Speech in the Scottish Parliament

5 February 2009

Borrowing Powers

I will make my speech from the perspective of someone who has had the opportunity in his political career to be a council leader, a finance convener of a regional authority, and a finance minister for about three years.

As a council leader, I had borrowing powers but, as a finance minister in the Scottish Executive, I did not. Some might find that entirely paradoxical, but I did not, for reasons that I will set out.

I do not approach this argument from a constitutional perspective, as Bill Wilson does, but do so from a purely practical perspective.

When I was a local authority leader with borrowing powers, there were the heavy controls of borrowing consent.

There was a process of constant debate and negotiation with the central Government of the day to extend those borrowing powers.

They were never sufficient for all that we wanted to do, partly because we wanted to do more, but also on occasion because we had huge items of expenditure that created a bulge in our pattern of expenditure and we required additional borrowing consent to overtake it.

We even got into the system of trading consents with some authorities that were underspending their borrowing consents while others were overspending them.

The situation was dynamic and fluid and we were in constant negotiation.

My point is that any system of borrowing involves limits and controls, whether the borrowing powers rest with local or national Government.

In Germany, although there are no specific limits for the Länder, as Tavish Scott said, consensus has been reached between the Länder and the federal Government about that.

In Switzerland there is a form of the golden rule.

In Australia there is a loan council of the six states.

In the context of the Maastricht agreement and the convergence criteria that were thrashed out in relation to the euro, there are in effect borrowing controls on every national Government in the EU.

There is no escaping the rules.

Borrowing powers are not a panacea and do not produce extra cash; they permit a drawing forward of cash, which must be paid back, with interest, and interest payments eat into capacity on the revenue side of the account and affect services.

No one should think that borrowing powers offer a free ride.

When I was a minister I never felt the need for borrowing powers.

The issue did not arise in the context in which we were operating, so I was not bothered about it.

That was partly because local authorities, which were delivering a large part of the services and infrastructure, had borrowing powers so that they could build schools, roads, social work establishments and so on.

It was perhaps also partly because we did not have to find a huge sum of money for a large national project.

Situations in which sums for such projects are needed highlight the practical challenges to do with the instruments that are at ministers' disposal.

Tavish Scott: Does Mr Peacock accept that, when he was a finance minister, public expenditure was rising remorselessly, which affected the circumstances of his tenure?

Peter Peacock: I absolutely accept that.

In the context of a large national project or a series of such projects, borrowing is just one potential solution.

We must also consider how public expenditure is scored and whether it all counts in one year, irrespective of when borrowing took place.

There are many nuances and subtleties that must be addressed.

Is what I have said an argument for having no borrowing powers in the Scottish Parliament?

Absolutely not.

It is clear that there is an argument to be made for borrowing powers for the Parliament and that there needs to be a debate on the matter.

We need to keep an open mind—that is true of my party as much as it is true of the nation as a whole.

We must also enter into the debate with our eyes open.

Borrowing powers are not a panacea or a free ride and we cannot escape control systems.

However, it is worth having the debate.