PARLIAMENTARY DEBATES HOUSE OF COMMONS OFFICIAL REPORT

Seventh Delegated Legislation Committee

DRAFT ACT 1998 (VARIATION OF BORROWING POWER) ORDER 2015

Tuesday 17 March 2015

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The Committee consisted of the following Members:

Chair: MR GEORGE HOWARTH

† Bridgen, Andrew (North West Leicestershire) (Con) † MacNeil, Mr Angus Brendan (Na h-Eileanan an † Brown, Mr Russell (Dumfries and Galloway) (Lab) Iar) (SNP) Clarke, Mr Tom (, Chryston and Bellshill) † Menzies, Mark (Fylde) (Con) (Lab) † Mundell, David (Parliamentary Under-Secretary of † Coffey, Dr Thérèse (Suffolk Coastal) (Con) State for Scotland) † Connarty, Michael ( and East Falkirk) †Roy,MrFrank(Motherwell and Wishaw) (Lab) (Lab) † Weatherley, Mike (Hove) (Con) † Crockart, Mike (Edinburgh West) (LD) † Wharton, James (Stockton South) (Con) Doran, Mr Frank (Aberdeen North) (Lab) † Wright, Simon (Norwich South) (LD) † Green, Damian (Ashford) (Con) † Hamilton, Mr David (Midlothian) (Lab) Clementine V. Brown, Committee Clerk † McCartney, Karl (Lincoln) (Con) McKenzie, Mr Iain (Inverclyde) (Lab) † attended the Committee 3 Seventh DelegatedHOUSE OF COMMONS Legislation Committee 4

there were significantly more words in his contribution Seventh Delegated Legislation than in the order itself. I can only say that the Opposition Committee concur with his sentiments . 8.58 am Tuesday 17 March 2015 Michael Connarty (Linlithgow and East Falkirk) (Lab): I would not attend a statutory instrument Committee on something as important as borrowing by the Scottish [MR GEORGE HOWARTH in the Chair] Government without saying something to say about it. There is a myth abroad in Scotland that money borrowed Draft Scotland Act 1998 (Variation of in one way is free, whereas money borrowed another Borrowing Power) Order 2015 way costs interest. Of course, all borrowing costs the Revenue because interest, and eventually capital, have 8.55 am to be paid back, so what we are doing today is significant. The Parliamentary Under-Secretary of State for Scotland It is the beginning of a process because we have the (David Mundell): I beg to move, Smith agreement to come in the Scotland Bill in the next Parliament, which will extend the powers. That the Committee has considered the draft Scotland Act 1998 (Variation of Borrowing Power) Order 2015. There has been controversy for some time about It is a pleasure, Mr Howarth, to serve under your whether the private finance initiative, which has been chairmanship again. used to build a lot of public infrastructure—hospitals, schools and so on—is extremely costly, whereas the The order was laid before the House on 15 December not-for-profit trust, which is being used at the moment 2014. It is a straightforward order that will provide that, by the Scottish Government, comes with free money. Of in addition to being able to borrow by loan, Scottish course it does not. Although there is a not-for-profit Ministers will be able to issue bonds from 1 April 2015. trust, the money still has to be borrowed, and there is The order is made under section 66(5) of the Scotland controversy about that at the moment. We are not quite Act 1998, which was inserted by section 32 of the sure whether, when the taxation powers come in for Scotland Act 2012. Scotland, the revenue costs will be off the books or on For clarity, I shall provide some brief background. the books. PFI was clearly designed to take the capital Section 32 of the Scotland Act 2012 amends section 66 off the books, to be carried in the private sector, whereas of the Scotland Act 1998 to insert, among other things, revenue costs have to be met by the public interest. subsection (1A). The newly inserted section 66(1A) Whether it is a school, a local authority or a hospital, provides that the Scottish Ministers may, with the approval the Scottish Government will be carrying those costs. of the Treasury, borrow by way of loan any sums We are giving Scotland a significant right to borrow required by them for the purpose of meeting capital up to an annual limit of 10% of the Scottish Government’s expenditure. capital budget in this SI, which is a very positive thing Section 32 of the Scotland Act 2012 also amends to do, but it also comes with dangers, because if the section 66 of the Scotland Act 1998 to insert subsection (5), Scottish Government decide they want to take up that which provides that the Secretary of State may, by limit, a substantial sum of money then appears on the order made with the consent of the Treasury, amend revenue side every year, to be paid from the Scottish subsection (1A) so as to vary the means by which the block grant, and there is no Barnett formula rescue Scottish Ministers may borrow money. As Committee package available for these revenue sums. As we know, members are probably aware, Her Majesty’s Treasury the grant comes from expenditure by the English brought forward the Scotland Act 2012 (Commencement Departments. There is then a transfer under the Barnett No. 4) Order 2014 and commenced section 32 of the formula to Scotland. Additional costs during the year Scotland Act 2012 from 12 December 2014. As section 66(5) in England are transferred to Scotland. I asked the of the Scotland Act 1998 is now in force, this order does Secretary of State for Transport about this. In 2014, indeed amend section 66(1A) of that Act to vary the Scotland received £190 million extra from the additional means by which Scottish Ministers can borrow for Barnett consequences of transport expenditure in England. capital investment to include bond issuance, other than Therefore, all this comes with a cost. the issuance of bonds transferrable by delivery. If Scotland decides to borrow the money itself to That variation of the means by which Scottish Ministers undertake such infrastructure projects, it will carry the may borrow money is in line with other borrowing costs entirely; that will be the consequence of the borrowing powers in the Scotland Act 2012, and will ensure that powers that we are giving it now. The results will be the new system of borrowing is both flexible and sustainable. interesting. Scottish Ministers may be able to borrow I consider the order to be a sensible use of the powers from the National Loans Fund or, the explanatory under the Scotland Act 1998. I believe the order memorandum states, from commercial banks, which demonstrates the Government’s continued commitment may be a more risky prospect for them in the longer to working with the Scottish Government to make the term, as we hear that interest rates are about to start to devolution settlement work. I commend the order to the creep up. There was a discussion this morning about the Committee. potential for inflation if the economy begins to grow. For me it is a significant thing to be here today to give 8.57 am these powers to Scotland and to be part of the Committee Mr Russell Brown (Dumfries and Galloway) (Lab): that does so, but to bring with that the warning for the It is a pleasure, Mr Howarth, to serve under your Scottish people to look very closely at what happens chairmanship on St Patrick’s day. It was interesting to when these powers are used by the Scottish Government, hear the words of the Minister. The order is very short; because there is no such thing as free money. 5 Seventh Delegated17 MARCH 2015 Legislation Committee 6

