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Economy, Energy and Tourism Committee ECONOMY, ENERGY AND TOURISM COMMITTEE Wednesday 8 October 2008 Session 3 £5.00 Parliamentary copyright. Scottish Parliamentary Corporate Body 2008. Applications for reproduction should be made in writing to the Licensing Division, Her Majesty’s Stationery Office, St Clements House, 2-16 Colegate, Norwich NR3 1BQ Fax 01603 723000, which is administering the copyright on behalf of the Scottish Parliamentary Corporate Body. Produced and published in Scotland on behalf of the Scottish Parliamentary Corporate Body by RR Donnelley. CONTENTS Wednesday 8 October 2008 Col. INTERESTS...................................................................................................................................................... 1079 BUDGET PROCESS 2009-10 ............................................................................................................................ 1080 CREDIT CRUNCH (IMPACT ON SCOTTISH ECONOMY) ......................................................................................... 1113 COUNCIL OF ECONOMIC ADVISERS (INVITATION) .............................................................................................. 1118 SCOTTISH TRADES UNION CONGRESS (SEMINAR) ............................................................................................ 1123 ECONOMY, ENERGY AND TOURISM COMMITTEE 19th Meeting 2008, Session 3 CONVENER *Iain Smith (North East Fife) (LD) DEPUTY CONVENER *Rob Gibson (Highlands and Islands) (SNP) COMMITTEE MEMBERS *Ms Wendy Alexander (Paisley North) (Lab) *Gavin Brown (Lothians) (Con) *Christopher Harvie (Mid Scotland and Fife) (SNP) *Marilyn Livingstone (Kirkcaldy) (Lab) *Lewis Macdonald (Aberdeen Central) (Lab) *Dave Thompson (Highlands and Islands) (SNP) COMMITTEE SUBSTITUTES Nigel Don (North East Scotland) (SNP) Alex Johnstone (North East Scotland) (Con) Jeremy Purvis (Tweeddale, Ettrick and Lauderdale) (LD) *David Whitton (Strathkelvin and Bearsden) (Lab) *attended THE FOLLOWING GAVE EVIDENCE: Jo Armstrong (Armstrong and Armstrong Ltd) Kenneth Low (University of Strathclyde) John McLaren (Centre for Public Policy for Regions) Ben Thomson (Reform Scotland) CLERK TO THE COMMITTEE Stephen Imrie SENIOR ASSISTANT CLERK Katy Orr ASSISTANT CLERK Gail Grant LOCATION Committee Room 4 1079 8 OCTOBER 2008 1080 Scottish Parliament Budget Process 2009-10 Economy, Energy and Tourism 09:31 Committee The Convener: Item 2 is the start of our formal scrutiny as part of the budget process for 2009-10. Wednesday 8 October 2008 The committee agreed that its overall approach to scrutiny of the Scottish Government’s budget [THE CONVENER opened the meeting at 09:30] would be to consider the budget’s impact on the economy and whether there was any scope for the Interests Government to make any changes to it that would help to address some of the economic issues. The Convener (Iain Smith): I welcome th I am pleased to welcome this morning a panel of colleagues to the 19 meeting of the Economy, some of Scotland’s leading economists, economic Energy and Tourism Committee in 2008. We are forecasters and commentators. We will ask them certainly meeting in interesting times and will keep to comment on the state of the economy and what abreast of events in London today. There are big they think that the Scottish Government should do, concerns about the future of two of Scotland’s in the budget and more generally, to address major banks—HBOS and the Royal Bank of some of the issues that the Scottish economy Scotland—which will, no doubt, feature in this faces. I welcome Ben Thomson, John McLaren, morning’s business. Kenneth Low and Jo Armstrong. I ask them to The first item of business is to welcome Wendy introduce themselves and make a few brief Alexander to the committee and ask her whether comments before I open the discussion up to she has any relevant interest to declare. questions. Ms Wendy Alexander (Paisley North) (Lab): Jo Armstrong (Armstrong and Armstrong Thank you, convener. I am delighted to join the Ltd): Good morning and thank you for inviting me committee. My relevant interest is that I am a along. I run my own company, Armstrong and visiting professor in the business school at the Armstrong Ltd. I comment on and research University of Strathclyde. different aspects of the Scottish economy for a variety of clients—the Centre for Public Policy for The Convener: Thank you for that, Wendy. Regions, the Scottish Council Foundation, the I was going to thank David Whitton for his David Hume Institute—and advise large and small contribution to the committee’s work, but I will not businesses on a variety of financial matters. Prior bother doing that at the moment because he is to undertaking that sort of work, I worked for 10 here as a substitute for Marilyn Livingstone, who years in the Royal Bank of Scotland’s economics has some travel difficulties this morning—as do department and