Public Finances: Scotland

Debate between David Mowat and Stewart Hosie

Wednesday 3rd February 2016 Commons Chamber

[Stewart Hosie]

No. The hon. Lady is absolutely wrong; we are not having second thoughts about the powers. We want the powers—indeed, we want more powers—but the agreement that is reached must deliver a Scotland Bill in line with the Smith commission principles, in particular that of no detriment.

We want to avoid a potential additional cut of £3.5 billion over a decade.

[David Mowat]

Will the hon. Gentleman give way?

[Stewart Hosie]

Not at the moment.

What is remarkable is that the motion does not talk about public finances or the impact of getting the fiscal agreement wrong. It is almost exclusively focused on the process of negotiating a formula—a formula that, of course, must deliver no detriment, which was one of the key principles identified by Lord Smith. Although fairness for Scotland is recognised in the motion, many other drivers of Scotland’s public finances are not.

[Stewart Hosie]

Not at the moment.

There was a cursory passing reference to Labour’s plan, which was announced yesterday, to make Scotland the highest-tax part of the UK. That has a bearing on the public finances. It is a Labour plan to add to the tax burden of half a million Scottish pensioners. It is a plan to add to the tax burden of 2.2 million taxpayers. In essence, it is a plan to change the public finances by taxing Scots more to pay for Tory cuts. That is the weakness in Labour’s plan.

[David Mowat]

rose—

Scotland Bill

Debate between David Mowat and Stewart Hosie

Monday 8th June 2015 Commons Chamber

[David Mowat]

I have not taken any money from anyone, or given any money to anyone. The hon. Lady’s constituents in Oldham receive roughly £1,600 a year less from public spending than they would receive if they had the same demographic profile and lived north of the border. That is an anomaly, and it is an anomaly that causes a potential risk to a settlement that is necessary and right.

Conservative Members do not question the fact that there is a Scottish Government now, and that that Government have entitlements.

[Stewart Hosie]

The hon. Gentleman is knowledgeable about this matter, and he was right to say that no subsidy is implied by Barnett. Unlike most of his colleagues, he looks at both sides of the balance sheet. However, he spoilt that by talking about a needs-based assessment. Does he recognise that that would imply a £4 billion cut in Scottish funding, right now?

[David Mowat]

I recognise that a needs-based assessment —that is, an assessment that will result in public money being spent where it is most needed—is fairer. However, I am not saying that it should be introduced immediately, as it would be with full fiscal autonomy, and as it would have been had the hon. Gentleman’s party won the referendum. Such things can be done over a period of, say, 10 or 20 years. There can be a target for the achievement of fairness.

As I was saying, no one questions the right of the Scottish Government to provide free prescriptions and free tuition—if that is their priority—and to make different arrangements for social care. However, if such provision is predicated on a baseline of funding that is unfair and wrong, it is reasonable for us to question it, and not to let the Scottish Government get away with saying that they can take such action because it is progressive. That is neither fair nor right.

We are talking about a formula that is based on need, and a formula that the late Joel Barnett was desperate to get rid of. A House of Lords Select Committee made the position very clear. Moreover—this is not mentioned often enough—the Holtham commission identified the serious underfunding of Wales as a consequence of the Barnett formula. That problem will have to be addressed in Scotland. It is true that public spending must reflect sparsity, and must reflect the fact that Scotland’s population is more spread out. However, it also needs to reflect relative ageing and relative measures of deprivation.

Currency in Scotland after 2014

Debate between David Mowat and Stewart Hosie

Wednesday 12th February 2014 Westminster Hall

[Stewart Hosie]

No. I have only five minutes.

The hon. Member for Edinburgh South suggested that so much money had been put into Scottish banks. I draw his attention to chapter 1, paragraph 1 of the report by the Parliamentary Commission on Banking Standards. The cash cost at peak is reported to be £133 billion—that was £47 billion to Royal Bank of Scotland in return for 82% of the stock, around £25 million into Lloyds, and smaller amounts to the Icelandic and other financial institutions. Where taxpayers are still on the hook is the near £50 billion owed to them from Northern Rock and Bradford and Bingley, which may be many things, but they are not Scottish banks. The notion that the argument was ever about Scottish banks bad, English banks good, must be knocked on the head.

The old chestnut about Scotland in a sterling currency zone being like Greece was also raised. Greece’s problem had nothing to do with being in a currency union and everything to do with appalling productivity. As we know, Scottish productivity is nigh on identical to that of the rest of the UK. That would avoid such problems entirely.

