Exclusive: John Swinney on his latest budget and the fiscal framework

Had Scotland voted Yes, John Swinney would now be making his final budget preparations tailored to Independence Day on March 24th. He would be doing so in a very different economic clime to the one spelt out in his government’s white paper, though.

Just a few weeks before the referendum, the oil price was sitting at around $100 a barrel and the Scottish Government’s blueprint for independence was predicated on it rising slightly to $110. It has since sunk to an all-time low of around $30, hitting prices only seen during the recession of 2008.

And with analysts predicting little sign this trend will change, there is little comfort for the future. Independent or not.

And of course, the tumbling oil price has provided unionists with ammunition – while ignoring the obvious damage it has had on the whole UK economy – because it has shattered the Scottish Government’s financial forecasts for independence, which promised higher public spending without significant tax rises. 

The Institute for Fiscal Studies calculated the falling oil price had opened up a £7.6bn black hole in the SNP Government’s plans for full fiscal autonomy – a step below independence – while long-term analysis from the Office for Budget Responsibility demonstrated that no government should bank on any net tax revenue from the North Sea for even 20 years post-2020 because Treasury revenue would be cancelled out by what is being spent on tax breaks for decommissioning.

However, the SNP insists it is not – and never has been – reliant on North Sea oil to make independence work. Swinney tells me the oil price slump didn’t destroy the party’s economic argument, “not in the slightest”. Oil is, he and his party repeats ad infinitum but on unionist deaf ears, a bonus. This, despite the SNP’s own figures showing that from 2000-12, oil and gas revenues contributed between 10 and 20 per cent of the total public sector revenue. Not an insignificant sum.

So, against this backdrop – a block grant slashed by the Tory government, early signs that the UK economy could fall back into recession, economic growth in Scotland trailing slightly behind that of the UK, and an agreement about a fiscal framework to accompany the further powers set out in the Scotland Bill still to be agreed – Swinney has put forward his final budget before May’s Scottish parliamentary election. It does not include a proposal to raise income tax rates but it does increase funding for the NHS, including an additional £250m of new money for health and social care.

More controversially, Swinney’s axe falls heavy on local government with swingeing cuts to councils of 3.5 per cent which even the First Minister described as a “challenging settlement”. This, coupled with the ongoing freeze on council tax, a focus on closing the attainment gap, a commitment on teacher numbers and an ongoing programme of cuts, has prompted predictable howls of protest from organisations like COSLA and threats from individual councils to put up the council tax anyway.

And while Swinney said it had been a time for “tough choices”, Councillor David O’Neill, president of COSLA, was even more succinct. He said Swinney’s budget which detailed £350m worth of cuts to councils across Scotland was “catastrophic”. 

For a party that successfully positioned itself during last year’s general election as the only party of anti-austerity, to then wake up to headlines describing its budget for the coming year as Tory-lite and austerity-heavy must hurt. 

Has this year’s budget prompted an angrier response than usual because of the forthcoming election? Is this just plain politicking from essentially Labour-led councils?
Swinney raises his eyes to the ceiling and smiles. “No, I think we get the same amount of critique pretty much every year. But what we have put forward is a budget that if you want to understand, you have to understand the process of reform that is at its heart. 

“I suppose the major criticism has been about the local government settlement. But if you truly want to understand what has happened with the local government settlement then you have to look at what I set out and I set out a reformed agenda around a significant transfer of resource through the health service into integrated health and social care.

“The creation of an integrated health and social care system will better meet the needs of individuals as they make their journey through the need for care and support in Scotland and by being integrated, we will remove an awful lot of duplication and inefficiency within the system. So, therefore, the cash injection that comes through the health budget and into health and social care is a very important building block of that reformed health and social care system. I think if people understand that then I think the budget proposition meets the needs and expectations of a range of different stakeholders.”

A source close to Swinney later suggests to me that the “penny will eventually drop” with councils that the settlement isn’t as bad as they thought. But surely if Swinney had just clarified this to councils then some of the heat might have been removed from the initial reaction. This brinkmanship tends to characterise the budget process, however; it hints at a breakdown in previous good relations between central and local government that might have been avoided.

