John Swinney was Deputy First Minister of Scotland; at the time of recording, he was interim Finance Minister.
This interview was conducted on 1 November 2022
Q: Could you tell us about your role in growth and regional policy over the past few decades?
Thanks very much, and it is a great pleasure to take part in this project.
Since I became a minister in 2007, I’ve never really been that terribly far away from any economic issue within the government. For the first seven years of our administration, 2007 to 2014, I was the Finance and Economy minister in the Scottish government. From 2014 to 2016, I was the Deputy First Minister and the Finance and Economy Minister. After 2016, I have been Deputy First Minister, with responsibilities for education – and, now, COVID recovery. (I find myself back, during a period of maternity cover, exercising the finance and economy responsibilities while Kate Forbes is on maternity leave.)
In a governmental sense, I have been immersed in the arguments around the public finances, economic development and economic opportunity. Over the ten years before that, first as a Westminster MP and then for eight years in the Scottish Parliament, I was always immersed in the economic arguments. I chaired the Enterprise and Lifelong Learning Committee of the Scottish Parliament in the early days of the Parliament from 1999, and then was very much involved in the discussions about any aspect of economic development within Scotland. From both an opposition and a government perspective, I have spent the best part of 25 years being close to economic development arguments – with a substantial opportunity to influence them in the period after 2007.
Q: How has policy has developed in Scotland, and in the UK, over that period? What have been the key successes, and what are the key frustrations you’re still encountering?
The actions of a Scottish government under devolution are inevitably framed by the policy framework of the United Kingdom. So much of the financial decision-making of the UK still has an effect on the Scottish budget, and the choices available to a Scottish government and the Scottish Parliament. But there has been the ability to make certain choices and to place a greater emphasis in particular ways that are appropriate, in terms of the priorities that we think should be taken forward.
Within a financial framework set largely by the United Kingdom, there is the opportunity to take forward policy interventions that make a particular difference, and to make particular choices. After the financial crash in 2008-2009, we took a very interventionist approach on public works and infrastructure. For example, private housing markets had largely ground to a halt, with significant potential impacts on the construction industry. So I made a number of choices about prioritising public sector investment that enabled us to make substantial progress on employment retention, skills retention and ultimately, an economic recovery from that period.
I think that theme of intervention is one that we have deployed substantially. We’ve tried to design a skills approach which met the needs of the marketplace, and also the changing needs of the marketplace. Education policy has been pretty much entirely devolved. That gives a lot of scope to configure education priorities and skills priorities to meet our needs.
We’ve also been able to make some long-term investments which are designed to reshape the labour market, for example, through substantial expansion of early learning and childcare. When we came to office, parents of three- and four-year-olds would get 475 hours of free early learning and childcare. That’s now 1140 hours, and it’s extended into a proportion of two-year-olds. That’s been designed to try to reshape the labour market and to provide more economic opportunities, in our efforts to undermine long term levels of economic inactivity.
In a range of devolved policy areas, you can take action, which can have an effect on economic policy. At the same time, the framework of the United Kingdom dictates a lot to the choices available within Scotland.
We’re always running up against the constraints of, I would say, the extent of the choices that are available to us – and inevitably to the question of money. We can now reshape the financial base of Scotland – to a greater extent than we could in 1999 – through the choices that we can make on taxation. We are exercising those powers. We are generating more tax revenues than would be the case were we to just follow the tax policies of the United Kingdom. That generates more revenue, which enables the investment to be made. You can reshape things to a certain extent, but you will always run up against the frustrations of resources.
Then there are economic interventions. I am immensely frustrated about migration. That’s a huge factor in our economic prospects. The absence of an orderly, organised approach to migration is a real strategic economic threat to Scotland. When I go back 20 years, the population question really exercised the Labour and Liberal executive that preceded us. Completely understandably, they took steps to secure measures to relax the approach to migration. The UK government agreed to them. We supported them as an Opposition. They were really welcome measures. They were largely overtaken by events with the expansion eastwards of the European Union. But now, our whole population question is strategically undermined by the implications of Brexit and the loss of free movement of people. That’s causing acute problems. If I put my finger on one significant fact just now, that absence of population growth and the threat that poses to us is the most significant financial risk that we face.