[David Mowat (Warrington South) (Con)]

Will the hon. Gentleman give way?

[Stewart Hosie]

No. I do not have time.

The hon. Member for Edinburgh South rightly and understandably prayed in aid Dr Carney’s recent speech, which he said did not pass judgment on the relative merits of the different currency options for Scotland, but instead drew attention to the key issues. However, Dr Carney did point out that any arrangement would be negotiated and that the Bank of England would implement whatever monetary arrangements were put in place. That is to be welcomed, not just by me, but by the 71% of people in the rest of the UK who support the continued use of sterling after Scottish independence. The same proportion—71%—of Labour voters in Scotland also support the continued use of sterling after independence.

The hon. Member for Edinburgh South and the no campaign seem to fail to understand what Scotland brings to the table. Of course we recognise the constraints—I will come on to them—but we bring export revenue receipted in sterling. The impact on the sterling balance of trade would be immediate and significant were Scotland somehow—impossibly—forced not to be able to use sterling. The same applies to trade—the rest of the UK sells £60 billion into Scotland. If we were forced to use a foreign currency and transaction costs were applied, that would imply a catastrophic loss to English businesses: additional costs that the no campaign never mentioned.

Let us put the matter into context. In 2012, the rest of the UK sold into Scotland more than it did into Brazil, South Africa, Turkey, Russia, India, South Korea, China, and Japan combined, yet we hear from the no campaign that they do not want us to use sterling, even though that is impossible, which would imply massive transaction costs and the loss of jobs in the rest of the UK. I am sure that is not something they intend to do.

Scotland Bill

Debate between David Mowat and Stewart Hosie

Tuesday 21st June 2011 Commons Chamber

[David Mowat]

rose—

[Stewart Hosie]

I have already given way five or six times and I want to make progress. There will be plenty of opportunities for hon. Members to intervene later.

There is a very strong case for additional powers. Evidence shows that corporation tax can be a key element in a country’s overall economic strategy and it has the potential to promote economic growth by enhancing international competitiveness and encouraging innovation and investment. As the Minister said, we have long argued for devolution of corporation tax as a powerful means of addressing the economic challenges facing the Scottish economy. We believe that a centralised and uniform corporation tax structure disadvantages nations such as Scotland to the benefit of London and the south-east of England. To say that is not to be anti-London or anti-south-east; it is just to say that when businesses reach a certain size, they tend, other things being equal, to be attracted to the largest conurbations. In the UK, that of course means London.

The evidence base for devolving corporation tax powers to Scotland is pretty clear. Over the last 30 years, as I said at the beginning, Scotland’s economy has grown more slowly relative to both the UK and the average of other small EU countries. One reason for that relatively weaker economic performance has been the relatively smaller corporate sector in Scotland relative to other parts of the UK. Business birth rates are lower, the business base is smaller and Scottish companies typically engage in less research and development.

As I said, there is also evidence that Scottish headquarters drift south of the border once businesses have reached a certain size. Effective use of corporation tax could serve as a powerful tool to address those trends by improving competitiveness and encouraging investment and expansion. Evidence shows that, at the margin, corporation tax rates can be an important factor in international firms’ decisions about foreign direct investment, which is one of the key objectives of the Scottish Government and Scottish Development International.

At the same time, a number of key sectors in the Scottish economy face tough competition from abroad. Companies abroad receive attractive tax breaks as part of allowances in relation to corporate taxation. The computer games industry, for example, has received a very attractive proposition from Dublin, and receives tax breaks in Montreal that have been denied by our Government despite forceful representations to the Minister by members of all parties. Improvements in those areas will help to boost productivity and, ultimately, the competitiveness of the Scottish economy, which will benefit not just Scotland but the United Kingdom as a whole.

The devolution of corporation tax powers is not solely about making possible the creation of a more competitive environment within the Scottish economy; it also about increasing and promoting accountability. A greater devolution of economic policy levers and tax revenues means that the Scottish Government will have the levers that they need to increase sustainable economic growth, and an opportunity to reinvest the proceeds of that growth—higher long-run tax revenues—in Scotland’s public sector. Having control over corporation tax would also mean that the Scottish Government would bear the risk on the economic levers. We believe that positive reform must be about balancing the revenue and expenditure implications of policy choices, and about giving policy makers the levers to promote economic growth.

[Stewart Hosie]

The hon. Gentleman must have been asleep for the last 14 minutes, because that is precisely the question that the hon. Member for Edinburgh East (Sheila Gilmore) asked. I am surprised that he did not hear or understand my answer to her question, which was that the corporation tax yield would fill the gap caused by the reduction in block grant.

