 The next item of business is a statement by Derek Mackay, medium-term financial strategy. The cabinet secretary will take questions at the end of his statement, and so there should be no interventions or interruptions. I call on Derek Mackay, cabinet secretary. Ten minutes please are thereabouts. Presiding Officer, I am pleased to set out the Scottish Government's second annual medium-term financial strategy. When I made the equivalent statement a year ago, I noted that Scotland's public finances were set in the context of continuing UK government austerity, Brexit uncertainty and an inhumane hostile approach to immigration. Disappointed to say that those still set the context for our public finances today. This is a time of unprecedented austerity. At the end of last year, UK public spending as a share of national income had fallen for a ninth successive year in a row, the only time that this has happened since the second world war. The resolution foundation has highlighted that it particularly affects low and middle-income households. Between 2010-11 and 2019-20, a block grant for day-to-day spending has fallen by £2 billion. The decision to pursue a path of austerity by successive chancellors means that over £12 billion less has been invested in the Scottish public services over the last nine years. Let me be clear, austerity is a choice and not one of Scotland's making. The UK austerity policy is unnecessary and counterproductive. Leaving the European Union is not in Scotland's interests either. It is also not Scotland's will. Uncertainty is leading to subdued growth and leaving the EU will compound that impact. The effect of leaving the EU is clearly seen in the economic forecast for Scotland, with growth forecasts to fall from 1.3 per cent in 2018 to 0.8 per cent in 2019. The growth forecast has been downgraded, and the Scottish Fiscal Commission is clear that that is directly related to the on-going uncertainty created by the UK's EU negotiation process. Indeed, the highlight that the uncertainty caused by Brexit has prevented them from revising up their outlook for the Scottish economy and the expect business investment to continue to fall in 2019 and 2020 as a result limiting growth in the economy. Let that sink in for a second. The independent forecasters of our economy have said that if it would not for continued Brexit uncertainty, it would be forecasting faster economic growth, not slower. There is now no doubt that Brexit is hurting Scotland before it has even happened. In the 2014-20 EU budget round, Scotland is estimated to receive over £5 billion in funding from the EU, supporting jobs, delivering infrastructure, sustaining rural communities and delivering research funding for our universities. In the absence of firm commitments, we cannot yet quantify levels of funding in the future and the impact that that will have on the Scottish budget. However, the Scottish Government has been clear that, given that Scotland voted overwhelmingly against leaving the EU, funding levels should not be reduced as a result of the UK's exit, nor should those funds be centralised in London. Against the backdrop of UK austerity and uncertainty, we are committed to using our powers in a balanced and responsible way to stimulate the economy, protect public services and provide people and businesses with as much certainty as possible. Decisions made in the 2019-20 budget ensure that 55 per cent of income taxpayers in Scotland in 2019-20 will continue to pay less than people earning the same income in the rest of the UK, while still raising the revenue needed to support investment in the Scottish economy and public services. Had we applied UK income tax policy in 2019-20, we would have been over £500 million with less to spend. Growing and supporting the economy is essential for financial stability and for providing the resources for our public services. Our economic action plan sets out the actions that will deliver sustainable and close of growth, improve wellbeing and attract investment across Scotland. Over £1 billion has so far been committed to city, region and growth deals over the next 10 to 20 years. The aim is to ensure that every part of Scotland benefits through 100 per cent coverage. We have recently introduced a legislation that will underpin the Scottish National Investment Bank, an institution that will help shape our economy through mission-led patient investments. Under the national infrastructure mission, annual infrastructure investment will be £1.56 billion higher in 2025-26 than the £5.2 billion that we are already investing in 2019-20. I can confirm that I have accepted the recent recommendations of the Scottish Futures Trust to adopt the mutual investment model as one means of supporting infrastructure spending, which will extend a range of tools at our disposal to provide crucial capital investment in Scotland. Alongside the MTFS, the Scottish Fiscal Commission has published new economic and fiscal forecasts. As I said earlier, the negative economic impact of