Treasury Spending: Grants to Devolved Institutions

Luke Graham Excerpts

Tuesday 3rd July 2018 Commons Chamber

[Stephen Kerr (Stirling) (Con)]

rose—

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

rose—

[Kirsty Blackman]

I will not give way, because I want to make some progress.

That money cannot be spent on day-to-day services such as our NHS.

On the NHS, our Scottish Government have invested an additional £550 million in health and social care. We have increased the health and sport budget by 9.6% in real terms between 2010-11 and 2018-19. In addition, our NHS Scotland staff will be offered a 9% pay rise over the next three years. That is the highest NHS pay uplift offered in the UK, and I am pleased that we can recognise our NHS workers in this way, particularly in the 70th year of the NHS.

At Treasury questions this morning, the Chancellor confirmed that Scotland’s share of the NHS uplift will be £2.27 billion in 2023-24, but the Treasury has not yet confirmed how this uplift will be paid for. Will it require devolved tax hikes, or will there be a cut to Barnett consequentials coming from elsewhere to fund this additional revenue? The people of Scotland need clarity, and it would be most welcome if the Treasury provided that clarity at the earliest possible opportunity.

The Scottish Government are investing more than £3 billion during this Parliament to deliver 50,000 affordable homes, including 35,000 for social rent—an area that had sadly been neglected by the UK Government. Although it is important that there is enough supply so that people can buy homes, it is also important that those who cannot afford to buy homes have secure rents at levels that they can afford.

In my maiden speech, I said that the Scottish Government’s scrapping of the right to buy was one of the most monumental moves that has been made. I was a local councillor for eight years before I did this job, and a phenomenal number of people were waiting for council housing at that time because of the amount of housing stock that had been sold off. The number of people waiting has now reduced in my constituency and in Aberdeen in general, but this has only happened because Aberdeen City Council is now able to invest in building homes without the fear that they will be sold off immediately.

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[Kirsty Blackman]

Of the homes that the Scottish Government are building, 35,000 are for social rent. The reality is that the Scottish Government have put in place a huge number of schemes to allow first-time buyers to get into the housing market, including joint purchase schemes, whereby people go into joint purchases with the Scottish Government. These measures have been incredibly successful in ensuring that people can get a foot on the housing ladder.

At Westminster, politics gets bleaker by the day. As the Tories hark back to the 19th century, our Scottish Government are pressing on with a forward-looking, 21st century agenda to boost innovation and the economy’s productive base. The Scottish Government have set aside resources of £340 million to provide initial capitalisation for the Scottish Investment Bank. Our Scottish Government do not have power over all the levers to generate economic growth, but we are doing what we can to ensure that our economy can keep pace.

In Scotland, 70% of taxpayers are paying less in income tax this year, assuming that their income has not changed. Some 50% of taxpayers in England—those who earn the least—are paying more income tax than they would if they were in Scotland. Despite all the cuts from Westminster—[Interruption.] I am being queried on this, but these are Library figures—I can send them on to the hon. Member for Stirling (Stephen Kerr) if he is interested in seeing them. Despite all the cuts from Westminster, Scotland is the fairest-taxed part of the UK.

I want to touch briefly on oil and gas; as an Aberdeen MP, most people would expect me to do so. We welcome the UK Government’s move on transferable tax history. We pushed for that for a very long time—I have been raising it for about two years in this place—but it is coming along too slowly. The more quickly the transferable tax history changes can happen in relation to oil and gas, the better. I understand that they are intended to be in place in November this year. I very much urge the Government not to extend that deadline further back, because the quicker this can happen, the better. The changes ensure that new investment can be made in late-life assets in the North sea. It is really important that we ensure that this comes forward.

On investment in the North sea, I would very much like the UK Government to ensure that they are fully behind the Oil and Gas Authority’s “Vision 2035”. This is absolutely vital not just for the north-east of Scotland but, more widely, for any companies that are involved in oil and gas and for all the jobs that are supported by that. To be fair to Scottish Conservative Members, they have been very supportive of “Vision 2035” as well, but the more people who talk about it in this place and outside it, the better. We need to be talking about anchoring our supply chain in the north-east of Scotland and throughout the rest of the UK far into the future, so that even once there is no oil and gas left in the North sea, we continue to have that world-class, recognised supply chain and can continue to generate the tax revenues from it.