Swinney then describes the importance of getting people out of acute hospital-based care and into the community for the sake of cost, efficiency and better health. He says the government takes that proposition so seriously that weekly reports about delayed hospital discharge are provided to Cabinet.

Days later, figures released by MND patient and campaigner Gordon Aikman reveal more than 270 patients have died waiting for their social care package to be agreed.

I suggest to Swinney that no one would dispute that an integrated health and social care system is sensible – it is, after all, an SNP flagship policy – but with an April deadline looming for the Integrated Joint Boards, made up of local councils and health boards, to take over the running of health and social care services, is he getting a tad impatient? 

“It is a journey,” he says. “One of the advantages of the longevity of this government, and why it is a strong argument for this government’s re-election, is to give us the opportunity to continue on that journey. 

“If I look at the roll-out of preventative interventions we have taken and take the fire and rescue service, for example, their service has gone in the last eight years from being emergency response to prevention. That has required a huge adaptability and versatility on their part but it takes time. We have taken that journey with fire and rescue and we are taking it on Getting It Right for Every Child where we take the early interventions to support children that helps avoid some of the problems that crystallise in later life. We are well into that agenda with strong buy-in right across the country amongst health and education and social wellbeing professionals.

"We are also seeing this agenda working across justice with a fall in reoffending. The Scottish Prison Service is much more acutely focused on how we avoid people coming back into the prison system and because of that, we see much lower levels of reoffending which means lower prison populations and that is one area of public service I would be only too delighted to see require less support in the years to come. 

“And so now, the big reform is on health and social care. That is the absolute gold nugget of public service reform, which is why it is so important that we pursue the agenda that we have taken on it.”

But is there is a need for more fundamental structural change within local government to ensure the reform agenda proceeds at speed? 

“We came to an agreement with local government that we would undertake a reform agenda that wasn’t driven by institutional change of local government and we would focus on what has now been an eight-and-a-half year journey to shift the focus of our public services onto outcomes. When I look at the improvement in outcomes in policing, in fire and rescue services and for young people, particularly in the destinations of teenagers, these are all examples of how the shift in focus of our attention onto outcomes has been the right approach to take.

“Now obviously, the Commission on Local Democracy that COSLA commissioned brought forward a fairly challenging agenda about what the role and purpose of local governance could be. I think that is an issue we need to explore to see what is the right way to proceed and to address the issues raised by the commission and the importance of having a local government structure that meets the needs of individuals.”

Despite Swinney’s gentle demeanour, is he offering more of a stick than a carrot to local government? Is he engaged in any positive dialogue with councils post the initial budget outrage?

“I am obviously involved in a series of discussions about the implications of the budget and I would go back to the point I made about understanding what is at the heart of the budget, which is a shift of resources and extra investment into health and social care, which I think is a significant contributor towards addressing the challenges in the local government settlement.” 

Is it not important, given new tax-raising powers are coming and these straitened times, that he at least showed willing to use the available tax powers with the Scottish Rate of Income Tax to raise some additional monies? 

“No, I would look at these things on the evidence base and the turning issue on this was the fact that the flexibility I have on tax at this stage would essentially require me to increase or reduce taxation right across the board and my assessment of household incomes, particularly at the lower end, was that this was not an option that should be pursued.

“I have had to set tax rates before and set them differently to what I inherited and the Land and Buildings Transaction Tax was a very significant reform on a first tax that I had at my disposal, the first real tax because I think we all know that the Scottish Variable Rate is a fairly useless power. 

“The LBTT was the first real power where I could exercise discretion and I exercised that and I changed that very radically. Anyone that doesn’t believe that should look at the howls of protest and criticism I faced with what I did and I did it consistent with the principles that underpin my party’s view, which is that you should pay tax based on your ability to pay.” 

He also followed the Tory Chancellor in imposing a higher tax on second homes, which he says was important to protect Scots trying to access the property market from the risk of people south of the border looking to buy a second home in Scotland as a result of the Chancellor’s move.

What did he make of Kezia Dugdale’s announcement about helping first-time buyers get onto the property market by using money from the devolution of Air Passenger Duty to give them £3,000 towards their property purchase?