leaving the EU is clearly demonstrated in the forecasts. With economic growth forecasts to fall from 1.3 per cent in 2018 to 0.8 per cent in 2019, however, the forecasts also point to a resilient Scottish economy, with employment rising further over the next five years. Unemployment remaining at near record lows and earnings accelerating. The SFC has also produced updated income tax forecasts. Those have increased in every year from 2018-19 over the forecast period relative to the SFC's December forecast. For 2019-20, the forecast of income tax revenues has risen by £20 million, largely driven by an improved outlook for earnings. However, forecasts for the block grant adjustment, deducted from the budget each year, have gone up by even more. That means that the net contribution of income tax to the 2019-20 funding envelope on the basis of current estimates is about £188 million smaller than forecast in December. That position is indicative that the 2020-21 budget will be determined by the next round of forecasts by the SFC and the OBR in the autumn. I have set out in this medium-term financial strategy a set of principles and policies that will guide the use of our borrowing and reserve powers. Decisions are guided by the principles of sustainability, stability, budget flexibility, intergenerational fairness, value for money and transparency. However, it should be clear that the circumstances that determine the use of our powers will often depend on factors beyond our control, with UK Government spending decisions continuing to be the main factor in determining the Scottish budget. On capital borrowing, the MTFS sets out plans to borrow £450 million this year and £350 million next year. It is our policy to borrow between £250 million and £450 million annually over the remaining period of the national infrastructure mission to ensure that investment increases overall year on year. To ensure that there is flexibility to undertake capital borrowing when it might be most needed, a contingency of £300 million of the capital borrowing limit will be left unused. That strikes the right balance between supporting the economy and the prudent use of the restrictive borrowing powers contained in the fiscal framework. Finally, let me turn to the framework for the spending review. The UK chancellor committed to a spending review this summer. However, in the context of continuing uncertainty over Brexit and the impending change of Prime Minister, it is, like most things relating to the UK Government, unclear if that will actually take place. Nonetheless, reflecting the importance of sustainable public finances, the Scottish Government plans to undertake reviews of spending beyond 2020-21. We will fulfil our commitment made during budgets of 2019-20 to bring forward a three-year settlement for local government in 2020-21. In line with the national performance framework, the spending review focus will be on creating a more successful country with opportunities for all of Scotland to flourish through increased wellbeing and sustainable and inclusive economic growth. It will be driven by a strategic focus on addressing Scotland's long-term challenges. For resource, we are currently planning to publish indicative budgets in December 2019, alongside the Scottish budget 2020-21. However, if we do not have sufficient clarity from the UK Government on its spending plans at that stage, that may not be possible. We will expect resource spending proposals to focus on outcomes and evidence, so, as far as possible, the impact on the specific challenges and opportunities that we face around securing sustainable and inclusive economic growth, improving national wellbeing, combating child poverty and meeting our statutory targets and tackling climate change and the climate crisis. For capital, future budgets will be published by June 2020 to take account of the infrastructure commission's findings to be reported at the end of December 2019 and the Scottish Government's next infrastructure investment plan, which will be informed by the commission's advice. It is clear from what I have said already that the resources that are available to the Scottish Government will be constrained by continued UK austerity. We recognise that we will not be able to do all that we want to do or all that others want us to do. Prioritisation will be necessary to focus resource where it will have the biggest impact. I look forward to a responsible debate on how we best deliver those outcomes, and I commend the medium-term financial strategy to the chamber. The cabinet secretary will now take questions on issues raised in his statement and tend to allow about 20 minutes for questions after which we need to move on to the next item of business. Can the members who wish to ask a question to press their request to speak button sound a Colin Murdo Fraser? Thank you, Deputy Presiding Officer. I start by thanking the financial strategy for advanced site of a statement, although he had redacted so much of the key data. It was frankly of