John Swinney wrestles with babies, budgets and the ballot box

Baby Mathew Kenneth Swinney was born at 11.46 on Friday 22 October, appropriately enough for the son of Scotland’s Finance Secretary, sandwiched between George Osborne’s much awaited Comprehensive Spending Review and the publication of his own father’s Scottish budget.

The CSR may have been a masterpiece in expectation management but for Swinney, it ratcheted up a budget process that finally offered the definitive figures for him to work out Scotland’s immediate economic future. It also marked the final countdown to Mathew’s arrival.

Indeed, Osborne had hardly sat back down on the green benches before John Swinney was helping his heavily pregnant wife, the journalist Elizabeth Quigley, out the door to the car to head off to Ninewells Hospital in Dundee for Mathew’s birth, leaving the builders and painters working on an extension to their home to work just that little bit faster towards completion.

In the days ahead, the Finance Secretary could, understandably, have been excused for having his budget head elsewhere, what with on-going building works and Mathew’s appearance to consider, but he says the new arrival simply focused his mind on what was right for Scotland.

“Mathew was born the Friday after the CSR and so he arrived between the CSR and my own budget and that event sharply reminded me that my duty is to make the country a better place in all that we do. I feel that responsibility very acutely with the job that I do and it is clear that some of the decisions I have had to arrive at are fundamental to where Scotland goes, and that is a huge responsibility to carry forward but also an enormous privilege. I have to get it right for Mathew, right for my other children and right for Scotland and when I look at all the difficulties we wrestle here with and with the lack of control that we actually have to deal with those problems then that simply says to me that independence would make that all a great deal easier.” Swinney and I sit down two days after he has presented his budget to Parliament and with the ink barely dry and the sound of the Opposition’s predictable baying still to die down, there is the revelation that the normally upstanding and reliable Swinney had not only not paid a £50,000 annual upkeep charge to HMRC to keep open the possibility of Scotland utilising the Variable Rate of Income Tax, which it had fought and voted for to secure as part of the Scotland Act, but that he had also deigned not to inform the Parliament of this or that HMRC was also seeking a further £7m to upgrade the revenue collection IT system. Whether by accident or design, Scotland, it seemed, had lost one of its only true fiscal powers, ironically, at the hands of a party that bangs on about wanting more fiscal powers at every opportunity.

The shocking news, made public by Michael Moore, the Lib Dem Secretary of State for Scotland, the night before Swinney and I meet at his Perthshire home, not only overshadowed the reaction to the budget but clearly threatens Swinney’s very position in government.

However, while a constitutional storm was brewing outside, Swinney, who, frankly, doesn’t do histrionics, is cushioned at home for the time being in a bubble of domestic contentment. Dressed casually in jeans and pink linen shirt, he greets me at his home with baby Mathew nestled in his arms. He has rarely seemed so relaxed. So how does he explain the threatening crisis and his role in it?

“What the last Executive did was it spent £12m establishing the capability to use tax-varying powers and when we came to office, the HMRC said there was a cost of £50,000 per year to keep the system rolling and then about a year later, they said they were upgrading the systems and there would be development work that was required. We had made it clear that we wouldn’t use the tax-varying powers during this Parliament so essentially, they had breathing space to upgrade their systems. Then in about July, after a lot of unanswered questions from us about asking what the state of play was, etc, they came to us and said there would be a £7m charge to be due from us to deal with the upgrade. We said that given this was the first we had been asked about this and there was a commitment having to be made within quite a short timescale, by the 20th of August, I think, my officials went back and said that this was no timescale for us to resolve this issue in and we have been asking about this for ages and we asked for a meeting to discuss where this was and that was the last we heard of this until the Secretary of State released this letter and of course, made no mention of this £7m. In the context of where we are just now, a £7m extra cost is a big choice to have to make in the context of the pressure of public finances and where I would have to find the money for it.

“The bottom line is that we’ve said to the HMRC, let’s have a discussion and we have had nothing in return from them and then the next thing we get from the Secretary of State is a public letter. At my most generous, this strikes me as incompatible with the respect agenda.

“But there is a more important issue behind this which is who pays for such issues when they arise because the Statement and Funding Policy that has just been agreed says that when a UK department takes a decision that has an effect on the devolved legislator, the UK pays for it so the UK Government legislated for the tax-varying powers, HMRC is upgrading the system not because of the tax-varying powers but simply because they are upgrading, so we shouldn’t just automatically jump in and offer to pay for that particular provision. There is an important thing that needs to be said here about the long term because if you look at Calman, who is going to pay for that because this is Westminster legislating for Calman to put in place new tax-varying powers in Scotland and my question would be, who is going to have to pay for that? The bigger factor is what the Statement of Funding Policy says and the UK Government has decided it is legislating for Calman, not me, it is in their bailiwick so for me, it’s absolutely black and white that they should then be accepting the financial responsibility for that.” But while all of this sounds very reasonable, sitting discussing the issue over the Swinneys’ kitchen table with a mug of coffee at hand, the opposition parties already smell blood and it’s not Michael Moore’s.