It would not be a debate in this Parliament if I did not raise Brexit. The threat of leaving the customs union and the single market is undoubtedly the biggest threat to Scotland’s economy, and so to the Scottish Government’s spending power. For the period 2014-20, Scotland received €476 million in European regional development fund money and €465 million in European social fund money. There has been no commitment from the UK Government that they will plug this gap in spending in Scotland after Brexit. In 2016, the EU common agricultural policy supported payments of £490 million in Scotland. Will the Government guarantee this money beyond 2022? Our farmers need to plan long term about how best to manage their land, and they need clear guarantees.

The convergence uplift moneys of €220 million—as I said, this was mentioned this morning—were supposed to go to people like Scottish hill farmers who are receiving the lowest levels of support in the EU. Unfortunately, because of the way that the UK Government decided to distribute the money, instead of more than 80% coming to Scotland, only 16% came to Scotland. I am very clear that that money should have come to our farmers in Scotland, yet it did not.

[Luke Graham]

The hon. Lady is talking about farmers’ payments. Does she not recognise that over £150 million has been spent on an IT system that has had no benefit to hill farmers and that farmers’ debt in Scotland is at a record high, not because of Westminster but because of the SNP in Edinburgh?

[Kirsty Blackman]

I am very sad that the hon. Gentleman does not recognise that £160 million of EU funding should have come to Scotland. It is important that Members across the House push for this money to come. It is also really important that it is guaranteed in future years as well and not lost now and therefore lost in future years. It is very important that we get that money. [Interruption.] The Minister asks where we will get this money from. What about the Brexit dividend that we are apparently supposed to be getting? The Brexit dividend could be spent on the EU convergence uplift money. I am very clear that there is not a Brexit dividend, but the Government seem to think that there is, so it would be great if some of it could go to places where the EU would have spent it.

Scotland’s universities are world-leading. They generate wealth for our economy, support innovation and increase productivity, but they rely on close links with EU countries. Changes to their funding and collaboration structures could have a devastating effect and wide-ranging economic consequences.

But there are further threats from Brexit, and I want to highlight two. The first is the reduction in immigration from EU citizens that is likely to hit us. This is a problem not just in that it will reduce our cultural diversity and the richness of our society, but in that it will have a direct impact on tax generation. If we cannot attract migrants to live and work in Scotland, we cannot grow our tax base, and we will not have enough workers to support our ageing population.

Every week in my office, I speak to people from outside the EU who have been hit by the UK Government’s immigration policies. Many of them are particularly high earners and have paid a huge amount of tax into the UK Government’s coffers over the years, yet they are being denied the right to stay in the UK. The loss of the post-study work visa also means that the brightest and best cannot stay in Scotland. I am concerned that the system for EU migrants will become as bad as the system for non-EU migrants and that we will exclude highly skilled workers from outside the EU—I will get towards the end of my remarks shortly, Mr Speaker; I can see you getting a bit antsy.

I am really concerned about this. I am constantly shocked that the UK Government believe that making it more difficult to move here will help. They need to be honest with the general population about the fact that migration brings benefits in terms of tax revenues, and more Conservative Members could do with standing up and saying that more often, so that we can take better decisions about immigration. We expect to discuss the Trade Bill and the customs Bill in this place before the summer recess. I cannot make it any clearer to the UK Government: leaving the single market and the customs union is an economic catastrophe. Tariff barriers and non-tariff barriers will have a drastic effect on any company that exports to not just the EU but countries that the EU has trade deals with.

The UK Government are mismanaging Brexit, just as they are mismanaging grants to the devolved institutions. Scotland would be far better off if we were an independent country. If we had the levers to close the per capita income gap with small advanced economies by focusing on productivity, population and participation, we would have an additional £22 billion in GDP and a potential additional £9 billion in tax revenues. That is £4,100 per person. Being part of the UK is holding Scotland back. The UK is not working for us.

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[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

I cannot promise to be equally brief, but I will endeavour to stick to the six-minute limit. It is a pleasure to speak about bread and butter issues—the Barnett formula, Barnett consequentials, Welsh funding—considering that we seem to have been talking entirely about Brexit for the past two or three years.

