Scotland Bill

Sheila Gilmore Excerpts

Tuesday 21st June 2011 Commons Chamber

[Stewart Hosie]

A permanent reduction for corporation tax to be devolved and taking responsibility for the income we raise to pay for the services we have.

[Sheila Gilmore (Edinburgh East) (Lab)]

Will the hon. Gentleman let us and Scottish taxpayers know how that financial gap would be met in the period before any economic benefits might arise? Would there be cuts in services, for example, or would the Scottish Government have to consider a rise in income tax for people in Scotland?

[Stewart Hosie]

The hon. Lady predicates her argument on failure, as Labour Members tend to do. There is no reason to believe that there would be a net loss of revenue to Scotland. Let me put it to the hon. Lady in a different way. The UK went into the recession with £0.5 trillion of debt; it now sits somewhere close to £1 trillion and it is forecast to rise under this Administration to about £1.5 trillion by 2014-15. Scotland, however, has had a net surplus over many years and it is certainly a surplus relative to the UK even in very recent years. Instead of talking Scotland down, we need to be serious about how to gain the powers to grow the Scottish economy and take responsibility for our own actions, which is vital.

[Sheila Gilmore]

I understand the optimism and do not want to cut through it in any way. However, the hon. Gentleman said that he accepted that there would initially be a reduction in the block grant, which will initially create a financial issue. I was simply asking how it would be met in the short term.

[Stewart Hosie]

It will not be a reduction because we will have the corporation tax yield, which is comparable to the reduction in the block. It is the same amount of money initially and we take responsibility thereafter.

--- Later in debate ---

[Stewart Hosie]

Some projects were simply unaffordable, not least because a number of parties—the other three parties represented here now, in fact—voted for half a billion pounds for the Edinburgh tram system, and look at what an overwhelming success that is!

The Scottish Government are responsible for the vast majority of Scotland’s public investment, covering transport, water, health, education, local government, prisons, housing and so forth. There is, I hope, now widespread agreement across the political spectrum that the Scottish Parliament should have full responsibility to determine the pace and scale of Scotland’s infrastructure investment programme, within a prudent and sustainable long-term financial framework. The Scottish Parliament should have substantial capital borrowing powers to fund productive expenditure for the following purposes: for very large, discrete projects or programmes such as the Forth crossing, which the Minister mentioned; to provide medium-term economic stimulus similar to the accelerated capital programme undertaken in 2008-09 and 2009-10; to smooth the profile of investment in key public services; and to help to lever in additional investment, particularly from the private sector.

[Sheila Gilmore]

Given what I understood to be the hon. Gentleman’s party’s green environmental credentials, I am surprised that the capital projects he appears to favour are largely to do with roads, rather than public transport, such as the tram proposal that has been mentioned.

[Stewart Hosie]

The hon. Lady’s surprise is a matter for her, not me. An investment programme is in place that includes housing, environmental and insulation programmes and a large number of other programmes in Scotland, but we are discussing capital borrowing, not the specific projects for which it might be used. That will be a matter for the current and future Scottish Governments.

[Sheila Gilmore]

I must take the hon. Gentleman up on the point about housing, because I understand—from a recent report by Shelter, for example—that the number of new affordable homes being started in Scotland this year will have fallen from 6,000 to 1,500.

[Stewart Hosie]

That report is probably for the overall statistics. Sadly, because of the banking crisis, the banks’ withholding of cash and the difficulties with Bradford & Bingley, which funded housing associations, the slack has had to be taken up by the Scottish Government, who have been funding as many new housing starts as is humanly possible. I find it extraordinary that, given the thousands of houses that have been contributed to by the Scottish Government, the hon. Lady or anyone else on the Labour Benches can talk about Labour’s record, which, from memory, was not 6,000, 600 or 60, but six council houses being funded by that Scottish Government.

[Sheila Gilmore]

rose—

[Stewart Hosie]

I have given way twice—I am going to carry on.

As I was saying, the Scottish Parliament should have substantial capital borrowing powers for very large, discrete projects, the provision of medium-term economic stimulus, smoothing the profile of investment in key public services and helping to lever in additional private investment.

[Sheila Gilmore]

Will the hon. Gentleman give way?

[Stewart Hosie]

Not just now.

