Hansard

I say to Mr McLetchie that a fixed-price contract is a fixed-price contract. We have such a contract for the M74 project, which will be completed early, and for the M80 project, which will be on budget and finished early. The guffawing from the gentlemen on the Conservative Party’s front bench is entirely ill placed.

I return to Mr Rennie’s point. The argument that we deployed in the election campaign was that we could redeploy the windfall saving to support other fundamental projects, such as the digital infrastructure in rural Scotland, which Mr Fraser was on about last week; to provide sure start funding for some of our most deprived communities in order to give young people a better start in life; and to give more support to energy-efficiency projects, which are dear to the heart of Mr Harvie and others. We have deployed the windfall savings from our excellent procurement of the Forth replacement crossing to wider purposes in the Government’s programme.

I will remind members of the capital borrowing proposals that are outlined in the Scotland Bill command paper. The Scottish ministers will be allowed to borrow up to 10 per cent of the Scottish capital budget in any year to fund capital expenditure, and the overall stock of capital borrowing will be unable to go above £2.2 billion. That framework will begin to operate in 2015-16 and, from 2013-14, transitional arrangements will allow capital borrowing subject to Treasury agreement. Within that commitment, we require to see the detail of what the Deputy Prime Minister has set out today. As we know, the detail of all such schemes is fundamental to the working arrangements for the provisions.

By endorsing the Scotland Bill Committee’s report, which 121 members approved in the previous session, the Parliament has set out its view that the borrowing powers as originally conceived in relation to our capital investment and revenue budgets are inadequate. There is clear agreement between the Parliament and the Government on what needs to be done and the motion makes three core propositions on subjects of firm consensus.

The first proposition is on the need for a clear, long-term and principles-based approach to controlling capital borrowing by the Scottish Government, which is guided by a higher but entirely sustainable set of borrowing limits. The second is the immediate implementation of the capital borrowing facility. The third is that the Scottish Government should be allowed to issue bonds to fund capital borrowing when it considers that appropriate. I will discuss each proposition in turn.

On the design of the framework, the strong consensus is that debt limits should be set according to clear and objective principles that are linked to debt sustainability. The Scottish Government and the Scotland Bill Committee agree firmly on that point. The Calman commission and the Steel commission agreed similarly. In the conduct of its own affairs, the United Kingdom Government has set fiscal policy under the main aim of reducing public debt as a share of total gross domestic product in the medium term. It is regrettable that the UK Government decided not to follow that principle when it drafted the Scotland Bill.

The Parliament has been asked to accept a cash limit on total capital borrowing in Scotland that is too low and has been set without justification. We are being asked to accept borrowing for long-term purposes on a short-term repayment basis. Having a framework without criteria to help to determine prudent borrowing limits in the long term is a weakness of the system. The proposal that is on the table would leave the Parliament and the Scottish economy first powerless, and then with only weak borrowing powers, which would always be subject to decision making by the chancellor. That is precisely the outcome that good fiscal rules should prevent. It would be a dereliction of duty to leave Scotland in such a position and we should not be left in it.

In relation to the sum of borrowing that should be available, the core principles that we choose will determine almost every aspect of the framework—the annual limit on borrowing, the term of borrowing, the sustainable debt limit and our ability to plan long-term infrastructure investment. The Scottish Government’s work on that confirms the judgment of the Scotland Bill Committee, the House of Commons Scottish Affairs Committee and various independent experts that the proposed borrowing limits are far too low. We judge that, under a range of scenarios with prudent assumptions about Scottish revenues and future interest rates, capital borrowing of at least £5 billion is sustainable. However, it must be anchored in a firm set of rules that determine how it is brought about. Of course, the precise detail will depend on the budgeting arrangements, which the Treasury has still to confirm.

As a Government, we are committed to maximising the effectiveness of our capital spending. A range of sectors in our economy and public services need substantial investment. When we translate the UK Government’s proposed total of £2.2 billion into specific areas of activity, it is clear that a sum of that magnitude does not really make the impact that people would ordinarily expect. For example, over a 10-year period it could, to the exclusion of all other priorities, meet the £2.25 billion roads maintenance backlog, two thirds of which rests with our local authorities. It would enable the rebuilding of a sixth of Scotland’s secondary school stock, fund the construction of 17 miles of high-speed rail line, or enable the whole length of the A9 to be dualled. In short, the borrowing powers that are proposed in the Scotland Bill will barely address the infrastructure needs of one sector, never mind the needs of the whole economy. We require more such powers. We can sustain more with them and this Parliament claims more access to them.

With regard to timing, the Deputy Prime Minister has made some remarks about this issue on which we require further detail. However, the key point about timing is that we have at our disposal the ability to make an economic intervention when it actually matters. At this stage in our economic recovery, we need access to more capital expenditure. At yesterday’s meeting of the joint ministerial committee, we put forward to the UK Government an argument based on the Chancellor of the Exchequer’s invitation to deploy some flexibility in the financial arrangements in recognition of the fact that, at this stage in the economic cycle, when we face acute challenges with regard to public expenditure, maximising capital investment would assist in economic recovery and help to stimulate the valuable employment and economic opportunities that people in Scotland are seeking. The debate about timing with regard to borrowing is not about some obtuse constitutional principle, but arises from the very practical reality of our economy’s current condition and the need for access to powers to enable us to make as big an intervention as we can in trying to stimulate economic recovery in Scotland.

The debate has also been influenced by the issue of sources of borrowing and, as the Scotland Bill has confirmed, the Government will be able to borrow from the national loans fund and commercial banks, where such moves offer value for money. However, the UK Government has not been prepared to accept a proposal regarding Scottish Government bonds. The Exchequer Secretary to the Treasury has found himself telling the Scotland Bill Committee that Scottish Government bonds would confuse the capital markets, despite evidence that US bond markets have managed to finance borrowing by 55,000 separate issuers of municipal bonds. I do not think that that argument is the strongest that has ever been conjured up on the matter. Where such a move delivers value for money, it will remain right for the Scottish Government to have flexibility to borrow from the capital markets. Given that the issue is all about the Government’s financial accountability to this Parliament, it is wrong for the option of issuing bonds to be ruled out from the various options that will be available to the Scottish Government and Parliament.

There is a compelling case for borrowing to happen at the earliest possible opportunity to give us the ability to influence economic recovery in Scotland. After all, the purpose of acquiring capital borrowing powers is to enable us to invest in the long-term infrastructure that we all know will make a difference to economic recovery in Scotland. As we look at the current pattern of Scotland’s labour market and see the effect of this Government’s use of capital acceleration and its decision not to reduce public expenditure in the past 12 months, it is clear that investing in the economy is the correct way to build economic strength and ensure economic recovery. That is why capital borrowing powers matter and why we should have access to them with a greater degree of flexibility than is proposed in the Scotland Bill—the greater flexibility that was acknowledged by the Scotland Bill Committee—to allow us to boost economic recovery in Scotland. That is the principle at the heart of today’s debate.

I move,

That the Parliament notes the Scotland Bill proposals on capital borrowing and the recommendations of the Scotland Bill Committee in that regard; calls on the UK Government and Scottish Government to undertake joint work to agree a clear, long-term and principles-based approach to capital borrowing and the sources of borrowing including the potential for bonds, and calls for the implementation of capital borrowing powers at an accelerated timescale to that proposed in the Scotland Bill to support economic recovery and enhance Scotland’s infrastructure.

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