The Economy

Iain Stewart Excerpts

Thursday 4th June 2015 Commons Chamber

[Stewart Hosie]

I would be slightly more gracious than that. I think that the right hon. Gentleman will make a contribution to his party’s policy development. Let us hope that it moves to somewhere progressive rather than sticking to the kind of austerity-lite position that it had before the election.

We need to squeeze inequality out of the system. The December 2014 OECD report told us that rising inequality in the UK had cost it 9 percentage points in growth between 1990 and 2010. It is an obvious fact: it is not possible to squeeze inequality out of the system at the same time as the squeeze is being put on the poorest in society, and once again this Government are swimming against the tide of informed public opinion.

The alternative to the Government plan is clear; it is the alternative economic plan that we pursued, rather successfully, in Scotland at the election. It is a plan aimed at balancing deficit reduction with increased investment in public services. We argued rightly that with a modest 0.5% real-terms spending increase between 2016-17 and the end of this Parliament we could release £140 billion for essential spending and investment over and above the Government’s plans. The alternative for Scotland is £11 billion of spending compared with £12 billion of cuts. Our plan makes sense. It is a fiscally responsible plan that protects public services, protects investment, really ends austerity and lifts the squeeze off ordinary people, but still sees the debt and deficit fall.

[Iain Stewart]

May I repeat the question put by my right hon. Friend the Chancellor? The Scottish Parliament already has significant tax powers and it will gain more in this Parliament. The leader of the Scottish Conservatives, Ruth Davidson, has pledged not to have tax rates in Scotland that are higher than in the rest of the UK. Will the hon. Gentleman meet that pledge, or does he want to pursue his expansionary agenda and raise taxes?

[Stewart Hosie]

I do not think that Scottish people should pay tax twice for services that we would have if we simply had full fiscal autonomy.

The UK Government have advocated an approach that will result in further spending cuts in the coming years to achieve the fiscal targets set out in the budget charter, but those cuts have not been spelt out in full. The Tories have not said where the axe will fall. The Chancellor said some things today, particularly about in-year cuts and asset sales in certain Departments, but nowhere near enough to explain what he plans to do. Perhaps he or one of his Ministers might decide to come clean with this House later today and tell us where the axe will fall.

Will they really restrict carer’s allowance to those eligible for universal credit, so that 40% of claimants lose out? Will they really increase means-testing for the contributory element of employment and support allowance, or of jobseeker’s allowance, which would see 30% of claimants—300,000 families—lose £80 a week? Will they remove the tax-free status of disability benefits to save £1.5 billion? Will this Chancellor and the Secretary of State for Work and Pensions really take the axe to those most in need to deliver £8 billion of tax cuts, which right now, and I have heard nothing today to change my mind on this, are completely unfunded?

I said that the UK Government plan is designed to achieve the fiscal targets set out in the charter for budget responsibility, but we know that the scale of the spending cuts plan, as set out in the March Budget, significantly exceeds what is required for the UK Government to meet their targets. There is therefore flexibility for the UK Government to meet those objectives without implementing in full the spending cuts that are currently planned for the coming years.

Based on plans set out in the March Budget, public sector net debt is projected to begin falling in 2015-16, and a cyclically adjusted current budget surplus of £35 billion is projected for 2018-19, rather than simply returning the adjusted current account to balance. Therefore, the UK Government have the flexibility to cut spending by less than currently planned while meeting their fiscal targets. I hope the Chancellor uses that flexibility wisely.

I want to move on to the real economy. As our First Minster, Nicola Sturgeon, said, there are three areas where we seek to achieve outcomes at a UK level that will benefit the economy in Scotland. First, we will continue to oppose spending reductions of the scale and speed that the Government have suggested. We believe that those would slow economic recovery and make deficit reduction more difficult.

