Long-term Capital for Business

Luke Graham Excerpts

Tuesday 15th January 2019 Westminster Hall

[Stephen Kerr]

Anyone would think that my hon. Friend and I were working in some form of symbiosis, because the very next thing I wanted to say was that the need for investment is never more pertinent than in the technology sector, in which large American corporations invest speculatively and then buy companies when they reach a sufficient level of development. One reason that so many British businesses go that way is that they reach a stage where their access to affordable long-term capital dries up. This is not just about start-ups but about how a business accesses capital to be able to invest in new assets or capabilities.

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

My hon. Friend makes a valid point about access to capital for companies going into their mid-stage development. He makes the point about size, but is it not also about geography? Many companies that are further away from the capital bases in London and Edinburgh, especially across Scotland and in northern England, do not get that same access to capital. It is incumbent on us to make sure that our companies can be connected with capital, so that they can grow in the way we should all want them to.

[Stephen Kerr]

I am grateful to my hon. Friend and constituency neighbour for that very valuable intervention. I will return to that idea shortly.

As I said, this is not just about start-ups; it is about how businesses access capital to be able to invest in new assets or capabilities. There is an abundance of evidence to suggest that our capital investment system is addicted to short-termism and is risk-averse. Risk is built into the capitalist system. Investment, by definition, includes a calculation of exposure to risk. The more risk-averse we become, the less inclined we are to invest in new ideas or ventures, because they might fail; the returns might not materialise. It is implicit in—I would argue essential to—the free enterprise economic system that there is acceptance of the inherent risk of failure. However, anecdotally, we have become less willing to accept that risk.

The banks obviously were badly burnt because of their recklessness in respect of risk. They then set about recapitalising their businesses, at the expense of small and medium-sized businesses. That led to some of the gross abuses and alleged criminality that is still the subject of ongoing inquiry. That is an outstanding injustice; it has still to be remedied. I do not want to spend too long on the past misdemeanours of the banks—we have had many debates on that subject in Westminster Hall and the main Chamber, and I am sure that we will have plenty more—but restoring confidence to the small and medium-sized businesses of this country necessitates that something be done about the scandals of the past decade. Banks will not take a long-term view, and if we entrust our productivity to them we will have no long-term economic future.

That said, I certainly do not want to be guilty of using this debate as a platform to spread doom and gloom—that is not in my nature—because there are very many good examples of private sector long-term investment. CityFibre is a good example. It is investing £10 million in Stirling. That will make fibre-to-the-premises ultrafast broadband available to every household and business in the city. Stirling will soon become one of the top digital cities in the United Kingdom—something that I am proud of. When we look at the bigger picture, we see that CityFibre is investing £2.5 billion across the UK. The investment will take many years to recoup, but the investors have faith in the product and are willing to be patient while the company makes the money back. Their planning horizon is measured in decades. Now, that is something akin to my definition of long-term investment.

Around the world, many countries, although they do not have this particular set of problems and although they have not cracked things entirely, have a different system of capital deployment. I would like to pause on the German example—I have used this before in Westminster Hall. I have already explained the successful indicators of productivity and capital investment in the German economy. KfW is the German national development bank. It came about as a result of the Marshall plan; it was set up for the purposes of post-war reconstruction. It supports infrastructure investment, lending some €47 billion, it acts as a lender to local authorities and, most importantly, it supports small and medium-sized enterprises. In 2017 it lent some €8.2 billion to small and medium-sized enterprises for start-ups and scale-ups. It lends money, provides equity funding and provides mezzanine financing to cover all aspects of capital investment. Some 90% of the bank’s funding is from the private sector, in the form of debt that is backed by bonds. It is owned in partnership between the federal Government and the individual states. It does not appear on the national balance sheet of the Federal Republic of Germany.

As the United Kingdom leaves the European Union, we will no longer have access to the European Investment Bank. That bank invested more than £2.5 billion in the UK in 2018. That was our money that was invested—it was gleaned from borrowing on the back of the British taxpayer—but we will need to find a way to replace that level of financing, because there will be a hole in the capital provision landscape. We need to look at the investment bank model in detail. It would fulfil the need for a patient capital investment vehicle, as outlined in the industry panel review. The case for a major intervention in this way is, in my opinion, justified. The lagging productivity in our economy is a major risk to our economic prosperity, and we need action now. This cannot wait any longer. It especially cannot wait until after we have resolved the issue of Brexit. Our thinking in this area is a vital part of our preparations for our economic wellbeing after we have left the European Union.

We have the British Business Bank, which has some of the functionality of a national investment bank, so there is tacit acceptance by Government of the problem that I have been attempting to describe. The big issue with the British Business Bank, as I understand it, is that it does not seem to have equal coverage across all parts of the United Kingdom.

[Luke Graham]

As my hon. Friend is talking about the British Business Bank, will he join me in welcoming the expansion of the bank announced in the Budget, which places people on the ground in Scotland? He and I have been asking for that since we came to this place.

[Stephen Kerr]

Yes. I am grateful for that very important point of information. It is important that the British Business Bank has representation in all parts of the United Kingdom, but currently it is still limited in its mission because of its limited scope of operation and it does not really behave like a bank, even though that word is in the title. Its model of supplying finance via existing investment funds means that its base of operations is quite limited and seems to favour, if you will forgive me, Mr Walker, the south-east. I am happy to be corrected, but the British Business Bank does not seem to have the kind of extensive operation on the ground that it needs in Scotland, even with the announcement in the Budget.

I would like to see the British Business Bank operating across the breadth of the United Kingdom, interacting with the economy on the basis of a clearly defined mission, including small and medium-sized businesses, operating at arm’s length from the UK Government, and raising its own capital rather than simply being a channel through which public funds are disbursed.