Q: Scotland has held its own, in economic terms, relative to the non-London parts of England and Wales. How much of that is due to devolution and leadership in Scotland, and how much other factors?
I think this devolved government provides a focus, without a doubt. It brings accountability. I feel incredibly accountable. The focus and the intensity of scrutiny drives that process of accountability, which brings a higher level of performance and effectiveness. I think leadership is really important, and the ability to hold that leadership to account – to pressurise that leadership to deliver – is important.
Another element of it is that we – and I say this also about our predecessors in power – have never shied away from intervention. There was a willingness to get our sleeves rolled up and to try to sort things, proactively or reactively.
Then, there’s always been a pretty strong theme of Scottish economic policy focusing on regional economic policy within Scotland. I remember an early conversation when, as Finance Minister, a successful Scottish business person said to me, ‘You don’t need to really worry about other aspects of the Scottish economy. As long as the Edinburgh economy is surviving, the rest of Scotland will be fine.’ I remember sitting there thinking, ‘Well, that’s the last thing I’m going to do, because it will just replicate in Scotland the position that exists – and that I rail against – in the United Kingdom: the predominance of London.’ Regional economic policy has always been significant.
The last thing I would say is that we have bucked the trend on inequality because we’ve wanted to. It’s been an active policy choice to try to tackle inequality. I can’t see how Scotland can thrive – how public services can be sustainable – without a broad tax-paying base. One of the priorities taken forward in the aftermath of COVID is a focused set of initiatives on tackling child poverty. We’ve now got child poverty at the lowest level within the United Kingdom – though it’s still very high in Scotland. We see that as a means of intervening in the economy. To tackle economic inequality, we’ve got to put childcare in place; put transport in place; put employability measures in place.
We’re starting to see the erosion of long-term economic inactivity within Scotland, though I don’t want to suggest that that is in any sense accomplished. It may also be a product of the fact that we’ve got a tight labour market and there are extensive opportunities for employment in Scotland today. We’re beginning to see movement in the levels of economic inactivity, which is very welcome. They’ve taken a long time to come about.
Those factors – of leadership, consistency of policy, and the purpose of policy – have been very important. I think the devolved structures enable a lot of that to come about.
Q: What are the big economic policy steps you have taken, which you couldn’t do before devolution given distinct structures in UK government like the Scotland Office?
I am not certain there are a lot of things that we can do now that we couldn’t do pre-devolution. But I think we have undoubtedly chosen to do other things.
The Scotland Office, pre-devolution, did things that were different to policy in England – but really not that different. My recollections are largely driven from a post-1979 environment (I was 15 in 1979). The Thatcher government predominates in my view of pre-devolution. If I was characterising the Scotland Office at that time, there was slightly different policy and a willingness to intervene, perhaps to a little bit more of an extent than the Thatcher government was prepared to do in England. But the choices were not really that different.
I think devolution opened up the possibility of exercising a range of choices and – almost in the nature of devolution – encouraging that. Why would you set it up, if you weren’t expecting some difference to prevail?
As confidence in devolution arrangements has advanced, we’ve been able to take more ambitious policy steps. When you look at things now, the options available to somebody in Scotland who’s living on the wrong side of inequality: there are childcare interventions; there are family support interventions, with the Scottish child payment; there are employability initiatives and measures for skills training. That would give you a very different set of opportunities to overcome inequality than in England. That’s come about by really focused policy making to make that happen.
Q: Could you tell us more about your thinking on regional economic policy in Scotland? Has that developed over time?
I think part of it is about recognising the different challenges of particular areas. Take, for example, the Highlands and Islands. The biggest challenges there will be about access to affordable housing; and access to connectivity, through digital connectivity or transport connectivity; and access to higher and further education and skills development. All of these are tied together with the overall issue of population growth.