The Welsh Government total departmental expenditure limit budget sought for 2018-19 is £15.827 billion, a reduction of 3.3% in both resource and capital budgets compared with last year’s final budget. I understand that this reduction has primarily arisen because last year’s revised budget included £300 million of additional funds for student loan impairments, and £278 million carried over from the previous year, neither of which has been repeated. It is also down £269 million because of the block grant adjustments arising from the devolution of stamp duty and landfill tax.

I acknowledge the fact that some significant adjustments have been made, but compared with the original spending review settlement plans for 2018-19, which include £18 million extra for the Cardiff and Swansea city deals, I would argue that the estimates in front of us are symptomatic of a negligent Westminster Government, with a comatose Secretary of State for Wales. Where is the money for the Swansea Bay tidal lagoon project, which was mentioned by my hon. Friend the Member for Aberdeen North (Kirsty Blackman)? Where is the money for rail electrification? Rail experts calculate that it would now cost only £150 million to electrify the line between Swansea and Cardiff, Wales’s two largest cities, in a stand-alone project. This compares with a cost of £400 million per mile for HS2, so the whole project in south Wales could be delivered for less than the cost of a third of a mile of HS2.

When it comes to the Swansea Bay city deal, 90% of the money is Welsh public and private money, yet the British Government are propagandising in the west of my country about how they are about to spend £1 billion in our communities. As it happens, that project is being delivered by Plaid Cymru-led Carmarthenshire County Council, definitely not by the British Government. The excuses given by the Secretary of State for Wales when delivering the bad news centre on the projects not being good value for money for the taxpayer. It is very disappointing that the Secretary of State believes that, and some might really question whether the £4.6 million investment for the Wales Office, which is included in the estimates, is value for money.

There is an adjustment of £16 million because of the 5% uplift on the Barnett consequential in the Welsh fiscal framework. For the first time—this is to be welcomed—a needs-based factor has been added to the calculation in these estimates with the aim of ensuring that Welsh funding converges to a level based on the needs of our country. However, we are still left languishing compared with Scotland and Northern Ireland. Welsh public funding per head will be about £10,076, but in Scotland the figure is £10,651 and in Northern Ireland it is £11,042, which is before we start talking about the £1 billion bung for Northern Ireland. Welsh funding per head also languishes behind that for London, where the figure is £10,192. Wales is certainly getting the bad end of the stick. As David Phillips of the Institute for Fiscal Studies argues:

“Although the inclusion of a need-based element in the Barnett formula is to be welcomed, the agreement makes no provision for updating the assessment of relative need in future. Even at the point of introduction the calculation will be based on an already decade old assessment. This could become a source of tension, if it emerges Wales’ relative need is changing, and the agreement is therefore unlikely to end debate around Wales’ fiscal framework.”

Following the devolution of stamp duty and landfill tax this year and the partial devolution of income tax in April 2019, the Welsh Government and our local authorities—through business rates and domestic rates—will control nearly £5 billion of tax revenues, which equates to about 30% of the combined spending of the Welsh Government and local authorities. However, this is far less than the fiscal power available to Scotland and Northern Ireland. While the Welsh budget will be largely protected from UK-wide economic shocks, by means of the block grant adjustment mechanism agreed in the new fiscal framework, devolved revenues will need to keep pace with comparable revenues in the rest of the UK to avoid a shortfall in the Welsh budget. As Guto Ifan recently wrote in relation to his report for the Wales Governance Centre:

“Increased transparency and budgetary information on the underlying block grant, devolved revenues and the adjustments made for tax devolution will be crucial in boosting fiscal accountability and aiding understanding of annual changes to the budget.”

I welcome the fact that we have got to the point where the Welsh Government now have to raise their own revenue to spend on public services; that will incentivise them to consider programmes that develop the Welsh economy—at the moment, of course, they are merely a spending body.