I am not being critical of the British Business Bank as it stands, because I am a fan, but I am advocating that it evolve into something more. That something more is what the industry panel patient capital review advocated—namely, an investment vehicle to support the scaling up of British businesses and capital-intensive start-ups. By investing in equity directly through such a vehicle, we can harness the wealth of our nation to deliver on the promise of the industrial strategy and to make our economy fit for the future.

The UK economy is dominated by the service sector, and there is nothing amiss about services, but we need to rebalance our economy and we need the availability of long-term capital in order to become the best country in the world in which to build a business. In the post-war era, too few British businesses have grown to become multibillion-pound global corporations.

There is more that we can do. We should look at other ways of releasing under-productive cash for equity funding. We need to take a healthier approach to our risk appetite as a country. Changing the culture is essential. We need to harness our savings and pensions. With some innovative mechanisms, we can unlock that money and put it to use in our economy. Using the tax system and the savings guarantee system in innovative ways, we could revolutionise the way companies get finance and the ultimate source of that finance. Helping people to acquire equity stakes through shareholder co-operatives, saving schemes and direct micro investment could all work towards a new culture of investment.

To that end, we need the Treasury to be as innovative as the entrepreneurs who fuel our economy. We need to see ideas being tried and tested and the apparatus of Government swinging behind the idea of long-term investment and rewarding those who make such investments. A starting point would be to increase the thresholds for the tax on dividends and seek to band it to allow smaller-scale investors to pay no tax whatsoever on dividends, especially if they can be incentivised to maintain their investment over a longer period.

The industry panel review on patient capital made a number of recommendations that need to be addressed. It identified the need to provide patient capital to help entrepreneurs to be successful; I have already mentioned its idea for a patient capital investment vehicle. It also proposes a licensed scheme to allow patient capital investment companies to be founded that would be venture capital funds licensed to raise money from the markets, guaranteed by Government. Although I agree with that recommendation, it needs to be a truly national venture, with specific guidance about the development of capital funds outside London and the south-east.

The review also proposes a change in the way taxation hits investors when they seek to invest in developing a company past its start-up phase. Ensuring that tax incentives for equity and venture capital funding are there when companies are seeking capital to expand, rather than simply during the start-up phase, will allow investment to flow more freely into medium-size companies.

I have a few straightforward asks of the Government. First, I would like to see a formal response to the industry panel review, alongside an action plan for the implementation of its recommendations. If I have missed it, I am happy to be corrected. Secondly, we need a full analysis of the possibility of a national investment bank or development bank, as I outlined earlier. Thirdly, we need a statement about the replacement vehicle for the investments made by the European Investment Bank, which we will no longer have access to.

Finally, I would like some reassurance from the Minister that the Treasury is ready to innovate to improve the availability and quality of long-term capital. We need to encourage a positive investment culture and we need a creative response from the Treasury to unlock and harness the wealth of this nation in the delivery of a modern industrial economy that is fit for the future.

My hope, in bringing this debate to Westminster Hall, was to focus the House on the substance of how we can improve the environment for entrepreneurial success and wealth creation. It is perfectly understandable that we have become distracted by the politics of Brexit. One day soon, I hope and pray, we will turn the page on Brexit, and this House will fully turn its attention to the vitally important agenda of ensuring the long-term productivity of our economy. It is timely, because it is about our future.

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

It is a pleasure to serve under your chairmanship, Mr Walker. I will try to be even briefer than that, if possible. I want to make some quick points on, first, the regional nature and importance of capital spreading out around the United Kingdom, and, secondly, innovation. Finally, I will ask the Minister always to think about the British interest and not to let devolution become a barrier to investment across the United Kingdom.

My hon. Friend the Member for Stirling (Stephen Kerr) made some fantastic points about the importance of long-term patient capital across the United Kingdom. We always talk about the regions of England and Scotland as a whole, but it is the regions of Scotland, and beyond that, the counties and towns in Scotland, that we should consider.

My constituency is particularly rural, and my county of Clackmannanshire is post-industrial. We have been starved of investment for a very long time. It is important that both public and private investment is connected, and funnelled here as easily and simply as it is to many of the incubators in London, and around the universities of Edinburgh, Oxford and Cambridge. There are some great models out there—we just need to expand them to other parts of our countries.

Innovation is really important. We have a fantastic opportunity ahead of us to capitalise on the financial centres we have in Edinburgh, Belfast and London, and to look at innovative solutions, not only in company models or ways and types of financing, but in the infrastructure that can be used across the country. I have written about reintroducing regional stock exchanges as a way to try to raise more local capital. That was used a lot in the 19th century to help pay for some of the railways that now connect our country and it could be used again to help fund infrastructure, from broadband to additional road infrastructure and company infrastructure. Especially when trying to encourage more rural investment, it could help some of the communities raise funds locally as well.

It is important that the Government play a full part in creating a real ecosystem. They are not there to make every decision. It is not for our constituents and companies to live on the Government’s shilling. The Government should put their money into infrastructure, to ensure that they are developing the framework that enables private enterprise to flourish, and ensuring that any public investment is there to stimulate research and innovation, and to back the entrepreneurs who do so much for our country and individual communities. As I say, the Government can be more innovative. Brexit need not apply. They can look at things such as regional stock exchanges, rural enterprise zones and expanding the powers of the British Business Bank, as my hon. Friend said, to make it a true investment bank.

To reiterate my point and the frustration that I have felt since I have been in this place, sometimes—I know it does not come from my hon. Friend the Minister—it appears that the Treasury is not so much a British Treasury but an English Treasury, which becomes incredibly frustrating for people trying to fight for projects in Scottish constituencies. That holds for hon. Members in other parts of England and in Wales too, although Northern Irish Members seem to make quite a good job of it. I encourage the Minister to remember that we are still one country and that we need British investment decisions from British Ministers.