little value. I have to say to him that he made a false statement in the forward to this document. The document says that there has been a £2 billion real-terms reduction to our block grant since 2010. As the cabinet secretary knows perfectly well, that is an untrue statement. According to Spice, the block grant is up in real terms since 2010, so I think that he should start by apologising for a misleading Parliament in respect of that particular statement. The latest data shows that, despite Brexit, the UK economy performs well, with record high employment, growth exceeding Germany and, according to the IMF, growth over the next five years is projected to exceed its western European average. That is under a Conservative Government. In contrast, in Scotland, under an SNP Government, we have a dismal picture that has been painted this afternoon, with growth projected to lag well behind the UK and the gap to grow between average UK performance and Scottish performance. Are we now in the area of a potential Scotland-specific economic shock? What is he going to do with the powers at his disposal to address that? Secondly, he announced today a £180 million reduction in forecast income tax receipts, according to the Fiscal Commission figures. That is on the back of previous income tax shortfalls forecast from 2017-18, £145 million and, from 2018-19, £472 million. How will the cabinet secretary fill the gap created by his policies? Will he be increasing taxes and, if so, on whom and by how much? Or will he be cutting spending and, if so, where? People deserve to know the truth. Cabinet Secretary for Health and Sport, you would expect everything I ever say in this chamber is true and will continue to be true. The Tories clearly cannot make up their minds when we have got good economic indicators in Scotland. They think that they have got a responsibility in the Scottish economy when they are less good. They think that it has nothing to do with them and it is all the Scottish Government. In fact, on GDP, Scotland is outperforming the rest of the United Kingdom. The most recent quarter is an example of that. Murdo Fraser mentions unemployment. We have got record low unemployment in Scotland right now and also outperforming the rest of the United Kingdom. When Murdo Fraser has the time—I am sure that he will look through in great detail at the SFC report—the reason for subdued growth in Scotland is Brexit. Of course, that is the fault of the Conservatives in the UK and a damaging Scotland's economy by the decisions and the mismanagement that they are now in control of. In terms of that accusation around underperformance, the SFC has shown that Scottish GDP growth will be slower than UK GDP growth over the forecast period, primarily because of slower population growth in Scotland. Who controls population growth in Scotland? The UK Government overpowers migration. We have an economic action plan that will grow our economy, specifically in relation to income tax reconciliation. The scale of any reconciliation is not certain until we have the actual outturn data. There would always be volatility, the SFC has admitted that, but it has shown increases in income tax in terms of forecast for Scotland over the forecast period relative to its December forecast, cumulatively an increase of more than £430 million between 2017-18 and 2023-24, largely driven by an improved outlook for earnings. The SFC notes that, due to historic forecast errors for such a large tax, there will be negative reconciliations, which should not be unexpected, and we may see extended periods of positive reconciliations into the future. We have been acting to grow our economy. There is also vindication for putting some resources into the reserve so that that can be managed if there is that volatility. We also have borrowing powers as well, but we are confined and bound by austerity as well. Murdo Fraser is only truly happy when he is utterly miserable. The Tory position in Scotland seems to celebrate that Brexit will do less damage in England than in Scotland. We will continue to balance the books using all the powers at my disposal in a responsible and sustainable way. Before we move on, I have been quite liked here, but that was a bit of a mini statement. You know well that it was, so we can have crisp answers, please. I call James Kelly to be followed by Patrick Harvie. Thank you, Deputy Presiding Officer. I thought that the cabinet secretary was getting another 10-minute statement there. I thank him for his advance copy of his statement. Even though the number of black marks throughout the statement was consistent with the theme of the black holes in Scotland's public finances, the bleak figures that are announced today, specifically the cabinet secretary, indicate that there is a potential £188 million less in the spending envelope for 2019-20. We will worry about those who care about what is going on in Scotland's communities. People who have to wait hours and hours for ambulances, families with kids at school who see