The recession is not due to poor financial mannagement by Westminster
The Scottish Parliament's debate on the UK Governement's budget Malcolm Chisholm (Edinburgh North and Leith) (Lab):
The Government motion begins with an absurd unqualified condemnation of the budget. I will return to that towards the end of my speech if I have time, but I will focus first on two distortions of reality that follow in the motion, which might be quite good politics but are appalling economics. The first is the statement that the debt situation is the

"product of poor financial management".

It is difficult to see what the SNP would have done in a similar situation, given the international economic difficulties that we face.

A key element of the budget deficit is the fiscal stimulus and the money to save the banks, but, of course, we know that the SNP Government supports that.

Derek Brownlee:
Another key element of the problem with debt is that the Labour Government doubled national debt before we went anywhere near a recession and before we had to rescue any bank.

Malcolm Chisholm:
I might come on to that as I analyse the budget deficit, but I should point out that the Tories did not support the fiscal stimulus. The fact of the matter is that the 4 per cent contraction of the economy this year would have been far worse without a fiscal stimulus package. One leading economist had estimated that the contraction would be as much as 8 per cent.

The second and more substantial element of the budget deficit is what are called the automatic stabilisers: public expenditure has to go up to deal with unemployment and other features of the recession. Even the Conservatives would have had to accept that - indeed, they would have had far more to pay, because there would have been much more unemployment.

The third element of the budget deficit is the lost tax revenues. There are grounds for concern there. The Institute for Fiscal Studies analysis points out that there is a structural budget deficit now because there has been what it regards as permanent damage to the economy, because of the recession, and particularly because of the effect on the financial sector. That is a deep worry for us all, but it certainly cannot be attributed to any "poor financial management" by the UK Government. If the Government had not saved the banks, the situation would have been a whole lot worse and the budget deficit would have been a great deal more.

Where exactly is the "poor financial management"? Derek Brownlee referred to earlier years, but for all the years between 1997 and 2008 the UK Government kept debt below 40 per cent of gross domestic product. During the past 10 years I certainly did not hear from the SNP or, come to think of it, from the Conservatives in this Parliament, complaints about the growth of public expenditure; in fact, many members of those parties were calling for more. I do not think that the statement in the motion blaming the Labour Government for the deficit as a result of "poor financial management" has any shred of truth in it whatever.

An element of the fiscal stimulus with which both the Scottish Government—or, at least, sections of the SNP—and the Conservatives disagree is the VAT element. I do not think that I have to repeat what Andy Kerr said about that. The Centre for Economic and Business Research, which is one of the bodies that analysed the VAT element, said in its report that turnover will be between £8 billion and £9 billion higher this year because of the VAT measure. That has clearly been of substantial benefit to the economy. The higher sales will in themselves generate higher taxes, so the overall cost at the end will probably be less than the £12.5 billion that was announced when the measure was introduced.

The second distortion that we have heard repeatedly over the past few weeks is the idea that a £500 million reduction will lead to real-terms cuts next year. First, the figure is not £500 million unless we include the health capital expenditure, which the UK Government has dealt with in end-year flexibility. Setting that aside, there will not be real-terms cuts. I do not think that I have to repeat all the arguments that have been well put by various members, but we can arrive at the idea of a real-terms cut only by taking the brought-forward capital expenditure as something that is only in this year's budget. We have to look at capital expenditure over two years. In that way, it is as planned. The best way that I can illustrate the real situation is by referring to page 241 of the Treasury's red book, which the First Minister himself used as his main ammunition last week to establish a cut.

If we take out the capital expenditure—we all know that the Scottish Government is playing funding games with that—and look at resource expenditure in everyday health and education budgets and so on, which people are mostly worried about, according to the same page as the First Minister quoted from, the Scottish Government will have a 1.3 per cent real-terms increase in resource expenditure next year.


Nobody wants reductions in public expenditure, but surely the SNP can give us a little hint of what action it would take to rein in the budget deficit. Of course, the SNP has mentioned Trident and identity cards, on which colleagues will not be surprised that I agree with John Swinney, as does my former colleague Stephen Byers. However, the fact is that cutting such spending would not solve the problem that the cabinet secretary describes. Spending on Trident does not start until 2012 and is spread over 10 years, so to pretend to the Scottish public that cutting that would deal with all the issues is dishonest.

My time is up. I had wanted to deal with the many good points of the budget that the motion ignores, but I will leave it to my colleagues to talk about them.
April 30th 2009, (Column 17004-6)