Chamber
Meeting of the Parliament 07 December 2011
07 Dec 2011 · S4 · Meeting of the Parliament
Item of business
Autumn Budget Statement and the Scottish Economy
It is worth reflecting on some of the analysis and feedback from economists since last week’s autumn statement. The Economist put it simply, stating that
“the government’s policies are broadly right.”
The Financial Times stated on the day after the autumn statement:
“There is nothing in the OBR’s documents that support the view that deficit reduction is the cause of the government’s current deficit-reduction woes.”
The editorial in the Financial Times probably put it best when it said that
“abandoning the current spending plans would be a huge gamble and one whose consequences would be hard to deal with were it to go wrong. The austerity plan has convinced markets that it is safe to lend to the British government. ”
It is also worth reflecting on the reasons for the disappointing growth predictions, and the disappointing levels of borrowing that will be required, to which the cabinet secretary referred. We cannot look just at the figures from the Office for Budget Responsibility; we have to look at the analysis behind them as well.
The primary explanation given on page 5 of the OBR’s report was:
“The economy has grown less strongly this year than we forecast in March, primarily because higher-than-expected inflation has squeezed household incomes and consumer spending.”
That has involved energy costs in particular, including oil, as well as the cost of food and other commodities. That has been a major factor, but the figures are expected to fall slightly over the next year, and to fall sharply in the years thereafter, according to the Bank of England. That ought to reduce the drag on the economy over time.
A second reason given was that the structural deficit is higher than previously thought. In fact, it is a full 1.6 per cent of gross domestic product higher than we originally thought. That would have been the case regardless of who was in government and regardless of what action the Government took—the downturn was far worse than we originally realised. We may not have realised that if the Labour Party had remained in government, because we probably would not have had an Office for Budget Responsibility to tell us. Although it delivered a glut of bad news last week, at least there is an office with independent oversight that does not allow chancellors to rest on what have been pretty rosy assumptions previously.
“the government’s policies are broadly right.”
The Financial Times stated on the day after the autumn statement:
“There is nothing in the OBR’s documents that support the view that deficit reduction is the cause of the government’s current deficit-reduction woes.”
The editorial in the Financial Times probably put it best when it said that
“abandoning the current spending plans would be a huge gamble and one whose consequences would be hard to deal with were it to go wrong. The austerity plan has convinced markets that it is safe to lend to the British government. ”
It is also worth reflecting on the reasons for the disappointing growth predictions, and the disappointing levels of borrowing that will be required, to which the cabinet secretary referred. We cannot look just at the figures from the Office for Budget Responsibility; we have to look at the analysis behind them as well.
The primary explanation given on page 5 of the OBR’s report was:
“The economy has grown less strongly this year than we forecast in March, primarily because higher-than-expected inflation has squeezed household incomes and consumer spending.”
That has involved energy costs in particular, including oil, as well as the cost of food and other commodities. That has been a major factor, but the figures are expected to fall slightly over the next year, and to fall sharply in the years thereafter, according to the Bank of England. That ought to reduce the drag on the economy over time.
A second reason given was that the structural deficit is higher than previously thought. In fact, it is a full 1.6 per cent of gross domestic product higher than we originally thought. That would have been the case regardless of who was in government and regardless of what action the Government took—the downturn was far worse than we originally realised. We may not have realised that if the Labour Party had remained in government, because we probably would not have had an Office for Budget Responsibility to tell us. Although it delivered a glut of bad news last week, at least there is an office with independent oversight that does not allow chancellors to rest on what have been pretty rosy assumptions previously.
In the same item of business
The Deputy Presiding Officer (John Scott)
Con
The next item of business is a debate on motion S4M-01501, in the name of John Swinney, on the United Kingdom Government’s autumn budget statement and the Sc...
The Cabinet Secretary for Finance, Employment and Sustainable Growth (John Swinney)
SNP
I am grateful for the opportunity to open the debate on the autumn budget statement and the wider Scottish economy. It is now more than three years since the...