its structured finance division, so I many people throughout Scotland, inevitably—and feel as if I have a foot in two camps at the may join us later if she manages to get in from moment. Fife. At that point, I will thank David for his The Convener: Do you wish to make any brief contribution to the committee in his time as a opening remarks on what is happening? member of it. Jo Armstrong: It is a bit difficult to keep one’s David Whitton (Strathkelvin and Bearsden) mind on the facts and talk about what we might do (Lab): Thank you very much. in next year’s budget when what is going on is unprecedented. To have seen the Royal Bank’s share price plummet almost 50 per cent within two days is quite disheartening for most of us who worked in that organisation. It is large, is profitable and will survive to some extent and in some form. However, we must keep it in mind that what is happening concerns not only the RBS and HBOS; it has repercussions around the world and, more important, throughout Scotland’s corporate sector. Whatever we discuss this morning must be placed in that context. Kenneth Low (University of Strathclyde): I am a research fellow at the Fraser of Allander institute at the University of Strathclyde. I provide economic commentary on the Scottish, United 1081 8 OCTOBER 2008 1082 Kingdom and world economy. I am also difficult time. It is as much about what you say as it responsible for producing the institute’s forecasts, is about what you do. which I do in conjunction with Professor Brian The Convener: I invite members to put Ashcroft. I do some teaching and have been at the questions to the witnesses. institute for about 14 years. Gavin Brown (Lothians) (Con): Things have I agree with Jo Armstrong that we are in very moved on enormously in the space of a few days, difficult, unprecedented times. Much of the recent but the economic situation is almost attention has been focused on the credit crunch, unrecognisable from that which prevailed when so we need to bear that in mind. the draft budget was published three weeks ago. John McLaren (Centre for Public Policy for No doubt there is more to come in the coming Regions): I work for the Centre for Public Policy weeks and months; John McLaren suggested that for Regions, which is shared between Glasgow there is the potential for problems to last much University and Strathclyde University. The centre longer than that. comments on the Scottish economy and economic I accept that there is limited scope for things to aspects of Scottish government. Before I joined be done at a Scotland level, but I am interested to the centre, I was a special adviser on finance and know what our witnesses think could be done. Are the economy to the Government under Henry there any high-level steps that could be taken McLeish and Donald Dewar. Before that, I was a reasonably swiftly in the budget for next year or civil service economist in the Scottish Office and the year after that on which we should focus now? the Treasury. Should we focus on education or on the overall tax I agree with what previous witnesses have said. burden? What actions could we take in Scotland to In today’s discussion, we should remember that improve the situation here? we do not know where we are going and are not Ben Thomson: It would be helpful to have a sure how long the downturn will be. We will look at more output-based document next time around. A the budget for next year and possibly the year lot of what the Government has put down in the after that, but we must bear it in mind that we draft budget focuses on a percentage increase or could have problems for two, five or 10 years. decrease in what it wants to do, rather than on There is such an international dimension to what what it has to pay to get the desired outcomes. is happening that what can be done in Scotland There is far too great a focus on the top-level and via the budget is limited. However, this is a amounts, rather than on what the Government is good time to rethink the long-term future—how we trying to deliver for the most efficient value. We will come out of this recession or depression and have said that, overall, we would like the tax what we want the housing market, energy and so burden to be reduced, because a low-tax on to look like in the long run. environment with good infrastructure and public Ben Thomson (Reform Scotland): I am the services is ultimately needed to make Scotland an chairman of Reform Scotland, an independent area that will attract business. The Government think-tank that was newly formed in March to look needs to make the public sector more effective at the Scottish economy and public sector. I am and efficient, and consider ways to reduce costs to also chairman of Noble group, an investment bank free up the private sector. You asked for a macro based in Edinburgh, with offices in London and view. India, which I ran for 10 years as chief executive.
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