Finance and Sustainable Growth Secretary John Swinney
Statement to the Holyrood Parliament
Wednesday, November 26, 2008
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Presiding Officer,
I welcome the opportunity to present this Government's response to the Pre-Budget Report that was announced by the Chancellor of the Exchequer on Monday.
Before I do so, I would like to set that response within the context of what the Scottish Government is already doing to help businesses and households in these challenging economic times.
Presiding Officer. As we heard in our debate on the economy on 12 November, this - for many people in Scotland - is the most difficult economic climate they will have faced for over a generation. For others, particularly our young people, these are the hardest economic times they will have ever experienced.
Rising commodity prices and the credit crunch have weakened advanced economies across the world - and there is every likelihood that the UK is already in recession.
While this Scottish Government might not be able to prevent recession, it is doing everything within its power to lessen the financial pain on Scottish households and businesses.
Scottish economic recovery programme
Increasing sustainable economic growth has been this Government's overarching purpose since the Government was established - and, in these challenging economic times, that mission assumes even greater importance, requiring us to help businesses and communities across Scotland through the downturn, while investing for a strong and sustained recovery.
Through our Scottish Budget which was agreed by Parliament earlier this year, we have already invested over £30 billion of public funds to deliver our purpose of increasing sustainable economic growth.
We already have taken measures to ease the pressure on tight household bills by working with Local Authorities to freeze council tax, and we will provide funding to allow councils to implement further freezes for the next two years. That represents a real-terms cut in costs for families, compared with the average council tax increase of 3.9 per cent south of the border.
We have introduced beneficial measures to reduce business rates through the small business bonus scheme, which is benefiting thousands of Scottish businesses. That action - of course - was taken before the global economic downturn took effect.
Long before the current downturn, we took other action too. By progressively abolishing prescription charges, by removing bridge tolls and by scrapping the graduate endowment fee we are putting more money in the pockets of ordinary, hard-working Scots - much more than any Government before us.
However, in these exceptional economic circumstances, we have a duty to look at what more we can do. That is why, during the summer, we developed our Economic Recovery Programme to boost Scotland's economy.
Our programme includes a commitment to reshape capital expenditure to advance the investment of £100 million, this year and next, in affordable housing projects. We have already allocated £180 million of commitments from the European structural funds programme and will take decisions to accelerate the commitments of finance from the remaining £385 million in the programme.
I've already indicated to Parliament that £50 million of investment in employment in Scotland has been undertaken and that it is expected the programme will be expanded to tackle unemployment in these tough times.
In the current economic circumstances, our £35 billion 10-year infrastructure investment plan is also delivering, with £14 billion during the current spending review period being invested in schools, hospitals and transport.
We are re-shaping our capital expenditure to invest £25 million in the home-owners support fund, to help people who face the prospect of having their home repossessed.
We are intensifying our support for Homecoming 2009 - while elsewhere in the Government, we continue to ensure that all our activity, including on planning and regulation, supports economic development.
At the same time, we are building on our existing work around energy efficiency and fuel poverty - putting an extra £10 million into the free central heating programme this year.
And, we are increasing advice to businesses and individuals - doubling the size and capability of the Scottish manufacturing advisory service to ensure that even more companies can access quality advice.
Scottish response to the Pre-Budget Report
While taking this action, this Government will continue to stand up for Scotland to ensure it gets a fair deal from the UK Government.
We have been making the case for the UK Government to deliver a package of further tax cuts and increase public expenditure to respond to the current economic conditions.
That is why we welcome a number of elements of the direction the UK Government has now taken to get the economy moving.
The spending plans outlined in the Pre-Budget Report will have a beneficial impact on the construction sector and on a variety of other sectors within the Scottish economy.
In particular, we are pleased to see the flexibility the UK Government has provided to allow for the acceleration of capital spending.
The £260 million of money from 2010-11 that Scotland is eligible to bring forward into this year and next, will help to boost our capital expenditure at a time when that is required the most.
I can announce to Parliament that the Scottish Government intends to use this opportunity to further accelerate capital spending and that Cabinet has decided to use this facility to the maximum.
I can say today that we intend to give the highest priority to capital spending on new and improved school buildings, helping to create a 21st century environment in which Scottish children can learn, and where we can provide more classroom capacity. We will look at accelerating investment in transport infrastructure and in projects to boost fuel efficiency and address fuel poverty.
We will look at further opportunities for advancing investment in housing regeneration for example through projects to address fuel poverty and energy efficiency.
We will also consider supporting improvements in the Further Education estate, again concentrating on energy efficiency and in support of Health Service projects.
And we will consider further options with a view to ensuring that we select capital spending proposals that maximise a positive impact on jobs, business and the economy, that promote excellent public services, and that contribute to our sustainability objectives.