However, if the formula is to be based on population growth, there is going to be an issue. Even if we turned around the Welsh economy so that it was performing better than the UK economy, which should result in better revenues, there might be no net benefit because our population would be likely to lag behind. That cannot be right: we cannot be running a population-based revenue-related risk. We must look at that again, and I would be grateful if the Treasury agreed. This comes back to the argument made by the hon. Member for Aberdeen North: in the post-Brexit environment, if the formula is to decide the funding available to our respective nations, devolved power over immigration will be important for Wales and Scotland.

The lack of transparency and accountability in Welsh funding could be a problem in the long term. The promised boost in funding to NHS England is a case in point. The British Government have set out their estimated Barnett consequentials for the Welsh Government as a result of the extra £20 billion per annum for NHS England by 2023-24. However, those are yet to be finalised and we are none the wiser as to exactly how the uplift will be funded in England by increases in tax—and how that will impact on Wales, once income tax is devolved in April 2019. I hope those on the Treasury Bench will explain exactly how that is going to work.

Although partly devolving income tax is an important step towards fiscal accountability and responsibility, Plaid Cymru has always advocated for the full powers over income tax that are being made available to Scotland—especially the power to set our own bands. Following the UK’s departure from the European Union, there will be no legal or legislative barriers to the Westminster Government’s devolving taxation powers that would allow each nation of the British state to have the fiscal arrangements that suited its needs—not those of domineering London and the south-east of England.

We need to consider devolving three key taxes following Brexit: VAT, corporation tax and air passenger duty. VAT is particularly important to the Welsh economy. Welsh VAT revenues have been far more resilient than any other major taxes, with about £5.2 billion raised in 2014-15. VAT has become the largest fiscal source of revenue in Wales and performed far higher than the UK average; in contrast, income tax remains the dominant tax in the rest of the UK. VAT would be a very good tax to devolve to Wales.

[Luke Graham]

The hon. Gentleman is talking about VAT. Given that VAT is a regressive tax, is his party’s position to increase VAT in Wales?

[Jonathan Edwards]

The hon. Gentleman has brought to mind my recent visit to the United States: in every state there, sales tax is devolved. The argument is clear. If a tax is performing well in the UK context, it would be good to devolve it to Wales.

The Holtham commission recognised the immense benefits of devolving corporation tax in its 2010 report on finances in Wales. It argued that corporation tax devolution could be a critical part of the transformational change that the Welsh economy needs. Corporation tax has been devolved to Northern Ireland, and the Silk commission said in its report that there was no reason why that should not also apply to Wales. Our problem is that whereas Scotland and Northern Ireland have a range of fiscal powers, the Welsh fiscal portfolio is far weaker, which means that Wales is going to be at a competitive disadvantage within the UK.

Long-haul air passenger duty, of course, is another tax that has been devolved to Scotland and Northern Ireland. That means that the competitiveness of our publicly owned airport in Wales is being held back. Bristol airport opposes the devolution of the tax to Wales and that trumps what is in the best interests of the Welsh economy. The Welsh Government, of course, have no say over the ability of Bristol airport to build a second terminal. That will have a devastating effect on Cardiff airport.

Across the British state as a whole, devolved funding arrangements look increasingly asymmetric and ad hoc. There will now be significant differences in the scale and composition of devolved and reserved taxes across each country: how their block grants are determined and adjusted over time, and the borrowing and budget management capacity of each devolved Government. The British state is changing quickly and we will have to have new structures to manage those changes. With Brexit on our doorstep, the case has never been greater for an independent commission, similar to the Australian Commonwealth Grants Commission, to carry out an assessment of relative need, undertake periodic reviews, arbitrate between tax disputes, and collect and publish information on an annual basis about the allocation of finances and funding to the devolved Administrations. We cannot have a situation where the Treasury is judge and jury.

I would like to finish by talking about the UK shared prosperity fund, which has been a major source of income for investment infrastructure in Wales. Convergence funding between 2014 and 2020 is worth £2 billion. Despite it being two years since the referendum result, there is no clarity at all from the British Government on how that fund will work and how funds will be allocated. That will be a major issue for Wales and we will be pressing the British Government on it.

If the British state is to survive post Brexit, it will require radical restructuring and fiscal policy will be a key element in that. The estimates debate is probably not the right time to make those arguments, but I look forward to putting forward suggestions in the months to come.