However, as a result of the decisions taken by the UK Government in 2010 in the comprehensive spending review, capital budgets available to the Scottish Government are now likely to fall by some 36% in real terms. That represents a cumulative reduction in spending power of around £4.1 billion over the period of the comprehensive spending review. The speed and scale of the cuts by this Government significantly constrain the Scottish Government’s flexibility in managing their infrastructure programme. It is vital that while ensuring the overall sustainability of borrowing—I agree with the Minister on that—Scotland’s capital borrowing facility has sufficient scale and flexibility to enable the funding of productive investments over the long term.

The proposals in the Bill state that from 2015 the controls and limits applied to capital borrowing mean that Scottish Ministers should be allowed to borrow up to 10% of the Scottish capital budget in any year to fund capital expenditure—£230 million in 2014-15—and that the overall stock of capital borrowing could not rise beyond £2.2 billion. They also state that borrowing to finance capital funded by a loan from the national loan fund would be for a maximum of 10 years, but that a longer time frame—for example 25 years—may be negotiated if that better reflected the life span of associated assets such as with the new Forth crossing.

In the written statement of 13 June, the Chancellor and the Secretary of State proposed:

“bringing forward to 2011 pre-payments, a form of cash advance, to allow work on the Forth replacement crossing”

and

“introducing a power in the Scotland Bill that will enable the Government to amend, in future, the way in which Scottish Ministers can borrow”—[Official Report, House of Lords, 13 June 2011; Vol. 728, c. 58WS.]

including through the provision of bonds. Notwithstanding any of that, the £2.2 billion cumulative limit is unchanged.

I am pleased that there is now established consensus among the Scottish Government, the Scottish Parliament, the House of Commons Select Committee on Scottish Affairs and a number of independent experts that the Scotland Bill’s proposals for capital borrowing require substantial enhancement and improvement. That unanimity was reflected in the motion that was agreed unanimously on 9 June in the Scottish Parliament. I make this criticism of the proposals even with the changes regarding our attempt to have capital borrowing devolved so that limits, bond issuance and all these matters are agreed between the Governments on a statutory basis. At the moment, the Bill is predicated on a framework that appears to have been developed without any explicit discussion about sustainability or affordability and without offering any objective means of testing those essential criteria. The annual borrowing limit of 10% of capital departmental expenditure limit seems arbitrary and the proposed total limit on borrowing, set at £2.2 billion, is believed to be too low to make a meaningful difference. Indeed, I think that the Scottish Parliament Scotland Bill Committee in Holyrood suggested £5 billion. The UK Government have not proposed any objective criteria to determine the path of total capital borrowing capacity over time and that builds uncertainty and discretion into the framework. The arbitrary mechanism that the UK Government have proposed for revising this is inconsistent with the basic principles of devolution. The central assumption of a 10-year repayment period for capital borrowing is inappropriate, as public capital assets will typically have a useful life of perhaps more than 30 years. Although helpful, the early implementation measures will do very little to offset the cumulative £4.1 billion reduction in capital expenditure.

The changes are welcome, but we believe that the UK Government’s proposals still require improvement in four key areas. First, the specification of annual limits on borrowing should be agreed between the Governments and not set arbitrarily. Secondly, the methodology for determining the borrowing capacity that is sustainable in the long term needs to be agreed. Thirdly, the terms of repayment for capital borrowing need to be agreed and, fourthly, the impact of the early implementation measures that are proposed also need to be looked at and agreed properly. We believe that should be done within the framework of a statutory agreement between the two Governments, and that is the purpose of the various amendments and new clauses we have proposed. They include amendment 26, which would allow Scottish Ministers to borrow for the purpose of meeting capital expenditure without requiring the approval of the Treasury and without it being by way of loan, and amendment 27, which would mean that Scottish Ministers and the Treasury must both agree to a code of practice and framework within which these things would be agreed. Our amendment 28 would remove the measure that suggests the cumulative borrowing total should be set at £2.2 billion, so it would become redundant when an agreement was in place.

Amendment 29 would remove subsection (10) of clause 32, which introduces the type E procedure. That subsection would not be necessary because the agreement on how Ministers are to determine and keep under review how much they can afford to borrow, the terms and conditions and the sums that may be borrowed and the limit on aggregate at any time outstanding in respect of the principle would be agreed.