We have to make sure we’ve got a proposition that works in the Highlands and Islands to address all those issues. So you’ll have, for example, the University of the Highlands and Islands, providing access to tertiary education available in every single locality for Highlands and Islands. That’s a huge opportunity. You’ve then got investment in locally based housing structures to try to make it possible for young people to leave the family home and remain in employment locally.
In the City of Edinburgh, the focus is much more on the development of some of the really high-value university-, business- and health-research spinoffs that emerge and generate high-value economic opportunities in the east of Scotland. We’re seeing an increasing number of those prevailing.
In the west of Scotland, the challenges of inequality are much greater. We’ve got to look there at much more, addressing the obstacles to employability for people and the interruption of intergenerational poverty. The interventions we deploy there are more community- and skill-based, to try to support people, than perhaps we see in other parts of the country.
Then for somewhere like the northeast of Scotland – which has historically been able to really set its own agenda because of the preponderance of oil and gas and the economic opportunities there – we’ve got to get into a really interventionist approach on managing the just transition that’s got to take place there from oil and gas into more sustainable energy sources, compatible with our ambitions on Net Zero.
There’s four different parts of the country. We’ll be taking very different approaches with different focuses, and we’ll engage with regional economic partnerships which have emerged. This is one other strength of the arrangements in Scotland. We are able, because things are close at hand, to bring the key players together and get them marshalled and focused in the same direction, to a much greater extent than I think is the case in England (although some of the recent mayoral arrangements in England are allowing that). If you take the northeast of Scotland: oil and gas has been the dominating sector, but that sector is now using its muscle to provide leadership to what the transition looks like. We can gather universities, colleges, local authorities, public bodies round that agenda in a very cohesive way.
Q: How do you institutionalise those different regional policies? What structures exist across Scotland? What lessons are there to learn from that?
When devolution was established, there were two significant economic development agencies in Scotland: Scottish Enterprise, and Highlands and Islands Enterprise. They had emerged from the history of the Scottish Development Agency and the Highlands and Islands Development Board. The HIDB was a product of the 1960s and Scottish Development Agency the 1970s. They had morphed into these organisations.
We’ve essentially kept economic development agencies in place throughout. We’ve expanded too: we now have South of Scotland Enterprise, alongside Scottish Enterprise in the middle, and Highlands and Islands Enterprise in the north. We’ve always had those agencies. They have been delivery bodies focused on economic development, and their roles and their purposes have broadened and narrowed and broadened and narrowed over time. But, fundamentally, they’ve always been there.
England had a tier of these bodies – Regional Development Agencies – and in the post-2010 Conservative government got rid of them all. I can’t tell you how much we looked at that and thought that was a mistake. I don’t think I’m exaggerating to say that our agencies felt that the ground had been cleared for them to have even more scope, with for example the competition for foreign direct investment becoming less acute.
Significant economic development agencies – well-resourced, well-led, professionally-driven – was something we decided to maintain. They were created in the ‘60s and ‘70s in Scotland. We’ve never gotten rid of them. That explains part of my earlier point, about the greater acceptance of the role of intervention. The post-2010 decision in England said everything to me about why what we’ve done was the right thing, and why what was done in England was the wrong thing.
Q: There is a debate in Scotland, and in the UK as a whole, that says it is better to build a competent centre to drive change rather than to decentralise and risk haphazard or failed local delivery. How has that debate played out in your experience?
I think it’s a really substantial issue. We came to power in 2007, and I started a discussion with local government. I’d been observing years of frankly fractious relationships between local government in Scotland – which up until 2007 was very much dominated by the Labour Party – with a Labour-led Scottish executive.
Funnily enough, recently, I was emptying a cupboard and I came across a folder of press cuttings that we all used to keep of those days. Here was kind of every cough and spit of the tension between the Labour-led Scottish local authorities and Labour-led Scottish executive about; just total hostility about all these things.
I start this conversation with local government where they basically wanted to be released to pursue, much more flexibly, some of the decision-making. I listened to this with care. I decided, after a few months, ‘We’ll do this.’ I removed ring-fencing from a whole host of different government funds, and put it all in a big pot and said, ‘There you go.’