education resources having to be cut by councils, and those who are stranded on train station platforms with trains that do not turn up in time as they await journeys to work will not welcome today's statement. I specifically ask the cabinet secretary then what action in terms of the medium financial strategy is he going to take to address the gap in Scotland's public finances and also the gap in whole in Scotland's public services? Cabinet secretary, mindful of what I said previously. The redactions in the statement are those that have been agreed by the protocols of the Parliament around that sensitive data. That should not be news to anyone. We have been doing it since we have had this sensitive data. It was better than the alternative budget that I got from the Labour Party, which was a total blank page. Never mind a few redactions from a statement in a report. We will continue to invest in the public services of Scotland, oppose austerity, try to mitigate the impact of Brexit. Should it happen, there is an opportunity to avert Brexit. If we actually did that, if we were able to avert Brexit and end austerity, there would be a massive windfall to the public resources of Scotland, because we would be able to invest in the way that the Tories have constrained us. In terms of the powers that we have, I have been balancing the books responsibly, allocating some resources to reserve. It was opposed, if I remember correctly, by the Labour Party, but I also use the reserve borrowing powers, if required, in terms of that forecast error, if that comes to pass. We will have more data on that and then we will respond accordingly, but a way that gives sustainability for a public services. I am grateful for the advance copy of the statement. I am pleased that green influence on tax policy has meant that there is more money available for Scotland's public finances than there would have been if we hadn't changed tax policy. If Murdo Fraser is worried about who is going to be paying more tax next, I would be very happy if he and his classic motor were next in line. If he has seen the analysis from Spice about six months ago about the pipeline of capital investment and foreshadowing the threat that there is going to be a shift back in the direction of high-carbon capital projects in the existing pipeline, how is that consistent with the Government's commitment to continually shift capital spend away from high-carbon and toward low? Why should we believe that the Cabinet Secretary is right and that Spice is wrong at the moment? For the reasons that Patrick Harvie has just given, if that was a six-month-old report, what we have to look at is our current infrastructure investment pipeline. Clearly, the First Minister has declared a climate emergency and our policies should suit that investment plan. The infrastructure commission will also advise us and will take the time to recalibrate our capital spending plan. There is now the opportunity to recalibrate capital spending, including the principle that we set out in a budget negotiation to invest more in low-carbon. We have now made a commitment in terms of the reduction in emissions. Of course, our spending commitments must follow that as well. There is now an opportunity to influence those commitments. Willie Rennie followed by Bruce Crawford. Last year, we had a catastrophic forecasting error for income tax. The impact was initially only on the baseline. However, the lower income tax forecasts are still expected to have an impact on the 2021 budget and the year after. Can the finance secretary tell me how much the approximate scale of the negative reconciliation requirements for the next years have changed since the news of this error from the fiscal commission and the OBR was released last year? Willie Rennie talks about £188 million worth of change. What does that leave for cuts to the budget? Cabinet Secretary for Education and Skills again, I think that Willie Rennie shouldn't conclude the one option for the budget when we have a range of levers that we can deploy if there is forecast error because of the SFC forecast, which does include use of reserves and borrowing. Yes, we may have to look at expenditure as well, so there is a range of tools that we can deploy in the knowledge that there will be a substantial variation in that forecast. What has changed substantially is the OBR's forecast. The OBR's forecast is what has changed in terms of the block grant adjustment, rather than necessarily just focusing on the SFC. That is just one part of the story. Details are throughout the SFC report and the medium-term financial strategy. Right now, we should prepare for that, but bear in mind that the out-turn figures in July are absolutely critical, because they will help us in the next round of forecasting, which will be the one that sets the budget. However, it is wrong to conclude that there are cuts to the Scottish budget when we have other economic levers. There are other levers that we have to address that forecast error, but I say again that