Even where areas are devolved, there is no law—we have checked in the Library—to stop Westminster investing in devolved areas. That artificial barrier has been set up through a cultural shift in the civil service, and it has not been helped by the current Administration in Edinburgh, but it does not need to be there.

In future, we as British parliamentarians should not see devolution as a barrier, but should work across every level of Government to make sure that investment comes from the centre and reaches our frontline communities, so when we increase the block grant to Scotland, as the Minister has, that money will go to our local council services, which it does not at the moment. That will also make sure that when we as individual MPs lobby for projects in our constituencies, the money will come to our constituencies directly from Westminster.

Infrastructure needs more, and our governmental frameworks need more. The Government have it within their power to create an ecosystem that takes all the innovation and energy of the United Kingdom and really increases the prosperity of all our constituents. I hope the Minister will outline some of his vision for that today.

[Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)]

It is a pleasure to serve under your chairmanship, Mr Walker. I congratulate the hon. Member for Stirling (Stephen Kerr) on securing this important debate. I was not aware that he was unwell over Christmas, but I am delighted to see him in the pink of health.

It is a rare treat to be in a debate with two Tories and a Democratic Unionist party Member where I have to pick my differences in their speeches; they made many points that I agree with. In particular, the hon. Member for Stirling discussed productivity. It has long been an issue that I have talked about. It has been holding back business and people for far too long, and I agree with his sentiment. As a result of paying more in taxation, we can invest more in our services—that is the consequence of getting that kind of result in productivity.

I also agree about the lack of focus across the nations of the UK. It does feel like an English Treasury; we make that point regularly. It is also a fact that the south-east gains far more traction than any other part of the UK, including the regions of England, Northern Ireland and Wales. There was a lot to agree with in that regard as well.

It is particularly poignant to have this debate today, as the biggest threat to business access to finance comes from Brexit. Government Members, particularly those in favour of Brexit, would like that to be ignored in this debate, but I do not think it can be. Brexit is already reducing the number of customers, the size of workforces, and the level of confidence. Instead of building our economy, investors are voting with their wallets by pulling nearly £20.6 billion from UK equity funds since the vote in 2016, according to EPFR.

[Luke Graham]

The hon. Gentleman makes a point about Brexit being a threat. Does he agree with a developer in Alloa in my constituency that the biggest threat to raising finances is not Brexit but the threat of a second independence referendum?

[Drew Hendry]

It will come as no surprise to the hon. Gentleman that I do not agree with that. He has gone from making a sterling point about the English Treasury to saying that independence is somehow a threat. I do not think so; I think it is a marvellous opportunity. As he has raised the issue, I will say that it has been brought into sharp focus in this place over recent months.

As Marian Bell of Alpha Economics pointed out, businesses that were told to prepare for a no-deal Brexit have relocated their operations and those decisions may not be reversed, even in the event of the best possible economic outcome—even if that is remaining in the EU. As Brexit inches closer, the UK services sector has recorded the slowest sales growth in two years, according to the British Chambers of Commerce, whose survey of 6,000 British firms shows that labour shortages and price pressures persist.

Scotland is a world leader in patient long-term capital, but Brexit risks lenders following the example of a well-known hon. Member, the hon. Member for North East Somerset (Mr Rees-Mogg), in moving business to Dublin or the continent. We are being Mogged over Brexit.

In the face of austerity, we have to make different decisions to support business. The Scottish Government are introducing the Scottish national investment bank, which will provide patient long-term capital to support Scotland’s firms. In contrast, as we have heard, the UK Green Investment Bank, which was privatised by the Government, is now bereft of its UK focus.

The aim is for the Scottish national investment bank to invest in businesses and communities by 2020, subject to regulatory approval. It is backed by our commitment of at least £2 billion of investment in the first 10 years, which paves the way for a step change in innovative and inclusive growth.

We also welcome the plan for a Scottish stock exchange in the second quarter of 2019, with a focus firmly on social and environmental companies that are worth between £50 million and £100 million. The plan has now secured a partnership agreement with the major European stock market operator Euronext, meaning that the first Scottish stock exchange will operate since the closure of the trading floor in Glasgow in 1973.

That is all being done in the shadow of Brexit, which was a vehicle aroused solely to calm Tory infighting. As chaos reigns on the Conservative Benches, there is as much chance of success for business as for the economy of our people, who will ultimately pay the price in the long term.

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[Marion Fellows (Motherwell and Wishaw) (SNP)]

It is a pleasure to serve under your chairmanship yet again, Mr Walker. I congratulate the hon. Member for Stirling (Stephen Kerr) on securing this important, and sometimes quite consensual, debate. The hon. Gentleman spoke fully and passionately, and with a great deal of knowledge and expertise, about how we can best provide businesses across the UK with ongoing patient long-term funding. When I learned accountancy, however, long-term funding was generally for between seven and 10 years, and even longer, rather than just over a year—that is a blast from the past; it is many years since I did accountancy.

I was interested to hear the hon. Gentleman talk about productivity and refer to Denmark, which is a small, independent nation leading the charge on productivity. Long may Scotland follow. He also talked briefly about the reasons for national productivity being linked to levels of investment and how, especially in Scotland, companies have been innovative but they start to slow down and fail because they cannot get the correct long-term investment. That is a real ongoing issue.

My hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) talked about the Scottish national investment bank, which we hope to see become fully functional in the early 2020s. That will be a huge boost to small industries in Scotland.