I would say that, for about four or five years, that worked reasonably well. Local government rose in its capacity and its capability. Then the money squeeze started coming on in about 2012 and outcomes started declining. The natural pendulum swung back into ring-fencing again. Now, we are actively looking at relaxing a lot of that because we’re all fed up with it. We don’t think it’s achieving as much as it could do.
If I then flip into the economic geography that I’ve just been talking about, I wouldn’t for a moment say that we have directed those economic development agencies. We’ve allowed them to get on with it. They’ve had localised responsibilities to deliver good outcomes in individual localities. We have not been sitting all over them saying, ‘You must do this over here because we need it to be in this area.’ We’ve left them to it. We’ve given them a direction of travel as ministers, and they’ve got to turn that into their operational priorities.
Generally, I have found that has created a sense of common purpose around economic policy. For example, Highlands and Islands Enterprise and the local authority came to us to create a new educational, business and research campus in the city of Inverness – an emerging and developing city, but very much a peripheral city. We accepted the proposition. We funded it and we supported it. That one intervention has led to, comfortably, a doubling of the footprint of the city of Inverness in ten years, and a massive increase in GVA in the hands of islands to the extent that the Inverness numbers now skew the entire Highlands and Islands performance. That was about recognising and responding to an agenda coming towards us from the locality, and the government was able to weigh in behind it. It’s a significant illustration of what’s possible if you give that scope to individual localities.
I don’t say any of that to dismiss the tension that exists, because you will be held to account in Parliament for every thing that happens in our locality. That’s something I’m conscious of all the time. For example, if a local authority decides to reduce its number of teachers, we’ll feel the heat of that in Parliament. We will want to bind that local authority, so they don’t start creating a problem for us about the number of teachers in the teaching profession. That tension is very alive. But I think we’ve managed to avoid it on many economic development questions.
Q: There have been UK-wide attempts to influence policy on this in Scotland, as in the Whitehall-led City Deals, led by Whitehall. Was it appropriate for Westminster to push for a change in your relationship with local government within Scotland?
I think if you step back and think about the theory and the logic of the devolution of power, then the answer to your question is, ‘No, it was not appropriate.’ But if you take a more charitable view – which is, we’ve all got a common interest in stimulating economic activity in all localities – then shouldn’t we align our priorities to the best arrangement possible?
If I look at the original City Deals, I don’t look at a lot of the projects within those and think anything other than, ‘These are pretty sound policy propositions to take forward.’ After a while they began to fall into disrepute, and they began to become – particularly post-2017 – as pork-barrel exercises from a Westminster perspective. I can think of funds that have been created in some parts of Scotland, which I think, ‘If I was making a choice about what were the rational range of priorities to take forward, that wouldn’t be in there.’ They’re in there because a Tory MP, who was elected in a marginal constituency, managed to persuade a UK minister this had to go into the deal. I think that undermines the credibility of these deals.
When you then take that step further, you’ve concepts from the UK government around Freeports and Investment Zones. We would call them Green Ports, that’s been a product of a very long negotiation between Kate Forbes, our substantive Finance Minister, and Michael Gove. Michael, to be fair to him, accepted the need for a jointly constructed policy approach – whereas the later City Deals were fractious and difficult, I would say.
I have got absolutely no clear line of sight for where the currently policy is heading. But what I’m saying to you is that there is a place for grown-up shared policy endeavour. It has to be done in a fashion that respects our devolved competence. When that is not done, it is a source of enormous frustration, enormous tension and enormous conflict as a consequence.
Q: What has been more important, the initial powers to vary tax rates devolved to the Scottish Parliament, or the further devolution of a Scottish rate of income tax since?
I thought the original tax-varying powers that the Scottish Parliament had were not the most effective powers – but they were symbolic of the fact that the public wanted or thought there was a justification for different choices over taxation. Although their operability was limited, their symbolism was significant in the development of Scottish devolution. I think, following the Smith Commission in the aftermath of the independence referendum, there was obviously a broader range and suite of powers which we are now exercising. That contributes to strengthening the accountability of the Parliament and the government.