Mary Scanlon (Highlands and Islands) (Con)
Con
In comparing the United Kingdom with France and Germany, does the cabinet secretary accept that the coalition Government inherited the highest level of debt ...
John Swinney
SNP
I know that Mary Scanlon assiduously follows my speeches in the Parliament. She will not have noticed me in any way shirking from apportioning responsibility...
Richard Baker (North East Scotland) (Lab)
Lab
The cabinet secretary has rightly referred to the revision downwards of growth forecasts. What impact will that have on the Scottish Government’s spending re...
John Swinney
SNP
Mr Baker asks a fair question. I point him to the evidence that I shared with the Economy, Energy and Tourism Committee some weeks ago. In the year of greate...
Gavin Brown (Lothian) (Con)
Con
I apologise for missing the start of the cabinet secretary’s speech.In the switch from revenue to capital quite a large sum—about £150 million—will go into t...
John Swinney
SNP
No. The budget proposals rely on a shift from the revenue columns to the capital columns—that is a straightforward transaction in the budget document.
Gavin Brown
Con
The Forth crossing is not in the revenue budget.
John Swinney
SNP
I point out to Mr Brown that the UK Government has of course reduced our capital budget by 36 per cent, which has been moderated to 32 per cent. In the overa...
Willie Rennie (Mid Scotland and Fife) (LD)
LD
The infrastructure plan is a 20-year plan. The increased funding is provided within the first three years. What has been accelerated as a result of the incre...
John Swinney
SNP
Mr Rennie expects me to take a look at those questions, and we will come back to the Parliament, as we will on the other consequentials, to set out how our p...
Neil Findlay (Lothian) (Lab)
Lab
Will the minister give way?
John Swinney
SNP
I would give way to Mr Findlay if—
The Deputy Presiding Officer
Con
Cabinet secretary, you are in your last minute.
John Swinney
SNP
I apologise to Mr Findlay. I will happily deal with his points during the debate.The autumn statement provided some additional capital consequentials for the...
Richard Baker (North East Scotland) (Lab)
Lab
This is a welcome opportunity to debate the autumn statement and its implications for Scotland. It comes at a critical point for our economy and for the worl...
Jackson Carlaw (West Scotland) (Con)
Con
Is it not a consequence of the coalition Government’s strategy that we have the lowest interest rates in the world? Would not a consequence of the Labour Par...
Richard Baker
Lab
I presume that Mr Carlaw would not have acted to bail out the banks. The UK Government has left us the lowest rates of growth in the world, and it has choked...
Gavin Brown
Con
Will the member acknowledge what the Institute for Fiscal Studies has stated? It said that if Labour’s plans had been implemented, they would“now of course h...
Richard Baker
Lab
No, because the figures that I have show that the UK Government plans £37 billion more borrowing in future years than the amount in Labour’s plans that were ...
Gavin Brown
Con
Will the member give way?
Richard Baker
Lab
I have already given way to Mr Brown. I will try to take an intervention from him later.We understand that there will be limited consequentials in the new pl...
John Swinney
SNP
Will Mr Baker take this opportunity to confirm his understanding of the spending review, which involves a rising trend of capital expenditure in Scotland des...
Richard Baker
Lab
My understanding, from what the cabinet secretary said earlier, is that there will be consequentials later in the spending review cycle involving increased s...
Gavin Brown (Lothian) (Con)
Con
It is worth reflecting on some of the analysis and feedback from economists since last week’s autumn statement. The Economist put it simply, stating that“the...
Stuart McMillan (West Scotland) (SNP)
SNP
Does Gavin Brown agree that it is strange that it takes the OBR 18 months to realise that the strategic deficit is worse than planned? What has it been doing...
Gavin Brown
Con
I find it surprising that the member wishes to criticise the OBR, which has received praise for its work from across the political and economic spectrum and ...
Richard Baker
Lab
What is the cost to our economy from the fact that our growth rates are higher than only those of Greece and Portugal, out of the whole euro zone?
Gavin Brown
Con
The growth rates are very disappointing, but if one looks at the OBR report in full—not just the press release that accompanied it—one sees that, although th...