The hon. Member for Stirling also talked about the lack of money that will now come from Europe, and he looked quite favourably on small German companies. For many years, this country has looked enviously at Germany and we need to take on board what it does to help businesses. He also called for tax incentives and talked about needing a full analysis of a national development bank to look at what it could do post Brexit.

The hon. Member for Strangford (Jim Shannon) gave us his usual full and frank views on where things are going in Northern Ireland. He talked about the cyber-security industry and how it is helping, and how the United Kingdom, of which he is a great proponent, should invest in itself post Brexit. He wants the Government to help with that. In fact, I think the Minister has a lot of explaining to do as to how he will move things forward.

The hon. Member for Ochil and South Perthshire (Luke Graham) said that devolution should not be a barrier to development, and I totally agree with that. On many occasions, colleagues of mine have stood in the main Chamber here and asked about city deals, whereas the Scottish Government have invested increasing amounts in various city deals without getting the same amount of money from the Treasury.

[Luke Graham]

I have been in negotiations about two city deals that impact on my constituency. Does the hon. Lady recognise that the obstacles do not just come from central Government for the devolved Administrations, but from the devolved Administrations for the central Government as well? So if there is to be a little bit of give, does she appreciate that it has to come from both sides of the argument?

[Marion Fellows]

I agree that in any negotiations there has to be give on both sides but the Scottish Government are giving more in a practical sense, and that is really what the people involved in the city deals on Tayside, in Stirling and in other areas of Scotland are really concerned about.

It is also very important that, when we talk about innovation and moving small businesses forward, we consider regional stock exchanges, which the hon. Gentleman mentioned. I was very interested that my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey talked about the Scottish stock exchange in Glasgow closing in 1973. The square that it was in has been renamed Nelson Mandela Square, but I remember it being Stock Exchange Square for many years.

We will all be very interested to hear how the Minister responds to this debate, because none of us in this place disagrees that there is a need for long-term and patient funding for businesses to thrive and grow, to increase prosperity for all our citizens, and to increase the economy in Scotland and the rest of the UK.

Finance (No. 3) Bill

Luke Graham Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Tuesday 8th January 2019 Commons Chamber

[Kevin Foster]

Any policy that encourages people to be in work and keep more of what they earn, and allows them to save, will help improve their overall health. One of the things that most improves someone’s life outcomes is being in employment. [Interruption.] It is bizarre to be heckled for saying that.

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

My hon. Friend is giving an insightful speech. One impact of the Government’s policies is the improvement in our Gini coefficient, which is widely recognised as an objective international measure of inequality. According to that objective international measure, our inequality has reduced since 2009-10. Nothing is perfect, but it seems that the direction of policies is working.

[Kevin Foster]

As always, my hon. Friend makes a well argued and succinct point. He demonstrates the positive difference that Government policies are making for his constituents and the UK as a whole. It must be said that that difference is being made by a whole package of policies, not just by the Bill. I know that a range of measures will help tackle the health inequalities in my patch, including intervention, better services, better urgent care, ensuring that we realise the benefits of technology in primary care, dealing with things such as rising obesity, ensuring that people have proper diets and continuing the welcome decrease in the smoking rate. It is bizarre that those who can least afford to smoke end up being impacted most by it, worsening already poor health inequalities.

The Bill is welcome. I do not think either new clause brings much to the debate, other than highlighting that people want reviews and statistics. With a genuine review, we think about our policy conclusions at the end, yet we hear Opposition Members say, “We want a review—but by the way, here are all our conclusions about the policies we believe should be adopted, even though we can’t really outline how we would pay for them, other than with a massive borrowing splurge that would need to be paid for by a future generation.”

It is welcome that, as has been pointed out, the number of people in absolute poverty is at a record low —1 million fewer people overall and 300,000 fewer children are in absolute poverty. [Interruption.] We hear a groan, but those are the statistics—the sorts of statistics the Opposition seek through their new clauses. The number of children living in workless homes has fallen to its lowest since records began. Being in work makes a positive difference to people’s lives.

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[Kevin Foster]

I certainly do not believe that the Westminster Government should change their policies to match the SNP’s income tax raid on middle earners and those who drive the economy. On business rates, anyone who has sat through my speeches on the high street will know that I have taken the view for some time that we need to look at how we tax the high street in future. The era of large corner premises being the most profitable place to sell goods and wares is long gone. I have to say that I do not think I will be looking at the SNP’s record for much inspiration when it comes to the question of how to stimulate the economy and boost people’s earnings.

[Luke Graham]

rose—

[Colin Clark]

rose—

[Kevin Foster]

I will go to Ochil and South Perthshire first.

[Luke Graham]

The hon. Member for Aberdeen North (Kirsty Blackman) made a point about being able to lower business rates in Scotland. That has been fantastic. Will my hon. Friend join me in thanking the Chancellor for putting more than £40 million into the Scottish budget so that we could fund such a business rate cut?

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[Helen Whately]

My hon. Friend is absolutely right, and she reminds me of a constituency case, before universal credit, of a mum who was looking to raise her income but who was coming up against a threshold. If she worked more than 16 hours a week, she would not benefit, so she was trapped in poverty—the hon. Member for Central Ayrshire (Dr Whitford) used the word “trapped” earlier—because it did not make sense for her to increase her hours of work.

[Luke Graham]

My hon. Friend is making an important point about aspiration. In this House we often get caught on economics and money, but social capital is just as important. In many communities right across the United Kingdom, we need to be helping people to see the true opportunities, both inside and outside their communities, to allow them to realise their true potential. It is important that we consider the social alongside the monetary in all these debates.