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

In her opening speech, the hon. Member for Aberdeen North (Kirsty Blackman) made a number of assertions about spending in Scotland, and I want to refute a few of those. By 2020—these are facts available from the House of Commons Library, as she quoted—the block grant will have grown to over £31.1 billion, which is a real-terms increase over the spending review period. In the 2018-19 financial year, the devolved Administration’s budget will increase by £500 million. Capital will increase by £566 million—£273 million of which is financial transactions, which I will come back to—and there will have been an overall increase of 17% since 2015-16.

The hon. Lady talked about financial transactions. She said that they were not real money and that they could not be spent on real things. That is interesting, because we took a look at the latest draft budget for 2018-19 and the SNP is planning to use £489 million of financial transactions. The funding includes the following: £40 million for the higher education budget, including innovation, low carbon and energy; £68.5 million for Scottish Enterprise; £26.5 million for the energy budget; and most importantly and specifically, since she talked about housing, £221.3 million for housing programmes, including the Help to Buy scheme and the open market shared equity scheme. If she was being truthful and saying that this money is not real and has to go back, has she told everyone back home?

The hon. Lady also talked about farmers. My constituency being predominantly a rural constituency, I speak to farmers every week, and I can say that under the SNP they have not received the support they need. The IT system does not work, they have not had the right rural funding and, to top it off, they now face record levels of farmers debt. That is the legacy of the SNP Administration in Scotland.

[Pete Wishart]

On financial issues, will the hon. Gentleman explain from who the Scottish Conservatives got the £390,000 donated to them over the past few years? It was from a group called the Scottish Unionist Association Trust, which supports his hon. Friends. Where are their addresses, who are their registered shareholders, and are they registered with the Electoral Commission?

[Luke Graham]

This debate is about devolved funding for our constituents. If the hon. Gentleman wants to talk about that, he should go somewhere else.

We have just ascertained in the Chamber that Scotland has received more money from the UK Government. It is now important to look at how it is actually spent. As my hon. Friend the Member for Angus (Kirstene Hair) said, about one third of the 2018-19 budget went on health and sport, but one of the next biggest areas of funding is finance and the constitution, where 11.8% of the budget is being spent. Now, finance and the constitution are all perfectly fine and important things, if they want to make those choices, but it is more relevant when we consider the percentage of spending that goes on education and skills, which is 8.4%. The No. 1 priority for the SNP Administration only gets 8.4% of the funding, versus the—wait for it—12.4% from the Westminster Government that goes on education and skills.

[Stephen Kerr]

rose—

[Luke Graham]

It is the SNP Government’s No. 1 priority and yet our schools are plunging in the international rankings. I give way to my hon. Friend.

[Stephen Kerr]

My hon. Friend has pre-empted my point. Will he remind the House what has happened to Scottish education in the last 11 years under this SNP Scottish Government?

[Luke Graham]

The performance has been lamentable. Scotland’s schools have fallen in the rankings in reading, mathematics and science. We have gone from No. 1 in the UK to No. 3. Scottish education, which was once a byword for excellence in the world, is now merely ranked as average in most international tables. That is not doing Scotland down; it is recognising a problem because we want to solve it.

I am conscious of time so I will come to my last point. We have all heard of “tax and spend” Governments, but we rarely hear of “tax and underspend” Governments, yet that is what we have in Edinburgh. In 2017-18, the Government underspent by £453 million. The Finance Secretary in Edinburgh says, “This is all part of a plan. It is normal to underspend on your budget.” I think the Chief Secretary to the Treasury would probably say it is not normal for Departments to lobby to underspend on their budgets; in fact, they want to meet or exceed those budgets.

This underspend covers £66 million for volatility; £100 million for a new social security system—instead of actually working with the UK Government to build a better devolved social security system; and £50 million from better tax receipts that they are not refunding or reinvesting in Scottish local authorities. This would be bad in one year, but it is in addition to the £191 million underspend from the previous year. The SNP continues to scream for more powers and spending, and yet when its receives the powers, it does not use them, and when it sees the money, it does not spend it.