Secondly, we do not think it is desirable for trade or business for there to be an in/out referendum on membership of the EU. However, since a referendum now seems inevitable, we will protect Scotland’s interests. We propose a “double-lock”, meaning that exit is only possible if all four nations in the UK agree to it, which would quite rightly prevent Scotland from being dragged out of the EU against the will of the Scottish people. [Interruption.] I think we have worked out what the Government mean by “one nation”, and they will need more than one nation to take the state out of Europe.

Thirdly and finally, we will seek greater powers for Scotland, to ensure, at the very least, that the recommendations of the Smith commission are met in full. However, we are seeking additional responsibilities, beyond those that the Smith commission identified, in particular greater power over business taxes, employment law, the minimum wage and welfare, to enable us to create jobs, grow the economy and lift people out of poverty. That was the manifesto on which we were elected.

Those powers will allow us to tackle one of the challenges that the First Minister, and indeed the shadow Chancellor in his speech today, have raised: that of productivity. Those comments are important, not least because they chime with what Mark Carney, the Governor of the central bank, said recently at the launch of the quarterly inflation report. He said that

“productivity growth…is the key determinant of income growth. Our shared prosperity depends on it.”

However, the Bank of England also highlighted the extent to which the UK as a whole has a productivity problem. Output per hour is below pre-recession levels; it is 13% below that of Sweden and 20% below that of Germany. In Scotland we know, and I suspect that the figures are the same for the UK, that if we can boost total factor productivity by 0.1% over a decade, we can see 1.3% additional GDP growth and additional tax yield of around half a billion pounds a year. With better productivity, living standards would be higher and the budget deficit lower.

In Scotland, we have set out how we intend to do that, based around the “four I’s” of innovation, internationalisation, investment in infrastructure and skills, and promoting inclusive growth, but we have also made it clear that promoting a more equal and inclusive society is an important part of building a stronger economy.

The Scottish Government are mitigating the consequences of this Government’s welfare reform, promoting gender equality, investing in early years education and care, and setting targets to ensure that everyone—irrespective of their background—has the chance to go to university. Essentially, that economic strategy sets out a vision of an economy based on innovation rather than insecurity; on high skills, not low wages; and on enhanced productivity rather than reduced job security. We want to climb the global competitiveness rankings on quality, rather than racing to the bottom on costs, and we want to deliver positive change in the real economy to drive changes in the big fiscal numbers. So we have to improve productivity, we need to encourage innovation and exports, and we must support business growth and job creation. There are a hundred things on which we must take specific action, not least delivering fairness in electricity connectivity charges across the grid and certainty in the tax code, and ensuring that businesses have access to bank lending.

I hope that there will be scope within the enterprise Bill to replicate many of the ideas contained within the Scottish business pledge, whereby in return for support from agencies businesses must commit to innovation, to seeking and taking export opportunities, and to paying the living wage. I also hope that there will be scope within the national insurance contributions Bill to continue to bear down on employer costs, to encourage more businesses to create jobs. There must be scope within the energy Bill to end the inequity of a £25.50 per kW charge to connect to the grid in the north of Scotland and a £5.20 per kW subsidy for any old chugger to connect in central London.

I hope that the Budget will support business investment. We have gone from an industrial buildings allowance, done away with in 2007, to an annual investment allowance of £50,000 in 2008, which increased to £100,000 in 2010; decreased to £25,000 in 2012; increased to £250,000 the following year; and increased to £500,000 the year after that. It was then temporarily maintained, but will come to a cliff edge and a grinding halt at the end of the year and revert to £25,000 on 1 January. That is not tax certainty; that is a shambles, and I hope that the Chancellor undertakes to fix it, even at a little cost, in the Budget in July.

We will be a constructive Opposition. We will support individual measures, where they merit it, and seek to mend and improve provisions where they do not. We will also be a principled Opposition, because we oppose the Tory programme of cuts. We wish to see growth and fairness in our economy and more power for Scotland, and we want to support aspiration and deliver help for those who need it most. As well as being a principled Opposition, unless or until our friends in other parties work out what their economic policy actually is, we will be the principal opposition to Tory cuts in this Parliament.