[Helen Whately]

I absolutely agree and that is one reason why we have to look at policies in the round. I completely support the policy of taking people out of income tax, but let us look not just at that. Let us look, for example, at the strong economy, at the opportunities that gives people and, beyond that, at the strength provided by having a family and community around people, which also provides the social capital to be able to make the most of their lives.

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[Kirsty Blackman]

That is correct. One of the difficult things about looking at the potential outcomes of Brexit is that those stats do not exist. It is all well and good to talk about the fact that there are reviews sitting on shelves gathering dust, but we need stats. We need stats to be able to prove that Government policy does what it says on the tin.

The Minister can stand up and say, “This policy will raise £100 million for the Government,” but I would like to see not only the working beforehand, but the review afterwards that proves that the policy did what the Government intended it to do. I have been clear on a number of occasions that I do not think the Government do enough of that evidencing. The reviews being asked for would allow the Government to provide us with that evidence. Evidence written by the Government, rather than an independent individual, is still a legitimate thing that we can look at. The hon. Member for Torbay seemed to suggest that we would doubt information were it to come from the Chancellor of the Exchequer—surely not! It would be good for him to provide that.

I want to talk about a few things that the SNP has been doing in Scotland and the changes we have chosen to make to not only our tax system, but other systems, and particularly those that affect the issues raised in new clauses 1 and 5. We have mitigated the bedroom tax, which has been a major factor in us having the lowest child poverty rate of any country in the UK. We have increased the number of people from disadvantaged areas who are going to university. We are making major changes to the care system for looked-after children. Those young people have had some of the poorest life chances in the past, and what the Scottish Government are doing on that is hugely important for ensuring that their life chances are improved.

We have increased the pregnancy and baby grant to £600. We are improving access to childcare, and we have the baby box scheme. We are the best country in the UK at paying the living wage—not the pretendy living wage, but the real living wage. People working in Scotland are more likely to be paid the living wage than those working in England. About half of taxpayers in England pay more than they would if they lived in Scotland, and that is the half of taxpayers who are earning the least. We think that that is a progressive measure that is assisting people to get out of poverty.

[Luke Graham]

The hon. Lady is bringing out the successes of the SNP Administration in Edinburgh, but does it not still stand that, after a decade in power and with powers over taxation and healthcare, men and women in Scotland live for two years less than other people in the United Kingdom? In fact, we have the lowest life expectancy in the whole United Kingdom. There may be some successes—I support those on care—but certainly on the one thing that matters most, which is keeping people alive the longest, the SNP is an abject failure.

[Kirsty Blackman]

We have not had taxation powers for 10 years, and we do not have the full range of powers. For example, we do not have the full range of powers over public health, so we do not have in Scotland powers such as the public health taxation measures—the sugar tax—that were brought forward in the previous Budget. We do not have the full range of powers, and if Scotland were to be an independent country, with the full range of powers, we would be putting the things we are discussing today at the heart of our Government’s agenda. Our Government have done this and we will continue to do this—we are pushing for fairness.

I will wrap up, because I am aware that I am relatively short of time, but I want to talk about the people who are the poorest and, by the way, the most disadvantaged by the way in which this society is set up. Following the changes to universal credit, those in the bottom 30% of incomes will gain less from the work allowance than they will lose in the benefit freeze. The benefit freeze is costing them more than the changes to the work allowance will give them. Those people, who have no recourse to public funds, are the poorest individuals I see coming through my door, and this Government have caused that situation. This Government have caused a situation in which asylum seekers have got absolutely nothing. This is about the very poorest people, who have got the worst life chances as a result, and this Government are completely failing to do anything to support them or to improve their life chances. This is about people on disability benefits, who are really struggling, and at every turn, this Government have made their lives worse, rather than better. This is about lone parents, who are disadvantaged as a result of universal credit. This is about the increases in food bank usage.

The Government talk about people working their way out of poverty. I do not understand how people can have hope when they do not have enough to eat.

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[Mrs Main]

Exactly. I have also been advised by a former constituent, who, despite no longer living in the UK, is being pursued by HMRC for thousands of pounds of unpaid tax. Another person was advised that this mechanism truly was lawful and it has come as a huge shock to his financial planning that he is left in this position.

There are reportedly over 1,000 people being pursued for unpaid tax. No one is disputing that people should pay tax that is due. The issue is the way it is being requested. People have been badly advised. They have never been able to check whether anything they were doing was illegal, because they were being advised that it was not illegal at the time. It is a loophole that has now been closed.

[Luke Graham]

Will my hon. Friend give way?

[Mrs Main]

It will have to be very quick, because I am aware other people need to speak.

[Luke Graham]

My hon. Friend is making a very valid point. One of my constituents, an IT contractor, was advised by his own accountant. A review would be very helpful in ensuring that people receive proper advice, so that laws can be followed and taxes collected.

[Mrs Main]

My hon. Friend is exactly right. There are many versions of that story. I have constituents who say that HMRC was made aware of these arrangements but no objection was raised until many years later. That has to be fundamentally wrong. What more due diligence can anyone do?

I will conclude, because I know the right hon. Member for Kingston and Surbiton wishes to speak. The huge pressure and distress—even suicidal thoughts—that this measure has put in people’s minds is totally unacceptable. I say to the Minister: if we do nothing else tonight, can we accept new clause 26? There is a clear ambiguity in the law that applied at the time—perhaps clarity has been provided now. The fact that people cannot negotiate a reasonable settlement even though they acted in good faith at the time, and are being pursued to the point of the destruction of their careers, homes, family lives and marriages, is completely unacceptable. We clearly need a review, and I hope the Minister takes that on board and accepts new clause 26. If it is pressed to a vote, I shall vote for it.

