The minister in charge of Scotland’s finances has said he cannot promise he can insulate the country from the “fiscal recklessness” of the UK Government.
Deputy First Minister John Swinney – who has taken control of the finance brief while Finance Secretary Kate Forbes is on maternity leave – told the Finance and Public Administration Committee he was worried that a drive to create “market certainty” after a period of upheaval could mean a dip in UK Government spending on public services.
Markets spiralled in September after Chancellor Kwasi Kwarteng announced plans the Government hoped would drive economic growth, including tax reforms, the end to the cap on bankers’ bonuses and a cut to stamp duty.
As a result, the pound dropped to its lowest level against the dollar and the Bank of England intervened to buy Government bonds to avert what it called “material risk to UK financial stability”.
On Monday, Kwasi Kwarteng announced one part of the Government’s tax plan – the scrapping of the top rate of tax – would not go ahead.
Responding to a question from fellow SNP MSP Michelle Thomson about the Scottish Government’s commitment to patient capital, the Deputy First Minister said ministers had given a long term commitment to the Scottish National Investment Bank.
But he added: “I think in all honesty, I can’t assure Michelle Thomson that I can insulate Scotland from the damage that’s been done by the Chancellor’s decisions and the investment uncertainty that’s been created.”
Mr Kwarteng’s so-called mini-budget left some pension funds on the brink of collapse, with the Deputy First Minister saying he was “not surprised that they’re all very anxious and nervous about it”.
“It’s been a total fiasco since a week past Friday,” he said.
“I can’t overstate the damage that has been done on top of an already really volatile situation by this fiscal recklessness.
The pressures are absolutely colossal— John Swinney
“I think, and I fear, I’m really worried that in order to go from this veering off to this extreme, to that extreme, to create market certainty, the casualty will be public spending and the public spending that vulnerable people in our society depend upon.
“That’s my big fear about where we sit today.”
Mr Swinney reiterated comments made to another Holyrood committee last week, claiming he had “never seen financial strain of the order that I am wrestling with just now”, even in the aftermath of the financial crash in 2008, when he was finance secretary.
The pressure was created by the pandemic, the war in Ukraine and the “backwash” from the mini-budget, Mr Swinney told MSPs, adding: “The pressures are absolutely colossal, hence why I’ve had to come to Parliament to announce reductions in public expenditure already this year, and I may have to do more of that in the period that remains.”
The Deputy First Minister added that Scottish Government plans to reduce the public sector workforce to pre-Covid levels will still go ahead, but will be done “in a spirit of partnership” with workers and be open about the measures that will achieve the reduction, while pledging to treat staff with “courtesy and dignity”.
