Meeting of the Parliament 11 March 2015
I have never heard such utter nonsense. Labour does not support Tory austerity. We voted to balance the budget. John Swinney sets great store by balancing the budget. Last week, however, SNP MPs sat on their hands and refused to back a motion that would end Tory austerity, so I will take no lessons from the SNP on the issue.
Let me illustrate the numbers to show what the choice means in reality. “Government Expenditure and Revenue Scotland” tells us that Scotland spends more per head than the UK average—in fact, we spend about £6 billion a year more. Overall, we raise less in tax revenue than the rest of the UK, and the tax shortfall this year is of the order of £2 billion. Scotland’s fiscal gap—our relative deficit—is £8 billion. We would need to find £8 billion a year to get to the same place as the UK’s public finances. That is widely accepted by economists, and the Institute for Fiscal Studies and Brian Ashcroft have confirmed it today.
Under full fiscal autonomy, we would need to raise enough money to plug the gap just to match the UK deficit. Of course, we have oil, which is incredibly important to our economy and to our public spending. The oil and gas industry is a Scottish success story, and the revenues that we have gained have been a real bonus to our public services. There is no doubt, however, that times are tough. We have experienced volatility and a decline in revenues. GERS 2012-13 told us that the revenue from oil had dropped to £4 billion. This year, GERS shows that we are running a deficit of £12 billion a year, which is unsustainably high. This is a sombre day for Scotland.
The First Minister noted that the deficit is down on last year, and indeed it is. However, in noting that, she is taking credit for Tory austerity cuts. Taxes have gone down and the deficit has been cut only because of a cut in spending: tartan Tories, indeed.
Mr Swinney needs to stop saying that we pay an extra £400 per head without mentioning that in fact we spend £1,200 more per head—a deficit of £800 per person. I ask him please to stop spinning and to give us both sides of the balance sheet.
That is all before any account is taken of the recent dramatic fall in the oil price. It is worth reminding ourselves that the SNP’s forecast for oil revenue was based on the price being $113 a barrel, but it dropped to below $50 a barrel in the new year. That is a huge loss of revenue. It is a blow to our economy and to our public finances, never mind that thousands of jobs are already lost from the sector.
For 2014-15, due to that drop in oil price and the continuing downward trend in revenues, the expectation is that we will have a £6 billion black hole in our budget. That is a staggering amount by anybody’s reckoning. Let me put it in perspective: £6 billion is half our national health service budget and is more than the entirety of the schools budget. To balance the books, we would need either to make swingeing cuts or to increase taxes. That would mean households paying an average of £2,400 per year extra just to stand still. That is what full fiscal autonomy means for Scotland.
We all—aside from those on the Tory benches opposite, of course—condemn Tory austerity plans, and rightly so, because they would take public spending levels back to those of the 1930s, when we had no NHS and when children left school at 14.
What we would get from the SNP’s proposals is austerity max. The SNP would take the Tory austerity cuts—[Laughter.] SNP members may laugh, but this is what the economists are saying. SNP members would take the Tory austerity cuts and would more than double them under full fiscal autonomy. That is the economics of the madhouse. People genuinely do not understand why the SNP would do that.
We should not worry, however, because the SNP has another plan: it is going to grow the economy to plug the gap. I am all in favour of growing the economy, but SNP members cannot seriously be suggesting that that will plug the £6 billion gap in revenues in the short term. We would need the equivalent of 12 years’ economic growth squeezed into four years—a growth rate that would be higher than China’s was in its heyday and not something that any developed country has achieved. I am all for ambition, but it needs to be rooted in just a little bit of reality. I ask SNP members not to insult our intelligence, please.
If he is trying to get us to swallow such nonsense, Mr Swinney will be in danger of losing his alleged reputation for competence. The growth that he assumes is just not possible in the period necessary and will not fill the black hole at the heart of his budget.
The consistent refrain from Mr Swinney and his back benchers in their press releases is that I am somehow talking Scotland down. Nothing could be further from the truth; I am proud of my country and our people. The fact is that the SNP will actually do Scotland in and do us all a disservice if it does not face up to reality.
People expect us to be honest about the nation’s finances, and they expect us to balance the books. Indeed, Mr Swinney is always keen to tell us how well he balances them, but the reality is that in the past he has had to balance only one side of them. The money that he spends comes from the UK Government as a consequence of the Barnett formula. However, with full fiscal autonomy, Barnett ends, and he will not be able to balance the books if there is a £6 billion black hole at the heart of his budget.
While households across the country are making tough decisions about what they can afford to do, the SNP Government is burying its head in the sand and engaging in fantasy finances. John Swinney is not only sacrificing his reputation for competence at the altar of the SNP’s obsession with full fiscal autonomy but abandoning the logic and reason that he normally brings to proceedings, and I suspect that he is embarrassed by that. I predict that, in the absence of detail, we will see a windmill display with lots of arm waving followed by some finger pointing and shouting at the Opposition benches. We will have noise and distraction instead of detail, but the fact is that, no matter the attempts to create a diversion, there is no escaping reality. The SNP response is truly desperate stuff.
However, there is more. On 3 March, the SNP published an economic analysis that showed that, with an increase in factor productivity and investment and by boosting export targets by 50 per cent, we would raise £2.8 billion in additional tax income in 10 years. Six days later, it published another document that was remarkably similar to the first. It, too, was an economic analysis, but this one said that £3.5 billion would be raised over 10 years. It is remarkable what a difference six days can make. Suddenly the tax gain has increased by £700 million. If we waited another six days, would it increase by £1.4 billion? I am just wondering; I am happy to wait patiently for an answer if the money increases by the day.
Some of the assumptions are frankly heroic. How can the Scottish Government expect exports to grow by 50 per cent when oil and gas, which represent one of our biggest exports, are declining? The economics are fascinating. Even if I am generous to the SNP, which I am always inclined to be, and go along with all its figures, there is still a gap between what we get from Barnett and what we would get from fiscal autonomy. With Barnett, we would get an additional £65 billion over 10 years compared with the £17 billion or so that we would get from full fiscal autonomy and Mr Swinney’s growth figures over the same period. Where will the missing money come from? There will still have to be cuts or tax rises to fill the gap.
By the way, what is “full revenue retention”? Is it just full fiscal autonomy by another name? It sounds painful. We searched high and low for other countries that operated full revenue retention as a policy, and the chamber will be pleased to hear that we found one. However, it was not a country—it was the Canadian national parks. The fact that the Scottish Government is now modelling its financial policy on the Canadian national parks is interesting, but I suspect that what we are witnessing is an attempt to confuse. Full fiscal autonomy is clearly not testing well with the focus groups, so the SNP is ditching the name and calling the policy something else.
It does not matter how many times the name changes—the policy is still daft. Whether we are talking about full fiscal autonomy or full revenue retention, it means the loss of Barnett, the loss of UK pension funding and a black hole of £6 billion a year. It is probably better to call the policy full fiscal austerity, because that is precisely what it is.