European Union (Withdrawal) Act

Luke Graham Excerpts

Thursday 6th December 2018 Commons Chamber

[Stewart Hosie]

I am reluctant to get into an individual case. Suffice it to say we all have constituents. The same young lady may have been assaulted by a man from the same town who lives two streets away. Nationality and the ability to travel in that circumstance, however difficult, is actually irrelevant.

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

Before my hon. Friend’s intervention, the hon. Gentleman was making a point about looking at economic futures and the Government facing facts where growth could be less than expected. Does he not see the irony of SNP Members making that point, when reports clearly state that Scotland, were it to be separated, would face 25 years of austerity? Keeping to his more consensual tone in the Chamber, I would just say that when he quotes GDP figures and minus or plus, addition or subtraction, could he be clear to the House, because I think it is very important for all those watching, that we are talking about growth being less than forecast? Growth will still happen, but it will be less rather than none at all.

[Stewart Hosie]

I have been absolutely clear that these figures are against the baseline. That is absolutely correct. These are figures where GDP is lower than would otherwise have been the case.

The language of the political declaration is about negotiating a future relationship. If we set aside the way in which that has been dressed up as some kind of exceptionalism that we are going to have the best deal ever, we are in essence talking about no more or no less than the vague intention to start to negotiate what the Government hope will be a preferential free trade agreement. However, the vulnerability of our economy to Brexit cannot be adequately mitigated through a UK-EU free trade agreement. That is, in essence, all we are talking about. For example, the EU FTA with Canada does include some limited provision for some degree of third country validation that is aligned with EU regulations, to facilitate the trade in goods, but it falls substantially short of securing access to the European single market that the UK or any European Economic Area member country currently enjoys. We argue that continued membership of the European single market and the customs union is vital to ensure that the UK economy continues to benefit from those current fundamental trading arrangements.

If memory serves, there was a previous assessment by NIESR that demonstrated that retaining single market membership could avoid a 60%—yes, 60%—decline in goods and services exports to the EEA by comparison with an arrangement based on WTO rules. I would also add at this point that the current arrangements do not simply facilitate trade with the EU directly. Membership of the EU has, for example, enabled Scotland to benefit from EU FTAs with more than 50 trading partners, so that by 2015 Scotland exported £3.6 billion to countries with which the EU has a free trade agreement. That trade accounted for 13% of Scotland’s international exports. In addition, although this is harder to quantify, many of the products exported from Scotland to the rest of the UK—this goes the other way as well—will form finished goods destined for the rest of the single market or countries with which the EU has an FTA. I will come back to that point, because it is important.

Of course, the rather non-exhaustive list of reasons why trade is likely to fall and drive down GDP growth, includes the increased cost of bureaucracy; uncertainty about the nature of customs arrangements; additional regulatory burdens; non-tariff barriers, which in some cases are the most significant; uncertainty about the legal basis upon which certain transactions may be carried out; and so on. Now, it is likely that some of those issue will be resolved—I have no doubt about that—but not all, not quickly and not without a cost to businesses and the economy.

If we look briefly at one or two of the ways in which the political agreement intends to take us forward, we can demonstrate how uncertain that is. On customs—this is in paragraph 27 of the political agreement—the UK has suggested a facilitated customs arrangement, or “facilitative” as it is described. But that is broadly similar to the maximum facilitation already described as fundamentally unworkable by the EU. On tariffs—this is in paragraph 23—what is said is fine in principle, but if we do not achieve that or if there is no deal, we are left with a situation where some people who support a harder Brexit are suggesting we set all our tariffs to zero and thus increase trade. However, were that to happen—this was confirmed yesterday in terms of the backstop—there is no guarantee that it would be reciprocated and it may well lead to the dumping of goods here from countries with massively lower labour costs, undermining business, jobs and prosperity here. Absolutely nothing is certain. In a sense, we are not taking a decision on an agreement; we are taking a decision on a wish list in a political statement, some or all of which may come to naught.

I have already gone through what is said in the political agreement about labour, and we are already seeing staff shortages, particularly in the rural economy. UK farms take in about 60,000 workers a year on a seasonal basis. The UK Government’s present proposal is for an evaluation scheme of 2,500 people. That does not cut the mustard. It may be that this matter is resolved in two or three years and that this issue is resolved quite successfully, but the damage will be done by then; the crops will have rotted in the fields.

I think that somebody said earlier, “This is all terribly bad news; it is all Project Fear—is there any reason for optimism?” Frankly, I do not think that there is. I do not believe that an FTA could adequately mitigate the damage that Brexit will cause. The Government’s own assessment says that an end to free movement plus an FTA would result in a decline of around 6.7% of GDP.

It was argued in the UK Government’s Global Britain strategy that we would offset a decline in trade with the EU from being outside the single market by exporting to more countries. However, fully replacing the value of EU trade will be challenging, as illustrated by the trade flows from the emerging BRICS economies—Brazil, Russia, India, China and South Africa. I will use the Scottish figures to demonstrate that briefly. Those nations account for £2.1 billion, or 7%, of Scotland’s exports. By comparison, the EU accounts for £12.3 billion, or 43%, so even a small proportionate loss in trade, or lost growth in trade with the EU would require a dramatic increase in trade—over 30%—with those countries. We would all love to see that happen across the whole UK, but I suggest that that is highly unlikely.

If the UK signed agreements with the 10 biggest non-EEA countries, including the USA, China, and Canada—a process that could take many years—that would cover only 37% of Scotland’s current exports, compared with the 43% that goes to the EU. Some of the trade simply could not be substituted. If one is selling low-margin or perishable goods to the EU that are refrigerated in a wagon overnight, it simply cannot be substituted by shipping the same stuff to Australia, Japan or China. It simply does not work like that.