My constituents are fed up with the mismanagement of the SNP. That is why we Scottish Conservatives have stood here tonight. Why is it that, despite more money going from Westminster to Edinburgh, we still face cuts to our local council services, in Clackmannanshire and in Perth and Kinross, cuts to music education, cuts to support services for disabled people, cuts in infrastructure, cuts to our roads and paths—[Interruption.] If the hon. Member for Perth and North Perthshire (Pete Wishart) wants to make an intervention, he is more than welcome to do so. [Interruption.] Oh yes, I am conscious of time so I will not give way. It is time for the SNP to take account of the money its receives and to take responsibility for the budgets it receives from Westminster; it is not time for my constituents to carry on paying for the mismanagement of the SNP.

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[Patrick Grady]

There is no danger of a penalty shoot-out this evening; the goals are quite clearly being scored by Members on this side of the House.

[Luke Graham]

rose—

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[Elizabeth Truss]

My hon. Friend the Member for Stirling is an extremely effective Member of Parliament from whom Members from all parties could learn.

[Luke Graham]

I have two questions. First, SNP Members regularly question this, so will my right hon. Friend confirm Scottish Conservative Members’ involvement in the Stirling Clackmannanshire deal and Tay cities deal negotiations? Secondly, will my right hon. Friend push the devolved Administration in Scotland to confirm that the money that they have pledged for the Tay cities deal will be new money, not reallocated money, as has been the case with so many other deals, which have taken money from other local authorities?

[Elizabeth Truss]

It was very good to meet my hon. Friend to discuss the Clackmannanshire and Stirling city region deal and I look forward to visiting him and his colleagues soon in Scotland to see how things are working on the ground. I can confirm that we will be working further with the Scottish Government on those issues.

I commend the work that is being done on the oil and gas industry by my colleagues in Scotland. That issue was also raised by the hon. Members for Aberdeen North and for Glasgow North (Patrick Grady). As well as visiting Stirling and Clackmannanshire, I will be going up to Aberdeen to hear directly from representatives from the oil and gas industry. [Interruption.] Well, that is a very kind comment, sir, and may I offer the hon. Member for Ealing North (Stephen Pound) a happy birthday on this great occasion?

A number of Members raised the issue of health funding. As has been explained by the Prime Minister and the Chancellor, we will be presenting the details of how that will be funded in due course and, of course, the Barnett consequentials will be passed to the devolved Administration. It is very important that we ensure that, for every pound of money that we spend, we get maximum value for money. With that money going into the health service, we are making sure that it is improving productivity, improving efficiency and getting the maximum benefit from our hardworking staff on the frontline. That will, of course, be part of the work that we do as well.

On Brexit, we heard the usual contradictions from Scottish National party Members. First, they said that if we were to leave the customs union, which is what we, as a Government, have promised to do, that would be bad news for Scotland. We are, of course, seeking the most frictionless arrangements at the border that we possibly can. They also said that they wanted an independent Scotland, cut off from the rest of the UK. Given that goods worth £46 billion travel from Scotland into the rest of the UK every year, that sounds to me like a highly contradictory statement.

We also heard various comments about Northern Ireland and the additional £1 billion allocated to it. I point out to all Members of the House that, of course, we have the Barnett formula, which is about making sure that consequentials are passed through when there is a change in spending in England, but it is absolutely standard practice that we do fund outside the Barnett formula where it is valid, and we have done so in the past. For example, the Stormont House and Fresh Start agreements were funded outside the Barnett formula. We altered the Barnett formula, as was mentioned by the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards), to make sure that spending levels in Wales are fair, and we have also allocated extra money to city deals across Wales and Scotland, because they have, in many cases, largely devolved purposes.

I am pleased that the hon. Member for Aberdeen North welcomed the funding that we are providing for the potential visit of the American President to Scotland. I confirmed today that we will supply an extra £5 million to cover the cost incurred by Police Scotland. Again, that is outside the Barnett formula. Therefore, we do have the Barnett formula there for the important work that is done across Government, but it is right that we should look at the specific circumstances that we face with respect to Northern Ireland and to getting the right city deals in Scotland and Wales. We need to ensure that we use our funding in that flexible way.

We have heard some fantastic speeches in the House today, but I observe that the champions of fiscal rectitude and enterprise in Scotland sit on the Conservative Benches.