We will bring forward to Parliament very shortly our detailed proposals for allocating the Scottish consequentials from the Pre-Budget Report. We will do this once we have completed discussions around the practical steps to accelerate specific projects with our partners, particularly local authorities, who will have a major role to play in ensuring that we achieve maximum impact. We must also consider these proposals within the significant changes that we expect to the 2010-11 Budget as a result of the Pre-Budget Report. We will also seek Treasury support for our proposals.
But, while this acceleration of capital spending is welcome, there are other elements of the Pre-Budget Report that give us cause for concern.
Assistance for Companies
Presiding Officer, the measures announced by the Chancellor on Monday to help companies will provide some assistance for our small businesses.
But, the fact remains that many small businesses will continue to pay more in corporation tax than they did two years ago.
Scottish businesses are still feeling the impact of measures announced in previous budgets. Since 2007 the small company corporation tax rate has increased from 19 per cent to 21 per cent.
This is having a negative effect on many small and medium sized companies who are vital to our constituencies, and vital to the Scottish economy. This is a UK Government policy that cuts across the Scottish Government's efforts to support our SMEs through the reductions in business rates this year, and for many their removal next year.
Reduction in VAT and Energy Costs
We believe that while the cut in VAT is a welcome step it could have been more focussed. We have seen from the initial public reaction that there is widespread sense that this is not enough to impact on public confidence and indeed spending in our High Streets. We will of course continue to monitor retail activity.
Presiding Officer, it is this Government's view that targeted action on VAT to help people struggling with fuel bills and to boost the housing sector was needed. The Chancellor's announcement on Monday did nothing to address these issues.
At a time when fuel bills have increased by 38% since the start of the year, we need decisive action to help households.
Removing VAT on domestic heating this winter would have been a better and more effective choice.
Duties
Presiding Officer, this Government also opposes the 2p increase in fuel duty and the unwelcome increase in duty on Scotch whisky.
The fuel duty increase will be offset by the reduction in VAT in the short term - but, in the long term, the increase will have serious consequences for Scotland, particularly in our rural and island communities. It is a classic case of giving with one hand and taking away with the other.
The hardship placed on these communities is unacceptable - particularly, as the Chancellor announced on the same day, record levels of revenues from oil and gas off our shores.
And of course record duty on Scotch whisky - a tax blow to an industry that generates export income and delivers jobs across our country. I welcome reports that the Chancellor is to think again on this duty hike and wait with interest for the details of any changes to his pre-budget plans.
This Government recognises the specific needs of rural Scotland, the pressures on our hauliers and the interests of our more important industries. Events overnight suggest that it is possible to force a change of direction. That should encourage all of us in this Chamber to highlight even more strongly the impact of fuel duty increases on rural Scotland.
Spending Cuts
Presiding Officer, let me make one further - and I think, absolutely crucial - point in relation to the plans outlined by the Chancellor on Monday.
It can't have escaped even the most enthusiastic supporters of the UK Government that these plans will mean a significant reduction in Scotland's public spending in 2010-11 and beyond. In fact, it will mean the biggest cut in Scottish spending since devolution and all this at the same time as the Treasury confirmed record oil revenues of £13.2 billion this year and forecast a North Sea income of £55 billion over the next six years.
On Monday, the Chancellor announced his plan to reduce capital spending on health in England and Wales - which will, through the Barnett Formula, reduce Scotland's own baseline by £129 million in 2010-11.
At the same, the Chancellor announced that he was top-slicing £5 billion from public spending programmes across the UK in 2010 and 2011. His intention is to let the Treasury keep those savings.
Let me be clear about this. Taken together this will mean a cut of up to £500 million in Scottish spending in financial year 2010 or approaching £1 billion over the next two years as proposed by the UK Government.
Members in this Chamber have spent some time in recent months focussing on the 2 per cent efficiency savings proposed by the Scottish Government - real efficiency savings - efficiency savings that have to pass stringent tests to be acceptable - efficiency savings that we re-invest in public services.
I hope they will now spend as much time focussing on the impact on vital public services that will follow from a crude cut in Scotland's budget by the UK Treasury.
Presiding Officer, what was already the tightest settlement from Westminster since devolution has just become tighter still - and, we remain deeply concerned that these proposals could cause difficulty for Scotland at a time when we're trying to get the economy to recover.
Clearly, that is unsustainable - and, this Government will do all it can to overturn this decision by the UK: a decision that will put at risk projects in every part of Scotland. I hope this Chamber will support this Government in our efforts.
In closing, this SNP Government is working hard for Scotland, using all the levers at our disposal. This is reflected in our programme to support Scottish Economic Recovery - we acted early, have set a clear course and will work continuously to refocus and retune our activities to maximise their impact.
We also welcome many of the steps the UK Government has taken and in particular pledge to make full use of the capital flexibility. I will continue to press the UK Government on more targeted action as we look towards the Budget next year.
And finally, I make clear to Parliament that the decision to remove up to £500 million of spending in 2010-11 and approaching £1 billion over two years, poses a real threat to vital public services in Scotland. It is a decision that this Government will work tirelessly to reverse.