Q: Are there implications there for the debate about fiscal decentralisation in England?
You’ve got to make sure that you’ve got sufficient powers and flexibilities to deal with the consequences of having those controls over devolved taxes. You’ve got to be able to take decisions which can counterbalance any particular difficulties and challenges that will arise out of the exercising of those powers and or prevailing economic conditions. If you just have a lopsided set of powers, then you might end up having to take a lopsided journey through exercising governance.
For example, we’ve exercised our tax powers to the limit that we’re prepared to do. We’ve set a budget on the basis of what we’re doing for this current financial year. But the effect of inflation is eroding the value of that budget to the tune of £1.7 billion in this financial year. I’ve got public sector pay deals where I’m settling somewhere between five and seven percent when we expected to be settling at two. I don’t really have anywhere to go about varying or compensating or taking account of any factors arising out of that, other than to say to Parliament, I’m afraid the following programmes that we ordinarily would have liked to take forward we can’t take forward because I’ve got to take the money and put it against public sector pay deals.
We are dealing with intense pressure in financial year, with no ability to respond. We can’t borrow for resource expenditure – there’s some advice to the mayors – and we can’t change tax rates in year because we’ve got to set them by law at the start of the financial year. We’ve used all the reserve flexibility. Our reserve flexibility only allows us to carry from one year to the next, so we have to do that. That’s baked into our budget.
The only thing that can vary for me is if the UK government decides to inflate English departmental expenditure, for which we will get a Barnett consequential. That’s a plea I’ve made to three Chief Secretaries to the Treasury over the last couple of months. I’m waiting to see if I’ve got any more luck with the third one.
Q: Are bilateral conversations the right way to resolve those problems, or does there need to be a more formal structure?
Over a long number of years of financial interaction with the UK government through the Treasury – and I don’t say any of this disrespectfully, because I do have a very high regard for the Treasury and for the role that it performs – is that it is a bit like a bulldozer. Its will has to prevail. I would go through lots of discussions with Treasury ministers and ultimately I knew I was always operating on the basis of needing them to agree with me, rather than me being able to exert having some route by which I could resolve any of my issues.
That prompted me to take a particularly strong stance in the Smith Commission, where I insisted – to the point that I really exhausted a lot of people’s patience – on the fiscal framework having to be agreed with the Scottish government. Not consulted upon, which was the preferred wording of the Treasury. There were to be discussions and consultations; everyone was happy with that. I insisted on the words agreed with the Scottish government because I knew if I didn’t get that in there, I would end up getting trampled over. We got that in there, and ultimately we got to a situation where we had a fiscal framework we could live with post-2016 because we were able to. We had that protection.
There is a body called something like the Fiscal Intergovernmental Steering Committee, or FISC. Over my time, we’ve had Joint Exchequer Committees and all this kind of stuff. Ultimately, those Joint Exchequer Committees – and again, I don’t say this with disrespect – were a kind of window dressing. They were a forum in which I could turn up and say to the Chief Secretary, ‘We should be doing this. We should be doing that. We need this. We need that.’ Sometimes, territorial Secretaries of State were be involved in them as well.
I remember one memorable occasion where Danny Alexander was chairing one of these exchequer committees. The territorial Secretaries of State were there, and Cheryl Gillan was there as Welsh Secretary. A charming, lovely lady. Sammy Wilson was articulating on behalf of the devolved administrations – we decided he was the best one to go in. I would just be provocative as the Scot going up against Danny Alexander – doing the presentation and arguing his case and all the rest of it. And Cheryl says, ‘Well, I think that sounds like quite a reasonable proposition that Sam was putting forward.’ Michael Moore, the then Scottish Secretary, says, ‘Cheryl, can I just remind you whose side you’re supposed to be on?!’ It descended into hilarity and, actually, not a bad outcome came out of that because there was a bit of personal chemistry. But I wouldn’t for a moment suggest that any of these frameworks are effective.
