Devolved Administrations: Borrowing Powers

Hugh Gaffney Excerpts

Tuesday 9th July 2019 Westminster Hall

[Luke Graham (Ochil and South Perthshire) (Con)]

I beg to move,

That this House has considered borrowing powers for devolved administrations.

It is a pleasure to serve under your chairmanship, Sir Gary. I thank the House for allowing this important debate on the borrowing powers of the devolved authorities across the United Kingdom. People might be wondering, “Why have this debate?” We have a packed audience here to listen to it, which shows the importance of the powers and why they matter so much for our constituents. If people do not realise how much the powers matter, hopefully this timely debate will help them to see that.

Funding is often contested. Speaking as a Scottish MP, and as I am sure colleagues will attest, there is confusion about the powers available for tax raising and borrowing, as well as about where the funding comes from—Westminster, Edinburgh or a local authority. That stands in Wales and Northern Ireland as well. In my constituency of Ochil and South Perthshire, recently a Barnett consequential for the high street and towns fund was denied. Representatives of the devolved Administration in Edinburgh said that there was no Barnett consequential, and that the funding came from Edinburgh. It is important to have this debate to discuss exactly where the money comes from, and the powers that devolved Administrations have throughout the United Kingdom.

There is also some confusion on social media; I am sure cross-party colleagues will agree. When funding plans are welcomed or criticised, there are often such comments as “Scotland has no powers to borrow any funds”. Today’s debate will hopefully be an opportunity to demystify the borrowing powers of the devolved Administrations and some of the funding routes across the United Kingdom. I hope that it will make the situation clearer and will raise the debate to a higher standard right across the UK—in Westminster, Edinburgh and at local authority level.

I start with the facts. All devolved Administrations can borrow. That includes Scotland, Wales, Northern Ireland, and even some of the devolved areas in England, although powers and the amounts vary across the devolved Administrations. I will attempt to make things clear for constituents and those who want to learn more about our financial settlements. Those powers will often be split into two parts: capital, going to assets, and resource spending, which is more cash-based.

My focus is very much on Scotland. I have some live examples, and I am sure colleagues will have interventions to make. In Scotland, local public revenue raises about £60 billion, which is about 8% of UK GDP. Expenditure stands at just over £73 billion, which is about 9.3% of the UK’s spend, so there is a gap of about £13 billion between what we raise in Scotland, including the oil and gas revenue that is often quoted, and what we spend. That gap is bridged by central Government, by other tax revenue raised in Westminster from across the United Kingdom.

What powers does Scotland have for additional tax raising and borrowing? Tax-varying powers have existed since devolution started. We had some flexibility over the penny on income tax. Obviously, our powers increased through the Scotland Acts 2012 and 2016, and we now have powers to vary the income tax bands—powers that the Scottish National party Administration in Edinburgh have used. They have lowered taxes for those earning under £26,990. If someone earns less than that threshold, they are now about £20 better off per year. That is about 38p better off per week—very helpful if someone wants to buy a Tunnock’s Teacake. Someone who is in the higher tax band will be charged about £1,500 more than other taxpayers in the United Kingdom.

[Mr Philip Hollobone in the Chair]

That is a significant point. Not all the higher-rate taxpayers in Scotland—about 14% of Scottish taxpayers—are ludicrously wealthy; the people who fall into that tax band will be teachers, doctors—some will be nurses—and public servants, as well as some very hard-working private sector workers. They should have their hard work rewarded; they should not be penalised for being in Scotland.

We want to attract more people to Scotland. As my hon. Friend the Member for Angus (Kirstene Hair) has brought up many times, this issue is especially important for our armed forces. Everywhere else around the world, they pay the Westminster rate of tax. It is only in Scotland that they are penalised and have to pay additional tax for being based there. Being based in Scotland is, of course, a benefit, and that benefit should not be eroded by the tax system imposed on them by Edinburgh. Thankfully, due to the work of my colleagues and the Government, that tax impact has now been neutralised, and members of the armed forces will now pay no more tax in Scotland than they do in other parts of the United Kingdom.

Devolved Administrations can borrow. Scotland can borrow about £3 billion for capital and about £1.75 billion for resources. What does “resources” mean? Breaking it down, it means that if we are a bit short in our cash flow in Scotland, we can borrow up to £500 million for cash. About £300 million is for forecast errors, and we see some of those coming through at the moment. There is a fantastic National Audit Office and Public Accounts Committee report on devolved income tax collection in Scotland. It makes for fantastic night-time reading; it clearly outlines some of the difficulties and costs of having additional income tax rates in Scotland.

[Hugh Gaffney (Coatbridge, Chryston and Bellshill) (Lab)]

The hon. Gentleman is making a good point about the limited borrowing powers in the Scottish Parliament, which do not match the growing taxation powers. Yesterday, the Foreign Secretary ruled out more economic powers for the Scottish Parliament in his Tory leadership bid. Would the hon. Gentleman agree that the Scottish Parliament needs greater borrowing powers to invest in the Scottish economy?

[Luke Graham]

In short, no. We should use the borrowing powers that we already have. The SNP Administration underspent by a reported £450 million in the last year; that shows that the proper economic programme is not being put forward for Scotland. They are not delivering for us. We have the power to vary tax rates, we have additional borrowing powers, and we do not have half the risks and responsibilities that the Treasury in London has to bear, yet in each of the next four years, we are forecast to underperform, compared with the rest of the UK. Going back a year, we were the lowest performing economy in the OECD and out of the G20 advanced economies.