“The Opposition decides everything is our fault, it’s what they do and what they are doing now in spades…I think the Opposition has to wrestle with some fairly fundamental issues here, which is the Statement and Funding Policy which the UK Government has just applied and I am not a signatory to. I have that imposed on me and it is agreed between the Treasury and the Secretary of State and it states quite clearly that if the UK department takes a particular step, they pay for it if it has a financial implication for the devolved nation.

So the Statement and Funding Policy argues a completely different stance from what the UK Government is doing now.” But meanwhile there is no escaping the fact that under the watch of an SNP Government Scotland has lost legislative rights that the people of Scotland voted to have included within the Scotland Act.

“We have not lost legislative rights. There is a time period that HMRC has always told us that you would have to give them ten months’ notice before you could use the tax-varying powers and obviously, they are doing an upgrade to their system so that tenmonth period would not have been able to be delivered, anyway. Say I had said I wanted to use them now and given them ten months’ notice, they couldn’t have done it because of the upgrade so this isn’t about legislative rights, it’s about operational factors.” Does he think this could become a resignation issue?

“I wouldn’t contemplate it [standing down] for a moment.” Doesn’t he think he should have gone to Parliament at all to discuss it before it became an issue?

“No…” Five days later during an emergency debate on the Scottish Variable Rate, Swinney apologises to Parliament for ‘an error of judgement’ in not keeping it informed. He says he accepts he made a number of ‘wrong judgements’ and that he had ‘regrets’ about the lack of progress in resolving the issue with the HMRC and that he had ‘learnt a number of lessons’ in the process.

The normally unflappable Swinney has, it would appear, been flapped. Swinney is respected across the Chamber for being honourable, for being the Mr Nice to the FM’s Mr Nasty and many on the opposition benches expressed these sentiments during the course of the heated exchange last week but it does appear on this occasion that while he may still feel his actions were ultimately right that, in fact, he accepts his judgement on process was wrong and for a politician admired for being proactive rather than reactive, that’s a hard hit to take. With the Budget Bill negotiations still to happen, there is a sense that Swinney will get no easy ride.

The passing of the budget has been a hard mountain for the SNP Government to climb and has been a bruising learning curve for Swinney. Few people will forget the undignified and last-minute negotiations that went on in the Chamber two years ago, with notes being passed from the FM to the Greens’ Patrick Harvie in full view of the public or the fact that its second budget failed to pass at the first hurdle last year and a new budget had to be redrawn very quickly or the fact that at every obstacle, in an apparent fit of pique, the SNP threatens to resign which would prompt an election.

Swinney admits that the budget-setting experience has taught him that he has to try harder to build consensus but with an election pending, the Opposition will be in no mood for niceties. Equally, Swinney believes that he has made difficult choices within the constraints of a very difficult financial settlement and he challenges the Opposition, particularly Labour, to offer an alternative vision.

And what Swinney has done is to produce a one-year budget with no additional threeyear spending plan with the caveat that should they be returned to government in May, he will publish those plans following the findings of the Christie Commission which he has established under the stewardship of former STUC leader, Campbell Christie, to look at wholesale reform of the public sector.

Essentially, in his budget document, Swinney has protected the health service budget and offered local government the choice of a budget cut of 2.6 per cent if they accept the council tax freeze and various other additional responsibilities or a 6.4 per cent cut if they don’t; he has moved monies from the revenue budget into the capital budget to fund infrastructure projects; and proposed funding for major infrastructure projects including the Forth Crossing to be delivered through the non-profit distributing model. He has kept universality for free personal care and concessionary travel and the go-ahead for the abolition of prescription charges. It is, says Swinney, a budget for jobs, services and economic recovery and rests on three pillars: economic recovery, protecting frontline services, and making progress in the low carbon economy. His critics say it is pure electioneering.

“It is interesting that in all of the last few months, when I have watched very carefully what my political opponents have had to say, because I need to judge where the mood in Parliament lies because that obviously has to influence some of the choices I have had to make in the budget because as a minority government, I can’t put forward propositions that have no chance of attracting wider support and what has been utterly striking for me is that it has been almost impossible to work out where the Labour Party is coming from. It is a difficult question [what Labour’s plans would be] for me to answer because I can’t see how any of their numbers would add up. I think that they intend to get themselves to the election without a plan because they know – because of all that I have rehearsed with you about fixed financial envelopes, etc – that if they were in my position, they would have to do something which is only a very slight variant of what I have had to do. If you look at the budget structure of health, local government and essentially, the remainder of the rest of the public sector, you have to work out at a high level what is going to be the balance between those three elements before you begin to settle many of the questions and as far as I can work out, Labour wants more for all three of these pillars of the budget and that can’t be done.