It’s not just about money. It’s these frameworks on an intergovernmental basis don’t really have any real effective functionality just now. I saw a couple of decent examples of substantive discussions when Gordon Brown was the Prime Minister and David Cameron was the Prime Minister. Gordon Brown, in the aftermath of the financial crash, where we were all searching for solid solutions; and David Cameron struck me as being interested in understanding how you made devolution work. But then that petered out. I suspect the run up to the referendum killed that off.
Q: Notwithstanding the SNP’s ultimate aim of independence, would tax-raising mayors in England be a help in those Scottish-Westminster negotiations?
I think anything that reconfigures the landscape of the United Kingdom from its current predisposition will undoubtedly help in that respect. Even in my warm reflections of the conversation that Cheryl Gillan, the presence of three devolved governments in a negotiation with the UK government, with a bit of reasonableness and good humour, was able to make a heck of a difference.
We found very strong common cause in trying to influence policy and decision-making, for example, with Sadiq Khan on some of the issues around about COVID. There’s ways in which that can happen.
I’m not immersed in it, but the structures of England have to fundamentally change to make any of this possible. It can’t just be an English bloc. There is such a range in diversity. I get the sense that mayors are giving much more impetus in certain parts of the country than has previously been the case.
Q: What do you think is the most important lesson for us to take away as we pursue balanced regional growth in the UK?
There has to be diversity across the different parts of the United Kingdom. There has to be a locality-driven agenda to that, and that locality has got to be sufficiently empowered to bring it about.
The issue that really keeps me awake at night is inequality. I think it’s eroding so many aspects of our society today. What frustrates me is that to make a substantial impact on inequality, you’ve got to be able to have a consistent, sympathetic policy climate to make some headway. It frustrates me that if I look back at the last 20 years, that significant headway was getting made on tackling inequality by the Labour government up until 2010 and then this was blown away. That got totally wrecked. The framework of the United Kingdom inevitably shapes what we do, whether we like it or not. We make headway, and then we just trash it with an austerity agenda. In Scotland, we are fixated by the efforts to erode inequality, because inequality’s undermining so much else within our society. But the way I would characterise it is that we are swimming against the tide.
Q: You have been at the receiving end of devolution from Whitehall, but have also had to make decisions about devolving within Scotland. You recognise the challenges of balancing local agency with parliamentary accountability. You wear both hats. What would your advice be to England’s mayors on what they should be doing to make a success of devolution? What would your advice be to Whitehall if they wanted to make it work?
The Blair government in 1997 responded positively to a very clear aspiration from Scotland about how Scotland wished to exercise its governance. Now, that was not my proposition. I’m an independence man, this was devolution. But Scotland had constructed a proposition which said, ‘This is how we want to be governed.’ To the Blair government’s credit, that was delivered. So my first observation would be that advice to English mayors is: have a really clear proposition of what you want, because only if you’ve got that do you have any chance of making headway. Getting a dominant, deliverable proposition is really important.
I think then, what you’ve got to reflect on is: what are the right issues on which to enable local discretion? Where is it advantageous to have accumulated influence? Let me give you an example. We took forward a reform to create Police Scotland, a single police force for the whole of Scotland. Yesterday, we had a riot in the streets of Dundee with people setting off fireworks and all the rest of it. One of the local members of Parliament said to me today, ‘Best thing we ever did was have Police Scotland,’ because in minutes from all across the country, police vehicles were making for the city of Dundee in volume that made a difference. Locality policing could be strengthened in a way that would never have been the case. It’s not about making the phone calls between the chief constables to get mutual assistance in place today when it all happened yesterday.
If I go back to my example about some of the work that’s going on in the northeast of Scotland to navigate the just transition from oil and gas, allowing enough local flexibility and initiative is critical to enable that to be the key. You’ve got to make a sensible and sensitive judgement about what is the right balance to strike, and be constantly willing to do that. You must avoid – and this is where I think Whitehall gets itself into a lot of trouble – taking it for granted that you, Whitehall, can do it better than anyone else. I suppose I have to accept that maybe there’s a sense that sometimes Holyrood doesn’t think that anyone could do it better than Holyrood. We’ve got to guard against that.
END