those variations may well be substantial, and that is why we need to look at the out-turn data and not just the forecast. Murdo Fraser cried wolf in financial matters soft in the chamber. No-one really hears his bleeding any longer, but as far as the cars are concerned, I can say that I saw Murdo recently in a very good hybrid motor, to be fair to him. I like your question, please. Enough of cars. Would the cabinet secretary agree with me that those indicative income tax forecasts are simply just up their forecasts? As we know, with one certainty about forecasts, they are almost certainly wrong. Given that the fiscal framework requires the cabinet secretary to pay heed to those forecasts, I wonder if he can say how he is thinking on whether or not the current borrowing powers and limits that exist within the fiscal framework are sufficient to deal with the risk of forecast error. I suppose that that partly relates to Willie Rennie's point. If there is a substantial variation and reconciliation that is required, it may well be that the borrowing powers and the use of reserve because of the levels of drawdown that are tapped may be inadequate to address the scale of adjustment that may be necessary because of reconciliation. I think that there is good reason to look again at the drawdown limit so that we are not constrained in the actions to address the reconciliation that may be required because of forecast error at the hands of the OBR and the SFC. Dean Lockhart followed by Maureen Watt. Let's be clear, cabinet secretary. Scotland's economic underperforms long predates Brexit. In fact, over the past 12 years, we have seen annual economic growth of just 0.7 per cent, and this economic stagnation is set to continue. You have laid out growth forecasts. Question, please. Just 0.8 per cent next year compared to 1.2 per cent for the UK economy. So isn't it time that the cabinet secretary recognised that his economic policy is creating a low growth, low productivity and low-wage economy? It's been economy, secretary. GDPs outperformed the forecast, unemployment is at record low, outperforming the rest of the United Kingdom, exports are up more than the rest of the United Kingdom, and business enterprise research and developments outperforming the rest of the United Kingdom. I think that I'm doing no bad. Maureen Watt followed by Mark Griffin. The fiscal framework sets out on page 13. How the Scottish Government's block grant is adjusted to account for the proposed VAT assignment. Could the cabinet secretary explain further his view on this proposal, the risks involved and the potential volatility that could impact on the Scottish Government's spending plans? I have appeared at the finance committee. I have written to the chief secretary's treasury. I am concerned about the volatility and the lack of data that informs this. 1 per cent error in that regard could cost the Scottish budget £100 million, so I think that we have to get it absolutely right and not add to the volatility of the Scottish budget, and that's why I'm reflecting on the position as it relates to VAT, which is not a power, it's a signation. Given that this is a five-year plan, can the cabinet secretary say where in the strategy are the billions of pounds needed for an income supplement that will cut child poverty and meet the Parliament's interim target in just four years' time in 2023? It's not intended to be a mini-budget. It's not intended to set out the individual spending commitments, so I haven't done that in this process. That is something that we would consider as we approach the budget. As I heard Trillia and Somerville say just moments earlier, there will be a further report to Parliament in terms of child poverty in June, and I'm sure that the member, with a keen interest in this subject, will look forward to that update to Parliament. I wonder if the cabinet secretary can comment on whether he feels that the Scottish Fiscal Commission is overly cautious in their forecasts and how they compare with the OBR as far as accuracy is concerned. Would he agree with me that there are always going to be variations in forecasts? Those are not errors, they are variations. Cabinet secretary, I'm not particularly keen to give a personal judgment. We've got two sets of economists giving us their forecasts. I don't propose to add a third view of the Scottish Government. We have to follow both sets of forecasts. That's the agreement, that's what we're doing, but it is true to say that errors will be inevitable. However, how we manage it, approach it and have that reconciliation is a matter for us, and that's why I'm looking very carefully at it. It is true to say that the different methodologies and forecast assumptions, different timings, different fiscal events, sometimes lead to a difference in position between both forecasting organisations. Bill Bowman fall by Emma Harper. The cabinet secretary speaks at length about the choice of UK austerity. Andrew Wilson's growth commission predicted £27 billion of austerity over 