“I think it’s really revealing of the kind of chaos at the heart of the Labour Party that its first announcement on housing policy in the run-up to the election is not about social housing supply but to make a commitment to an additional measure of home ownership when this government already has a range of schemes around that and had also looked at a similar scheme some years back and come to the conclusion that it wouldn’t work and which they [Labour] criticised at the time as being a subsidy to middle-class homebuyers. It’s inexplicable.”

How does the looming election inform decision-making in his budget?

“Well, of course, it’s not the first time I have done that. I went through a very similar exercise in 2010 in the run-up to the 2011 election where you are making financial decisions in a much more sensitive political context. But what I was anxious to do was set out a budget which would set the direction of travel for the next parliamentary term because it’s not enough to say, ‘here is a set of decisions that are for 2016/17’, they have to be part of a direction of travel which will then be reinforced by a range of other announcements and propositions, particularly around the manifesto.

“We have to assume that we may well be in office and work on that basis and it would be a very strange party that didn’t do that. And interestingly, during the debate in parliament the other week, it turned into the scrap for second place between the Tories and Labour. I can’t believe that these people are not focused on winning. We are focused on winning but it still needs to be won, so we have to present a vision of where Scotland would move under an SNP Government.”

Swinney has now been Finance Secretary under Alex Salmond as First Minister, who he always referred to as ‘The Boss’, and under Nicola Sturgeon, who also made him Deputy First Minister, a decision which took him, he says, by complete surprise. Has he had to change his vision to suit?

“What I have tried to do is design a proposition which really takes its lead from the direction set by the First Minister. When the First Minister was elected last November, she set out her direction which was to essentially advance the argument for inclusive growth within Scotland and to tackle the challenges of inequality by creating stronger economic opportunity and then to underpin that with stronger sustainable public services. Those themes set out in late 2014 are absolutely central to the budget proposition. 

“I go back to 2007 when we had a sentence in our purpose of government which was ‘to create opportunities for all to flourish through increasing sustainable economic growth’ and we started off in that direction and we had a very balanced proposition to take that forward. Then the financial crisis came in 2008 and we then became utterly focused on growth, getting growth back into the economy. So the direction from the previous First Minister was to take the steps to get that growth in the economy so things I was doing, like capital investment, for example, or investment in skills, were all about reactivating the economy and where we had completely lost the private housing market, which literally came to a stop, I had to put investment in house and school building.

"Then when we got to 2014 and we were in a more stable economic climate and a less dramatic climate, the new First Minister took us back to that first principle of creating opportunities for all to flourish and that is where the inclusive growth focus came from.

“I would freely concede that for a long period after the financial crash we were simply working to get growth back into the economy and I have long been a believer that if we actually tackle the inherent inequality that exists in Scottish society we will create a more productive economy.”

After nine years as Finance Secretary and the polls predicting yet another term, what has he done to effect change in Scotland?

He is uncharacteristically immodest, surprising me with a big claim that, to be fair, few would dispute. “I think I have contributed to creating a more confident country,” he says.

“The Scotland I live in today is a completely different country to the one I grew up in in my teens. Scotland in 1979 and the 1980s was a pretty under-confident place and I feel I am living in a more buoyant, brimming country. I feel as if I have played a part in helping that along and, of course, loads of others have helped with that – the artistic and cultural community, the academic community, the political community and many others – but I feel as if I have played an enormous part in doing that. 

“At a very personal level, I worked for a mutual life assurance society before politics and I loved working in a mutual environment. It was me at my most ease and when I came into office and I had responsibility for the third sector, I set myself a little task, and remember, Mandy, at that stage, we didn’t know we were going to last the summer, or three months or even a first budget, but I set myself a wee target that I would do whatever it took to build social enterprises into a more significant part of the Scottish economy based on that mutual principle.

"We now have over 6,000 social enterprises in Scotland and I feel that decisions that I have taken, resources I have put in place, and in giving it a focus and a priority, I have helped create a much more self-confident social enterprise sector that has improved the whole of Scottish society. Thirdly, and this is something I feel intensely proud about for my party, I have created – for my party – a reputation for effective fiscal management, fiscal credibility, and I am very proud of that.”