Andrew Bridgen (North West Leicestershire) (Con): knows that full fiscal autonomy would destroy the Does the hon. Gentleman agree that with authority Barnett formula and, therefore, that assistance from the should come responsibility and we are giving responsibility booming economy in the south would no longer come to the Scottish Government? Effectively, what we are to Scotland. We have a good deal, but we are trying to giving them, if they use that incorrectly, is enough rope signal to the Government that they have power, which to hang themselves. we are going to give them today, and responsibility, which they must accept. Thank goodness, by remaining Michael Connarty: I would look at it differently. The within the United Kingdom, we also have support for warning I am giving is not one to make a rope with. It is our main spending from the rest of the UK through the one to make a little whip with, basically, to let the Barnett formula. Government in Scotland know that these powers come with responsibilities. A mythology has been going around. 9.5 am For many authorities, PFI has been a very good bargain Mr MacNeil: It is a great pleasure, as others have because the private company taking on the debt also said, to serve under your chairmanship, Mr Howarth. takes on the risk on the maintenance of the project, To respond to the points made about the referendum, sometimes for 30 years. In many cases, as I know from the referendum was, finally, not between yes and no; it the experience in my own area, there is a payment of was between yes and quite a lot. The referendum was £1 at the end and the building becomes the ownership about spending. The Prime Minister offered all forms of of the local authority. Hospitals, such as the new hospital devolution: all forms were possible and all were on the at Larbert in my area, also become the property of the table. The former Prime Minister, a member of— health board. However, the cost of maintenance and the risk of maintenance—all the costs up to that point—are carried by the commercial enterprise that borrowed the The Chair: Order. I know that the hon. Gentleman money and built the PFI hospital in the first place, has been led astray on that point. I remind him that we which was the theory behind it. With this kind of direct are here to talk about the devolution in Scotland public borrowing by the Government, no one else carries the finance and accountability SI, not to rerun the referendum. responsibility for any expenditure that that is used for. For example, the bridge over the Forth, which crosses to Mr MacNeil: I am grateful to you, Mr Howarth. my constituency, was built entirely of Chinese steel, [Interruption.] Someone says from a sedentary position with not a single pound of order going to any UK that my side lost. We accept that. We also accept the enterprise. That project is carried on the debt of the promises and I hope that this is part of the promises, or Scottish Government. Any other similar project, should a step to as near to federalism as possible, when the it run into maintenance problems such as we believe Scottish Government will send money south to subsidise there have been on the main Forth road bridge, would foreign affairs and defence and not, as we have been also be carried by the Government. That includes the told, be liable for the debt: the sum of a percentage of cost of the interest. £100 billion. The hon. Member for Linlithgow and East Falkirk said that our deficit would be only £4 billion—half Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) of that sum. (SNP): This has been correctly described this morning This is an important step on the way to normal as the start of a process. Surely the answer to the responsibilities for normal Government. That is exactly problems the hon. Gentleman has started to lay out, is what the Scottish people voted for and I welcome this full fiscal autonomy, when these problems become the step. problems of any normal Government. I am sure he will agree that there is a process ahead of us and this is one 9.6 am of the steps in that process. David Mundell: I will not detain the Committee for Michael Connarty: I think that might be termed a long. It is important to clarify, following the two predictable intervention. The point is that the hon. contributions we have just heard, that the borrowing Gentleman ignores the fact that 55.31% of the Scottish powers were transferred in the Scotland Act 2012. The people decided that we would like to stay in the United order allows the borrowing powers to be taken forward Kingdom. I think that one of the reasons for that is that by way of bonds; it does not relate to the transfer of we have the cushion of the Barnett formula. At the additional borrowing. Obviously, further powers will moment, as I said earlier, the Barnett formula covers come forward as a result of the Smith commission, to most other expenditures. In this case, we have a situation which all parties in Scotland signed up. Those will be where the Government will carry the burden entirely on for another day, as indeed will be the debate over their own back. Scotland’s finances, which will be well rehearsed over the next 50 days. The problem that I have with the concept of full fiscal autonomy at the moment is that we would have a Question put and agreed to. £4 billion annual deficit in the Scottish budget. I do not think that the Scottish Government would be able to 9.7 am carry much of the interest on such a debt. Everyone Committee rose.