budget, on what the Scottish Government thinks the economic impact of each project will be, particularly in relation to job creation?

Derek Mackay

Neil Bibby asked a fair question and made a good point about how capital investment connects with economic growth—I certainly agree with him on that. I am sure that he does not seriously expect me to preview the budget, but I outlined in my statement some of the areas that are important to the Government and which feature in the programme for government, such as housing and infrastructure. That will not be a surprise to members.

Work is undertaken on value for money and economic return. I will reflect on the point about how we might provide analysis of what we think the return will be on investment in a capital programme. That was a reasonable request. Some of that will involve particular modelling assumptions. The question was fair—such work helps us to make decisions about the budget and where capital investment should be targeted, but there is a range of considerations in that regard. I hope that that answer was helpful.

The Presiding Officer

I remind members that I would like short questions and short answers.

Patrick Harvie (Glasgow) (Green)

I thank the cabinet secretary for the advance copy of his statement. I was interested in the fact that he cited the work of the Resolution Foundation. Does he agree with the foundation’s analysis that it is not just the UK Government’s wider tax and benefits changes but the change to the personal allowance that is deeply regressive? The bulk of the benefit from that change goes to the richest half of households, while the poorest save virtually nothing. Does he agree that the Scottish Government will have to go beyond its manifesto commitments on tax if we are to reverse the deeply regressive effects of the UK Government’s policies?

Derek Mackay

Patrick Harvie is right to identify that, under the package of changes that the Conservative Government proposes, people will be less well off unless they were particularly well off to start with. We have to look at the totality of the tax and social security propositions to recognise the impact that they are having on families. The First Minister has said—and I have said—that we will continue to look at our tax position and the transfer of powers to Scotland to ensure that we get the balance right and support low-income households. We have a manifesto proposition that we want to adhere to, but we will have to look at all the different levers that we have to try to support the less well-off. The Resolution Foundation has provided helpful work on the current position and the UK Government’s decisions that will require further reflection.

Mike Rumbles (North East Scotland) (LD)

The finance secretary has more money available for next year as a result of the autumn statement. What is his position on funding for our schools? Local authorities are not a protected budget line under the SNP Government, so they are going to get hammered, and half of what they do is education. How will he protect schools, given that the decision falls to him as a result of the autumn statement?

Derek Mackay

There speaks a man who voted against providing more money for education when we proposed changes around taxation. I advise Mr Rumbles that I am engaging local government in talks on the financial settlement. I believe that I will have a constructive relationship with local government and that I will be able to produce a budget that prioritises education. It would be wrong to say that any concerns have been dismissed. The Scottish Government has said that education and addressing the attainment gap are priorities, and that will be seen through the Scottish budget.

Gil Paterson (Clydebank and Milngavie) (SNP)

Does the cabinet secretary agree that the UK Government’s total lack of any plan for Brexit is continuing to threaten both the Scottish and UK economies and that the UK statement has failed to mitigate that threat in any way?

Derek Mackay

To be concise—I know that we are short of time—I say to the member that I share that concern. The UK Government is acting in a reckless way that is impacting on the UK and Scottish economies.

Liam Kerr (North East Scotland) (Con)

The cabinet secretary has brought up oil and gas in his statement and in some of his answers. Industry body Oil & Gas UK has said that the UK continental shelf is now

“the most fiscally competitive in the world”,

thanks to changes that the Conservative Government brought in. Last week, the chief executive of Oil & Gas UK said that the organisation was pleased with the autumn statement. Why is Oil & Gas UK wrong and the cabinet secretary right?

Derek Mackay

Liam Kerr should be aware of the additional requests for support for decommissioning, tax incentives and further exploration. That is further action that the chancellor could take to support the oil and gas industry in north-east Scotland. I am surprised that the Conservatives seem to think that they have never had it so good and that more cannot be done to support that sector. I have asked the chancellor for support for those measures, which have the sector’s support. Maybe the Scottish Conservatives should join us in trying to support the sector even further.

Gillian Martin (Aberdeenshire East) (SNP)

Does the cabinet secretary agree that the UK Government’s failure to address oil and gas industry pressures leaves the Scottish Government—again—in a position in which we can attempt only to mitigate the effects of the UK Government’s cavalier attitude to that important component of the Scottish economy? Is it not time that the Scottish Government had the fiscal powers devolved to it to allow it to do the job properly?

Derek Mackay

The Scottish Government has been in a position to support some people through swift actions such as council tax reduction, the welfare fund and how we tackled the bedroom tax. Of course, if we had more fiscal levers, we could do even more.

Some of the changes that the UK Government has announced in the autumn statement even dwarf the overall changes to social security that are hammering the less well-off and the more vulnerable in our society.

Jackie Baillie (Dumbarton) (Lab)

The cabinet secretary painted a complacent picture of the Scottish economy, but the truth is that GDP has been falling in every quarter since the start of 2015 and is consistently worse than GDP for the rest of the UK. With downward revisions to growth forecast for the future, does the cabinet secretary agree that one of the best investments that he can make to grow the economy is in education? On that basis, will he explain why he is not committing to providing a real-terms increase in education spending?

Derek Mackay

Again, I will not preview the Scottish budget on 15 December, but I have made it clear that education is a priority. I continue to work with local authorities and, of course, we want to target attainment and the inequality gap. I hope that we will continue to have the support of the Labour Party to do that.

Kate Forbes (Skye, Lochaber and Badenoch) (SNP)

What is the cabinet secretary’s direct response to third sector groups and churches that have slammed the autumn statement for offering little hope, as the measures will go nowhere near far enough towards reversing cuts that have already been made?

Derek Mackay

I concur with a number of those comments. I point out to members that work from the Resolution Foundation has shown that tax and welfare reforms that the UK Government will introduce during this Parliament are highly regressive, with those at the bottom of the income distribution seeing the largest losses in cash terms and as a share of their incomes. That is the reality of the UK Government’s changes. I know that the Tories are silent on this point, but I do not understand why the Labour Party objects to that commentary from the Resolution Foundation, which highlights some of the terrible impacts that there will be on Scotland and the UK as a consequence of this right-wing chancellor’s decisions.