That credibility will be tested again next week when Swinney returns to the Treasury to try and reach agreement on the fiscal framework which will underpin the Scotland Bill transferring more extensive powers to Scotland.

The Smith Commission, which followed the Vow, included a no-detriment clause which requires Scotland to be no better or worse off as a consequence of the new powers. By all accounts, though, the talks have not been easy. If an agreement is not reached by February 12th, the Scottish Government will not sign it off and the Scotland Bill will not proceed. Scotland will then go to the polls with the SNP being able to accuse the unionist parties of reneging on the Vow. That would not be a good position for the Tories or Labour to be in.

“One of my big irritants over my whole time as Finance Secretary in the Scottish Government is that the financial rules in which I operate are as a result of a conversation between the Treasury and the Secretary of State for Scotland. I am a consultee but I am not a signatory, all because of some bizarre and absurd rules within that statement of funding policy.

"The great thing the Smith Commission said was that there has to be a fiscal framework agreed between the two governments and I will just not agree to a fiscal framework that is not consistent with Smith. 

“If we do not have an agreement before the 12th of February then I will not put a legislative consent motion to the parliament and if it is not put by the 12th then it can’t be considered before dissolution.

“I want there to be an agreement and I have signalled to anyone that has asked me, I have said that. But I sat through the whole of the Smith Commission and read newspaper article after newspaper article that said I would walk out and I sat through the whole thing and was signatory to the agreement and while it wouldn’t surprise anyone to know it is not the sum of all my ambitions, I will not see it implemented prejudicially to the interests of Scotland.”

Swinney clearly loves his multifaceted role: DFM, Finance Secretary, election campaign director. I ask him if there is any truth in rumours that he wants to stand back from his Cabinet responsibilities for the economy. He flatly denies it and more emphatically says, “no truth in that whatsoever”.

“I want to continue in the finance role and while I didn’t expect to become DFM, for me there will be no greater privilege. I had my shot at leadership and I gave it my best shot, but when I look at the First Minister now and what she has managed to achieve in a short space of time in terms of her own personal transition and I wasn’t able to do that myself, I see there is a role supporting her that I can perform which is much more suited to my strengths.

“The Boss [Alex Salmond] told me he was going to stand down at Dynamic Earth at about 5.30 on the morning of the 19th of September and having had the same conversation with him on separate occasions before, I tried to say to him, ‘don’t do this’ because at that moment, I wondered how things would work out. How would all these people who I had rubbed shoulders with all my adult life take this body blow of the referendum not going their way and then Alex going as well? I was really fearful about how that would go down and how people would feel about it. I tried to persuade him to stay but I realised after a couple of sentences that it wasn’t going to happen.

“I then had a very precious day that day. It was obviously a very disappointing and sad day but it was a day that I spent mostly with our new First Minister and I had an opportunity to be with her and encourage her to go for it, to basically step forward. We spent most of the day at St Andrew’s House, just her and I talking in between media interviews.

“It was clear to all of us that there could be other candidates, of course there could be, but it was crystal clear that it was the right thing for Nicola to become the First Minister and the transition then became very clear, orderly and by the time the FM was elected, she had a very clear plan and agenda. In a sense, you don’t see this in a lot of other transitions and particularly when you look at the Blair/Brown transition, when Brown got there he had no idea what to do, whereas the First Minster had a very clear idea about what she wanted to do and proceeded to take that forward.

“And of course, unlike the Labour Party, what the First Minister can rely on is that she has a large resource that she knows will always be deployed in being entirely helpful. When I think about the workings of an organisation in the Blair/Brown era, it must have been absolutely purposeless. No wonder that mandate was squandered, because it was purposeless and was almost directed in that way. What we have is very clear and decisive leadership and a big resource that can get things done.

“On a personal level, it is a lovely thing for me to look at the First Minister – and I have worked with her for 25 years – and to see one of your friends and colleagues develop in this way, it is just wonderful. 

“Sometimes you are so close you don’t see what’s happening and I was at the Caird Hall rally in Dundee after the referendum, a week or so before the party conference, and she came out on the stage and started speaking and I turned to one of my associates and said, ‘Jeez, where did she come from?’ Incredible.”