“What they have had a go at us about has been about process, which brings me back to the point that if they had an alternative, it would only be a minor variant because their whole argument against us has been about process – asking why I have not set a four-year budget.” Surely that’s a fair enough criticism?

“Well, that’s a view I have taken and one I have explained, both privately and in public to the Opposition. I heard Brian Taylor on the radio yesterday, saying I have been accused of electioneering, which is hardly a surprising charge to accuse a politician of, not least one who is a senior figure of the SNP or indeed any party, and it is a part of the ritual of cheap abuse that the Opposition goes through; they feel they have to say something. It is fairly indicative of what the Labour Party is about with one piece of cheap abuse after another but ultimately, we will get into an election campaign and they will be unable to avoid the hard question which is, ‘what are you going to do?’ and that is when they will be found wanting.

“I think it is an absurd accusation that I would put politics before nation because the toughest year of the spending review is the first one and no one disputes that I have addressed it. Frankly, I am at that stage of saying, ‘what is your point, caller’ because we all know what the hardest year is and I set the budget for that year. I accept that in the medium to long term, we have a whole series of other problems which I certainly personally feel will only be resolved by fundamental reform of the public sector and that is why we have set up the Christie Commission and if you set out the numbers for the next three years then they become an obstacle to reform.

“The Christie Commission isn’t working in the dark, the UK spending numbers are already there so it can look at those numbers and they are the same headline numbers that I would be working to in terms of the next three years and then it can see the balance of public expenditure as I have set out as the current provision and then it is a calculation of how you can do things differently with what is left. I think setting hundreds of precise budget lines can become an obstacle to the free thinking that is required. Take the budget line on the third sector, which is £24m in government expenditure, the Christie Commission could say, without wishing to pre-empt it, that the third sector should have a much greater role in delivering services and that there requires a Change Fund to get it to that position and then you need to be able to substantiate that agenda with cash that is coming from elsewhere and if you have allocated all of this then you are into the rather futile debate, which is essentially about whatever decisions you take in that context is played out as taking money from x and giving it to y rather than accepting that you are confronting a fundamental challenge about the design of public services.

“What the Christie Commission has to look at is what is the best delivery mechanism for public services in general and one of the most interesting points in the spending review statement is the creation of the Change Fund within social care, which is predicated on the model that if someone is in an acute hospital situation then that is the most expensive form of care we can have, so let’s try and minimise the number of times people are in there. The Change Fund begins to help to open up and to lessen the demand for the health service because we find different ways for working and that is a very exciting possibility.

“What the Christie Commission accepts is the fact that there needs to be fundamental reform of public services and it will look at that and inform that debate and we will respond to that on the assumption that we are returned to office in May.” Given that this is a government that put in place the Independent Budget Review (IBR) headed by Crawford Beveridge earlier this year to inform the budget process and has now established the Christie Commission to inform the public sector reform debate, isn’t it just a government that can’t make its own decisions?

“No, because ultimately, we have to make the decisions.” Did the IBR know that it would simply be followed by the Christie Commission?

“No but the IBR gave me the idea for the Christie Commission. I think it was in chapter seven of the IBR report which essentially, having shown the ground to go on on pay, efficiency and capital expenditure, it then added a final chapter and I can remember Crawford Beveridge making the point that he concluded with a chapter that he wasn’t asked to write, which was about long-term thinking and where public services should go. I reflected on this with the Cabinet and our considered view in the light of what we were facing and the fact that we were going to be facing an even more aggressive budget reduction after the CSR than we had expected, then it was a flow through from the IBR to have a complete, wholesale look at reform without that being impeded by numbers being attached.” While this makes sense, I put it to him that the Opposition believes that his opaque approach to the spending plans for the years following on from the 2011/12 budget are stopping public sector organisations from planning. Housing associations, for instance, rely on long-term planning with funding institutions like banks that set interest rates based on long-term financial security. Isn’t he putting them in a vulnerable position?

“Housing associations do have long-term relationships with the banks which are heavily dependent on their own financial strength as organisations and yes, government money flows into that but so do other things, like rent, so housing associations have certainty about the next 12 months but if you think back to the start of 2010/11, the Labour Government at Westminster on a couple of occasions, only left us with one year of spending plans and it left us with that in 2007/08 and 2010/11 so I do come back again to how the Opposition is behaving and it is just posturing and in the absence of having anything else to say of a real creative credible alternative nature, it is just a single line of abuse…” What about the universities, how can they plan for degree courses that last three or four years when they don’t know how much funding they might get during those years or even from next year?