10 years. Will the cabinet secretary agree with me that it is the better choice to remain as part of the UK? Cabinet secretary. The austerity and notional deficit that we experience is because of being part of the UK. UK is not the remedy to it. Independence is the remedy to a subdued economic growth. The growth commission of which I was a member shows a pathway to deliver that sustainable economic growth that will grow public services and public investment in real terms. Emma Harper fall by Neil Bibby. Cabinet secretary, we know that for the Tories to remain in power, they reached an agreement with the DUP to the tune of over £1 billion so far. If such money had been subject to Barnett consequential calculations, as it should have been, what does the cabinet secretary think would be the fiscal picture for Scotland today? Cabinet secretary. That way would have been £3.3 billion better off. Neil Bibby fall by David Torrance. I agree with the finance secretary that Brexit is having a significant impact on economic growth in Scotland and the UK. A downgrade of growth will of course affect jobs and living standards. The Scottish Government is proposing a citizens assembly to discuss the constitution again, as it is the number one priority. Given the urgent need to grow our economy, why does not the Scottish Government instead convene a summit of industry, trade unions and economic experts to agree an urgent plan to boost Scotland's economy and the finances that support our public services? Cabinet secretary. Because I already meet all those people and that is why we are already seeing growth in GDP, record low unemployment, record investment in business enterprise research and development and a plan around internationalisation that is seen as enhancing our exports. We are doing more around innovation and inclusive growth. All of that is at threat. It is actually working, because of the indicators that I have just mentioned. It is absolutely working, but what is subduing from members who clearly have not even read the SFC report will know what the independent forecasters are saying is the reason for subdued growth and a downgrade in performance is Brexit. Maybe the Labour Party could help us in averting Brexit. There is an idea. Thank you, Presiding Officer. The fiscal framework was originally due to be reviewed after the UK and Scottish Parliament elections in 2020 and 2021 respectively. Obviously, a lot has changed in the preceding years and with everything so far that has come to light, will the cabinet secretary foresee the possible benefits of an early review of the fiscal framework? We have an agreement in the fiscal framework to allow one-fills Parliament of use of those powers to inform that review in that debate. The number of issues that Parliament and I have raised with the Treasury would suggest that we should look at the agreement to see whether there can be further flexibility and concession around it, because it will have an impact on the public finances of Scotland. Thank you. That concludes questions on this point of order. I am very grateful. On a point of order, I wonder if you and the other Presiding Officers could reflect upon the provision of information to members of the opposition parties in advance of statements such as this. I have just seen an announcement by the Scottish Fiscal Commission. Can I just ask you to sit down just now? I was sitting here when the cabinet secretary said that there was a protocol when there is sensitive information. I do not want to repeat what you say. It is on the record. Can I ask you to look at what is on the record first and then return if you feel that it is necessary with a point of order? It is not a discussion. You are referring to the redacted parts of the statement. Oh, you are not. I beg your pardon. I am grateful, Presiding Officer. I was not referring to the redacted matters. I am referring to the Scottish Fiscal Commission forecast, which is integral to the statement that has just been made. We are not made available to opposition parties before the statement was announced. The Fiscal Commission said just in the last few minutes that its reconciliation anticipates that the budget for the current year will be reduced by £229 million. Sorry, the budget for next year by £229 million, and the budget for the following year by a staggering £608 million due to income tax reconciliations. Had that information been made available to opposition members prior to the statement that we have just heard— Can I ask you to sit down just for a moment? Yes. I hear what you are saying. I do not want to open this up to a debate at the moment, but we will reflect on that and, if necessary, we will return to the point that you have raised. I am sorry that I anticipated you. I thought that you were going to go on for redacted points. I may now move on with the leave of Mr Fraser to the next item of business, which is a debate on motion 1746. The name of Ivan McKee on a trading nation I'll give members a few moments to take up their seats.