John Swinney: The Chancellor’s Plan A for the economy no longer works

CHANCELLOR George Osborne continues to suffer negative headlines for his approach to the economy. But much more importantly, many more people are suffering the consequences. The world economy is recovering more slowly than expected, with the Bank of England again downgrading its growth forecasts for the UK, warning of “stagnation”.

Unemployment is rising. Inflation is still well above its target, driven by crippling fuel prices. Now we see the Chancellor may have to borrow £110 billion more than planned over the next three years.

The real suffering is experienced by those whose livelihoods are lost as a consequence of wrong-headed economic policies. And what is the response of the UK government? “Plan A is working. Blame it on Europe.”

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I have no doubt that ongoing economic uncertainty in Europe is unsettling the global economy, while the general slowdown limits export opportunities. But last week, UK Employment Minister Chris Grayling tried to deflect the latest set of disappointing UK labour market statistics on to the Eurozone. This is just not credible. And the tragedy is that there is an alternative.

In just over a week, the Chancellor will deliver his Autumn Statement. It is clear the economy is in a different place to that which he envisaged when he set out his economic plans in 2010. He must use his Autumn Statement to change course.

In Scotland, we are doing all we can with the limited financial powers we currently have available to the Scottish Parliament. Our Government Economic Strategy provides a clear path for creating high-quality jobs, accelerating sustainable economic growth and reinvigorating our economy. Scotland is the most competitive environment for business in the UK and, working with our enterprise agencies, we have secured major new investments into Scotland in recent months from major companies such as Avaloq, Dell, Amazon, FMC Technologies and Doosan Power Systems.

In the face of a 36 per cent real-terms cut to our capital budget, put in place by the previous UK government, we are using all the levers at our disposal to plough even more into capital investment. The Scottish Government will support around £9bn of spending over the next three years to deliver new schools, hospitals, houses, roads, water infrastructure, community facilities and improved availability of high-speed broadband across Scotland. As a result of our £2.5bn non-profit distributing capital programme and switching of resources from revenue to capital, infrastructure investment in Scotland will now rise year-on-year throughout the spending period.

While the Scottish labour market continues to outperform the UK as a whole – with lower unemployment, higher employment and lower economic inactivity rates – we are taking every step we can to help people into work, particularly young people.

We are funding a record 25,000 Modern Apprenticeship places this year and in each year of this parliament, and our Opportunities for All programme – guaranteeing a training or learning place for all 16 to 19-year-olds – gives our young people the life chances and opportunities they deserve and helps them get into work.

I have proposed a number of constructive measures to the Chancellor that can be implemented immediately to boost the economy. The UK government must set out a targeted, cost-effective programme of new capital investment to achieve lasting economic and environmental benefits. Action must also be taken to help leverage in additional private funding. In particular, more could be done to help pension funds and other large institutional investors channel a proportion of their investment into major infrastructure projects.

I would also like to see the Chancellor consider proposals made recently by many in the construction sector, and backed by the Scottish Parliament, to reduce the rate of VAT on repair and maintenance work on houses from 20 per cent to 5 per cent. This would help improve our housing stock, create new jobs and potentially bring empty homes back into use.

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Scotland is home to a world-class video game industry and there is a strong case to revisit the decision to abandon the previous UK government’s proposal to offer tax relief for this industry.

Record fuel costs are causing misery in households. We have made repeated calls for the UK government to make fuel duty fairer, including through the introduction of a fuel duty regulator to reduce the rate of duty when wholesale prices rise, and discounts on duty for more remote areas. With record North Sea oil and gas revenues going to the Treasury this year, the UK government must take urgent action to tackle the price of fuel.

There have been recent reports that the UK government is considering uprating benefit levels next year by less than the rate of inflation. That would slash the incomes of some of the most vulnerable in our society, and I have urged the Chancellor not to cut benefit incomes next year.

The Scottish Government is clear that public sector pensions must be affordable, sustainable and fair. We well understand the frustrations of public sector workers in the face of constantly changing UK government plans for public sector pension reform and information drip-feeding from the Treasury. The Chancellor must use his Autumn Statement to provide far more certainty by telling us what they are planning – that is only fair to the hundreds of thousands of public sector workers in Scotland who will be affected by their decisions.

We are working hard to create new economic opportunities, protect household income and employment, support frontline services and improve our environment. I will continue to push for the constitutional change that would enable us to do much more to strengthen the economic recovery.

I hope that the Chancellor acknowledges the tough times we all face, and acts accordingly. If Westminster will not deliver the economic policy that Scotland needs, give Holyrood the tools and we will do the job.

• John Swinney MSP is Cabinet secretary for finance, employment and sustainable growth