[David Mowat]

The hon. Gentleman made a powerful point a few moments ago, if I heard him aright. He said that, unlike the United Kingdom, which has a significant deficit, Scotland had experienced a surplus over the last few years. Can he tell us how, in reaching that conclusion, he accounted for the bail-out of Royal Bank of Scotland?

[Stewart Hosie]

I have two answers to that question. The first is that in the 40 years before the crisis, Scotland experienced a surplus on average. The second relates directly to the hon. Gentleman's question. I am fed up with the argument that runs “Scottish banks bad, English banks good.” There seems to be a failure of basic understanding. Northern Rock took £20 billion, as did the Lloyds banking group. No one seems to speak about Northern Rock. Bradford & Bingley required £37 billion. RBS required £45 billion, but a large chunk of that related to the asset protection scheme. It was not a question of Scottish banks’ being bad and needing to be bailed out while all other banks were fine.

I do not want to drift too far from the new clause, but the Office for Budget Responsibility made it clear in its assessment earlier this year that the net impact of the financial crisis measures would be a surplus of £3.5 billion for the taxpayer. It is interesting that the hon. Gentleman does not seem to know what the out-turn figure is likely to be.

Amendment 25 provides for powers to charge a tax charged on the profits of companies—

Scotland Bill

Debate between David Mowat and Stewart Hosie

Thursday 27th January 2011 Commons Chamber

[Stewart Hosie]

The arguments in favour of the reasoned amendment will be made and they will explain, I hope with some support, why there are flaws in the Bill.

The Bill contains two fundamental fiscal measures: first, the reduction in the basic higher and additional rates of income tax by 10p, and the setting of a Scottish rate to compensate for that; and secondly, the availability of limited revenue and capital borrowing powers. Revenue borrowing will fill a part of the gap left when revenue decreases and a limited increase in capital borrowing will enhance direct capital investment.

However, the income tax powers are inadequate and include an in-built, long-term deflationary bias in the Scottish budget. The borrowing powers, particularly the revenue powers, are so tightly controlled that they are unlikely to be effective in delivering the sensible outcomes that many of us want. It is also worth noting that even the devolution of the income tax, the small stamp duty land tax and the landfill tax means that the Scottish Parliament will still have direct control of only 15% of the taxes raised in Scotland, with the remaining 85% accruing directly to London. I do not intend to talk about full fiscal autonomy, which there has been some talk of, but as a comparator we can look to the Basque country, which has been mentioned. It controls around 86% of its revenue.

I want to concentrate on the specific problems with income tax provisions. Receipts are sensitive to changes in economic circumstances and might fall dramatically in a downturn, as I will explain later. That presents an instability to the budget in Scotland, because we are talking mainly about income tax and the shortfall that would not be matched by the Bill’s provision of very limited borrowing powers. Growth in income tax revenue is low when compared with that of total tax revenue, and that is obviously deflationary, because only the modest growth in income tax will accrue to the Scottish Parliament, with the higher growth in total tax accruing still to London.

The figures between 2004-05 and 2008-09, for example, show that total tax revenue increased by £13.7 billion, but under the proposed plan the Scottish Government, although they control 15% of the tax, will receive only 9% of the increase. That automatically begins to squeeze the Scottish budget. Even within income tax, the most significant growth comes from the higher rates, and most of that growth will not be available to Scotland.

Historically, higher rate taxpayers account for a larger share of the growth in tax receipts, and therefore most of the growth in income tax receipts will accrue directly to Westminster, not to Scotland. We might, in fact, receive a declining share of Scotland’s income tax yields, because we are assigned half the basic rate, one quarter of the 40% rate and only 20% of the 50% rate. The impact of that deflationary bias can best be demonstrated by assuming that the powers had been in place since 1999-2000. Since then, the impact of the shortfall against forecast departmental expenditure limits would have represented an accumulative cut of about £8 billion.

[David Mowat]

I understand the hon. Gentleman’s point about a deflationary bias vis-à-vis the total tax take, but, in comparing the proposal before us with the status quo, what is relevant is the increase in income tax versus the increase in public spending. That is the basis on which the current Barnett allocation works, and on that basis Scotland is likely to do better in the short term.

[Stewart Hosie]

That is not necessarily true, and we need to look at both these measures: the growth in income tax versus the growth in total tax, and the percentage of the share of growth that we receive from income tax alone, owing to how it will be assigned to Scotland, with most of the higher parts being accrued still by the UK, where growth is likely to be higher.