How the underspend could be put to use

Mr McConnell’s political blossom may not be blighted or his leaf withered, but such a large underspend (on top of a generous contingency fund) may require some explanation, especially as it repeats an equally generous underspend in earlier years. Of course, staying within budget is something we should all welcome in normal times. However, the well-known failure to keep a grip on the cost of the new Holyrood Parliament building suggests the Executive’s Micawberesque tendency has more to do with accident than design. Put simply, the big public spending increases prompted by the Treasury in London have given the Executive more cash via the Barnett formula. In short, the Executive has more money than it can spend.

Not that it should waste the cash. Mr McConnell and his team get full marks for not rushing to spend this largesse just for the sake of it. However, there is a golden rule that tax and spend should adjust in the light of the state of the economy. And the state of the Scottish economy would certainly qualify for Mr Micawber’s description of "floored". Yesterday, the Executive published its latest figures for Scottish GDP (the measure of economic growth). In the first quarter of 2003 - the Executive’s GDP calculations are notoriously late to arrive - the Scottish economy actually contracted by 0.3 per cent. Over the 12 months to end March 2003, the economy was stagnant.

If the Scottish economy is dead in the water, the Executive should be cutting taxes to encourage consumer spending, or it should pump up spending on desperately needed infrastructure such as roads and rail track. Either way, it has the cash. Indeed, with a half-billion-pound cushion, it could cut a couple of pence off income tax in Scotland indefinitely. If Labour and Lib Dem ideology precludes a personal tax cut, or if transport investment is deemed too long-term a project, then some of the cash could be used to help local businesses. Why not an instant cut in business rates and a restructuring of the debt of Scottish Water to slash the massive utility bills faced by companies north of the Border?

Although the Executive’s 500 million underspend sounds a lot, it can be argued reasonably that this represents only a few per cent of its overall budget. That is true, but there is a recognised procedure for building in a contingency fund to meet emergencies such as the outbreak of foot-and-mouth disease. This underspend is over and above the contingency, which suggests its regular occurrence is more of a structural problem. There is no point in endlessly building into departmental spending sums that cannot be used. Especially when the economy desperately needs boosting.