Finally on trade, it is also worth pointing out that despite the Government’s optimistic assumptions, even signing a substantial number of trade deals would result in an increase in trade of less than one quarter of 1% of GDP compared with the situation today—that was confirmed yesterday—if we successfully negotiate trade deals with the US, Australia, New Zealand, Malaysia, Brunei, China, India, Brazil, Argentina, Paraguay and Uruguay, the UAE, Saudi Arabia, Oman, Kuwait and Bahrain. That is an awful lot of risk for very little potential gain.

I want to talk about two other areas briefly. The first is foreign direct investment, now a key feature of the contemporary global economy and one from which the UK and Scotland derive considerable benefits. We have seen a substantial number of jobs in Scotland owned by EU companies that have invested here over the decades precisely to have access to the European market. There is no certainty that that would stay, and in the future much of it would go.

The second point that I wish to raise is productivity. The Bank of England assessment in the past week cites academic evidence that shows how tariffs may force the reallocation of

“production toward less efficient domestic producers, lowering aggregate productivity”—

So, even if there is substitution, as many argue, it is likely to lower aggregate productivity.

ATM Closures

Luke Graham Excerpts

Tuesday 4th December 2018 Westminster Hall

[Kirstene Hair]

I agree. That is why I want to talk about how important it is to do impact assessments before we lose the ATMs, so that those issues are closely considered.

The Association of Convenience Stores has criticised LINK’S FIP, saying that, “it is not clear whether LINK has the resources to implement these commitments across the network.” For example, LINK previously identified 2,651 deprived areas in the UK that are eligible for free-to-use ATM subsidy, but 10 years after the introduction of the FIP, 824 of those did not have free access to cash within a 1 km radius.

We need to watch what commitments LINK makes to ensure that ATM networks in rural areas are properly protected as rates are reduced further in the years ahead. The question is whether the LINK process of identifying vulnerable ATMs is working or whether we need to have further impact assessments. As the hon. Member for High Peak (Ruth George) said, we need to ensure that this is not a “wait and see” game. We must work ahead of time to ensure that people are not negatively affected when they lose their ATMs. That is a huge issue across my Angus constituency, and for hon. Members across the Chamber.

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

I know that my hon. Friend is drawing her speech to a close, but she is talking about impact statements, which are especially important. It is something I raised in my ten-minute rule Bill. Does she agree that we need to have different impact analysis for rural and urban areas? Some of the evidence she cited about constituents being disadvantaged is the same for Ochil and South Perthshire. I have a constituent in her 80s, who lives in St Fillans, who was told to “nip to Perth” to do her banking. That is a journey of 50-plus miles that would take more than two hours on the bus, especially in bad weather. Members who know the geography and weather in my part of the world will appreciate that that is no easy feat for a woman in her 80s who walks with two sticks.

[Kirstene Hair]

I thank my hon. Friend for his intervention. I know his constituency very well, both the geography and the weather, so I know it is important, as I said at the beginning of my speech, that the most vulnerable in our society have that provision and that it is easy to access. I look forward to hearing the Minister’s response.

--- Later in debate ---

[Douglas Ross (Moray) (Con)]

It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate the hon. Member for Rutherglen and Hamilton West (Ged Killen) on securing the debate and on introducing it so well. I was delighted to agree to be a co-sponsor when the hon. Gentleman applied for the debate to the Backbench Business Committee, and I am grateful to that Committee for granting it.

I will divide my comments into two parts. First, it is abhorrent that we should be charged to take our own money out of ATMs. There are still a few in Moray that charge for use. If I come upon one, I will actually go away to another. It might end up costing me more in money, time, fuel and inconvenience, but out of principle I would rather go to another destination than pay a company to access my own money. It is simply unacceptable that, in 2018, we still have to pay some companies to take out our hard-earned money. My constituents in Moray are particularly aggrieved about that.

However, I will focus my remarks on the availability of ATMs in high streets and rural communities, as the motion mentions. ATMs have been critical to many communities in Moray for several years, particularly in Lossiemouth and Keith. A couple of weeks ago, Bank of Scotland announced the closure of eight branches across Scotland. Some are in the constituency of my hon. Friend the Member for Angus (Kirstene Hair), but 25% of those eight are in Moray—one in Keith and one in Lossiemouth. As well as potentially closing the branches next year, the bank will also remove the ATMs.

In the 2011 census, the population of Lossiemouth was just over 6,000. That has now boomed to more than 7,000. The P-8s are coming to RAF Lossiemouth in one of the biggest UK Government investments in our defence estate, which will boost personnel numbers at the base alone by 400, and those personnel will bring their families with them as well.

The town is expanding at an excellent rate, which is encouraged by the local community, yet Bank of Scotland has decided to close its very last branch in the town. With that it will take away the ATM, so a town with a population of more than 7,000 that is expanding will go from three ATMs to two ATMs. One of those is in the local post office at Buckley’s, which is up for sale. If it is sold and that ATM is lost, we could have a population of more than 7,000 and only one cash machine. That is simply unacceptable and cannot be allowed to happen.

[Luke Graham]

My hon. Friend makes a powerful point. Does he agree that banks are speaking with a little bit of a forked tongue? They are closing branches in the areas that really need them, such as his constituency and mine, but are happy to open them in places such as Canary Wharf and Chelsea, which are very well served by the financial system and by broadband, and where more people bank online than in our constituencies.

[Douglas Ross]

I absolutely agree. That issue came up at the two public meetings I have held in Lossiemouth and Keith since the potential closures were announced. The questions at Keith centred on the fact that this would not happen in the central belt of Scotland or in the capital down here in London, where there is a large footfall. Closing one branch would have less impact on communities in Glasgow or Edinburgh than closing the last branch in a town such as Lossiemouth.

