Watching Cabinet secretary John Swinney yesterday presenting his “budget for independence”, I was reminded of the wisdom of the late American economist Edgar Fiedler: “If you have to forecast, forecast often.”
It is as applicable for Scotland’s finance minister planning a budget to span two momentous years as it is for those leading economists and commentators caught out by the pace of economic uplift this year – a recovery that most warned would not arrive, and some even argued never would.
Swinney has at least been consistent. His two central budget themes in recent years have been the continuing frustration of Scotland’s recovery by the policies of the Westminster government; and his continuing struggle against Chancellor George Osborne’s austerity policies that have “held Scotland back”. But now we have a recovery in Scotland – and stronger in key respects than in the rest of the UK. Our GDP growth has been faster, our unemployment rate lower (the latest disappointing figures notwithstanding), our employment rate higher, our August retail sales growth the strongest since 2009 and the latest PMI data from Bank of Scotland showing growth in private sector business activity and new work in Scotland rising strongly and at survey records.
“Held back by the London-based parties”? It looks a charge increasingly difficult to make stick. And then there’s the “austerity squeeze”, with the SNP administration straining every sinew to mitigate while it scrapes every penny from a mean and heartless UK coalition.
But there are some relevant figures Swinney chose not to mention. His “budget for independence” has come just three months after Osborne announced that Scotland will receive a major increase to capital expenditure as a result of his spending review. The Scottish Government’s capital spending allocation will rise by almost 13 per cent in 2015-16, the equivalent of £296 million. And he also outlined so-called Barnett consequentials, which will provide an additional £100m in funding, helping to limit cuts to the resource budget – broadly the kitty for welfare funding – to less than 2 per cent in real terms.
Back in June – and again yesterday – Swinney accused the Chancellor of choosing “austerity” over investment in growth and jobs. But today, growth is now a fact and the kitty for capital spending is being raised. It is hardly the iron fist of austerity being ground in our faces.
It may be vexing for us all that the debt total continues to rise, the annual debt interest charge continues to rise and that the budget deficit has to be cut. These are awkward facts of life. But action on them surely deserves far more acknowledgement and recognition in Scottish public finance.
This is the background to Swinney’s spending plans announced yesterday. I would not dispute that the recovery here needs to be stronger than it is. And it needs to feed through more than it has to the household finances of Scots who feel little has so far changed. Nor do I envy him the task of planning two years ahead and over a period covering not only a momentous vote on independence, but a period in which, despite the “forward guidance” assurances of Bank of England Governor Mark Carney, interest rates are almost certain to rise.
But this bigger picture – and the greater imperative to support and reinforce enterprise and recovery – has been lost in a highly political budget concerned with handing out little gifts to sundry public sector interests and lobby groups. Here was a shower of minutiae – wee chocolates here, a mint imperial there – a veritable cascade of Hundreds and Thousands to help keep the SNP sweet with voters. Helping to finance this omni-pleasing is a £450m increase in business rates over the next two years. Oh, and there’s a raid on the enterprise budget to help mitigate the effects of the bedroom tax. A budget for enterprise, jobs and growth? Or poor priorities?
The £1.3 billion commitment to affordable housing will be welcomed by the construction industry, together with the estimate of more than £8bn infrastructure spending over the next two years – though here has been some slippage of existing projects financed through the non-profit distributing (NPD) model.
There is a recurring oversight in public finance – the result of an obsession with big public spending figures as virility symbols. This obscures scrutiny of how these totals are allocated and the scrutiny needed to ensure resources are efficiently allocated.
So, it is intriguing – and rather against the grain of experience on big infrastructure projects – that £145m has been saved on the new Queensferry crossing. Quite how this sum has been found at such a convenient time is a mystery – and this magic rabbit is produced before the main work has begun on construction with all the attendant risks of over-run and unanticipated extra costs. Brave is the person who can be so sure what a project of this magnitude will cost. To quote Fiedler again: “He who lives by the crystal ball soon learns to eat ground glass.”
With the bedroom tax mitigation, help for college funding and childcare, Swinney has played to the immediate concerns of the Holyrood gallery. Yet, budgets are centrally about priorities. And the priority must surely be to encourage business investment and spending to create more jobs and more opportunities for Scots.
And the hard reality of priorities still needs to be faced because Scotland, whether it remains part of the UK or opts for independence, has to operate within constraints. And here Swinney’s budget plans need to be more clear and specific as to what these are and the implications for capital spending proposals.
Here’s one constraint. Since the Scottish Government introduced its own fiscal rule two years ago that no more than 5 per cent of its budget should be allocated to the repayment costs associated with non-traditional capital grant funding sources, it has only once published an estimate of how close it is to reaching this cap.
A paper just out from public finance economist Jo Armstrong of the Centre for Public Policy for Regions argues that there has been no analysis presented thus far on the accuracy of this estimate. For the rule to offer confidence on Scotland’s finances, we need, she argues, greater clarity on what any cap should be, how the rule should be calculated and regular updates on how well we are managing our liabilities relative to such a rule. “The Scottish Parliament”, she writes, “should seek greater transparency on how the use of different funding sources will enable high-priority infrastructure projects to proceed in an efficient and effective manner.”
It may not be the sound-bite grabber of Holyrood budget debates, but it goes to the heart of infrastructure planning and spending on which the future health of Scotland’s economy critically depends. One day we may get a budget for independence – but this is not it.