“That view is predicated on the view that government expenditure will go in the university sector, for example, from £1.7bn to zero or for the housing associations going from where it is now to zero and of course, it is not going to do that. That is just nonsense.

People might not be able to make precise calculations but they can see the direction of travel and the pattern of things and make pretty good realistic assumptions.” What about the accusation that he has put a gun to the head of local government given that they are faced with the choice of implementing the council tax freeze or taking a much bigger hit on their budgets?

“I think there is something that no one could criticise me for which is investing an enormous amount of personal time and energy into the cultivation of the relationship between local government and the Government and of all the things that could be said about me and how I go about my ministerial life, nobody could say that I am not available and accessible to talk to local government and to address their concerns.

I think that’s been important and has built up a relationship of trust and it is on those foundations that we have managed to secure the type of developments we have been able to secure with local government and get the agreement that we have got with the political leaders of COSLA. We have put together what I think is a very good deal for local government and compared to what they are getting in England, it is a very, very good deal and compared with what they could get if we go back to my three pillars and turned them around, then they would have got a very different deal but we didn’t because we recognise that local government is fundamental to the delivery of public services.” On that note, did he have a stand off with Nicola Sturgeon in terms of how much the health budget should get?

“At no stage did anyone have a hissy fit about their budgets,” he says with a po face.

Still, she did do pretty well out of it?

“I think there are probably two factors to that; one is that we acknowledge that there are enormous and recurring pressures on the health service because of demography and if you look at the pattern of healthcare increases over the last ten years, there has been really substantial increases and even within that context, there is clear pressure on the system and we are going into a position where money is much tighter but that demography and picture of ill health has not changed very much so we need to ensure the appropriate resources are in there. Secondly, we have always taken the view that in terms of frontline services, people have always wanted to be assured that the health service would be strongly supported and it is what we have said for a long time as a party. The Cabinet was at one on these decisions.” Cohesion in the Cabinet has been a real mark of this SNP minority government and Swinney says that throughout the budget process, he has had complete buy-in from his colleagues.

“We have faced many challenges as an administration but this is up there as one of the greatest challenges we have ever had to face but we have taken it in the same spirit of cohesion that we have faced up to any of the other challenges and that’s very precious because these are very difficult decisions.

“None of us liked where we were in terms of the economic landscape and the choices we were having to make but we decided that we would go through this process in a very orderly and systematic fashion and we would do that related to the three principal considerations: economic recovery, protecting frontline services, and making progress in the low carbon economy. So we decided the ground we were going to be on and then how we would deliver against those key objectives.

That clearly involved a lot of dialogue over a long period of time and we did that in the absence of the specific numbers but with the estimates from our chief economic adviser eventually concluding with the numbers when the CSR was completed and I was able to say that our expectations on revenue were about correct, and our expectations on capital we had underestimated, so the nature of the discussion, obviously, got firmer as the months went by but we were constantly discussing what the emerging principles of the settlement appeared to be.” Given the inevitable criticism, why did he not involve the other parties more fully in those pre-budget discussions, if only to get some tacit agreement for what was bound to be a difficult budget?

“I had a number of discussions with all the parties before the CSR and look, this is a difficult process and while I am not making any accusations here about others, because maybe it does just have to work like this, but it is fair to say that no one was willing to put their cards on the table to any great extent.

In all of these preliminary meetings and discussions there was a lot of talking around things rather than people saying, why don’t we do A or B or C and I put a lot of information to the opposition parties about major aspects of the public finances, information about pay and some of the costs of government that might be more detailed than in the budget numbers but it did not lead to any agreement in advance of the CSR about what we should do. I have now set a budget, put my cards on the table, I have addressed how the £1.3bn has to be removed from the public finances and I have not done that with any glee or satisfaction but I have done it because it is my duty to do it and it is now there for Parliament to consider and the one thing I am clear about is that the opposition parties have to have an answer.” Hasn’t the economic crisis brought into sharp focus that the independence argument is lost?

“On the contrary, I think one of the big fundamental arguments against us, politically and electorally, is that ‘oh my goodness, look at the great financial strength of the United Kingdom’. Well, I am sorry, but that kind of rhetoric holds no water now and that strategic argument of how strong the UK was has disappeared so we in the SNP need to marshall an argument that says there is every opportunity for us to continue to deliver the type of increased and improved economic performance which we know Scotland to be capable of if we have the powers to enable us to do it.” Does he seriously believe that he could have protected Scotland from the harsh economic headwinds with greater powers?

“We could have ameliorated the impact and that is the key observation that I closed on in Parliament. There is a different way of doing these things should we choose to go down that route.” As always, Swinney makes a persuasive and seductive argument for a Scotland empowered by additional fiscal responsibility, free to make decisions about what and when it spends it; it’s just a shame that he makes it in the same week that we discover he has allowed one of the few financial levers Scotland has to be rendered virtually useless.