My hon. Friend the Member for Angus made the excellent point that some people may decide not to shop locally if they cannot access an ATM so that they can pay by cash. We heard at my Lossiemouth public meeting that a lot of takeaway shops only accept cash payments. It is not that people go there and decide not to buy; they have already purchased on the phone. They place an order, the food is then made, and they turn up to find out that payment is by cash only. With the cash machines potentially going in Lossiemouth and Keith, they may have no opportunity to get money out, and therefore the takeaway business loses income, because it has already produced the order.

Another important point is that, yes, this has a huge impact on local residents, and particularly the elderly, but Lossiemouth and Moray are beacons for tourists coming to Scotland. We want to welcome as many tourists as possible. What will they think when they want to buy something from the local shop, when they want a memento of their visit to Lossiemouth and Moray, but there is no cash machine for them to get their money out to purchase the goods in the town? We have to consider that going forward.

The local Conservative councillor for Heldon and Laich, James Allan led a great campaign in Moray. I pass on my best regards for Councillor Allan, who unfortunately ended up at Dr Gray’s hospital yesterday. He is recovering well. James has been a real champion of this issue in his hometown of Lossiemouth. When the Royal Bank of Scotland left the town and took away its ATM, he led the campaign to reintroduce it. The RBS building has been taken over by a commercial businessman who would be absolutely delighted to retain the RBS ATM in the town, because he knows the needs of local people. He would facilitate and work that machine, but RBS has so far refused to allow the machine to reopen. It really has to consider its obligations to the community. It may leave and close branches, but it should not take lock, stock and barrel away with the ATMs as well.

James has done an excellent study of the number of cash machines in the local area. Lossiemouth, with a population of more than 7,000 and expanding, currently has three cash machines, which will potentially be down to one. Forres, with a population of 12,500, has eight cash machines. Fochabers, which I used to represent as the councillor for Fochabers and Lhanbryde, has a population of 1,700 and three cash machines, compared with a community the size of Lossiemouth, which is expanding and will potentially go down to one cash machine.

I have to say that the mobile banking provision, which the banks always say will support the communities, does not serve our communities particularly well. It is potentially available for one hour every week or every fortnight, and many of the functions of an ATM are not available at a mobile banking service. The Moray Rambler introduced by RBS now covers a far wider area than only Moray, because RBS has closed so many other branches in Aberdeenshire and the highlands and so on, and our service in Moray is diminished even further.

I will finish on a recent court judgment about ATMs in England and Wales. I was involved in an issue with Buckley’s newsagents in Lossiemouth, again with Councillor Allan. It has an ATM that faces out on to the high street, to ensure that people can use it 24 hours a day. The owner, Tony Rook, could put it inside, but it would then be available only when the shop is open. As a servant to the community, he decided to have it outward-facing. He is being punished by the Scottish Government, who have implemented far higher business rates for outward-facing ATMs than those inside a shop.

I hope that the Minister will clarify this. The issue was passed on to me by Councillor John Cowe, who attended the public meetings in Lossiemouth and who is encouraged by the judgment that came down, I think, last month. Since 2010, supermarkets and convenience stores have been liable to pay rates on the machines, but the courts have now decided that that is not correct and have ruled in favour of the supermarkets who took this forward, particularly Sainsbury’s and Tesco, meaning that the £300 million already charged will now be refunded. I agree with the Tesco spokesperson who said:

“We welcome today’s result and the confirmation of our belief that ATMs should not be separately rateable.”

I will be interested in the Minister’s response and particularly whether he has had any discussions with his Scottish Government counterpart about how they will look at the issue in Scotland, because the ruling was for England and Wales only. It will be very important and useful for us to learn what the Scottish Government will do as a result of the judgment, because it will make a big difference to people such as Tony Rook at Buckley’s newsagents.

I am grateful for your indulgence, Mr Hollobone. This is an important debate for our communities, and I am grateful to the hon. Member for Rutherglen and Hamilton West for initiating it. Banks and ATM providers have a moral obligation to the communities that we all represent and serve. The message is coming through loud and clear. Do not take away ATMs, which are an integral part of our communities; they are important for everyone who lives in and visits them. We need them, we need them to be free and we need them to be accessible and available. By shutting them down, banks and ATM providers are shutting down many of the communities that rely on them.

Leaving the EU: Economic Analysis

Luke Graham Excerpts

Wednesday 28th November 2018 Commons Chamber

[Mel Stride]

The right hon. Gentleman will have heard my response to the hon. Member for Brighton, Pavilion (Caroline Lucas) in respect of a people’s vote. As for the so-called Norway option, that of course comes with single market membership, and would require us not to relinquish and absolve ourselves from free movement, which I believe is one of the essential things on which the electorate voted in 2016.

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

When taking part in the debate on Scottish independence, I often saw how economic forecasts could be used to muddle the debate, and also to confuse constituents. Although I welcome the analysis—[Interruption.] Hang on; will Members just let me finish? I welcome the analysis that has been released today, but may I ask my right hon. Friend to release, as the tool in the analysis prescribes, further sensitivities that would allow us not only to see the difference between the assumptions in the Chequers deal and those in the political declaration—as assumptions can be clearly stated—but to see, in the context of what is said by many on the leave side of the argument, what potential upside, if any, we could gain from other trade deals with the United States, Australia or indeed China? That would help to inform our decision making.

[Mel Stride]

My hon. Friend has invited me to go into some of the technical detail of what has been put before the House this afternoon. Let me direct him to my earlier remarks about the work that Stephen Nickell will be doing. It will be very detailed and very forensic, and will deal with all the assumptions, including the trading assumptions to which my hon. Friend has referred. Of course, that information will in time—in a short time—be available to the House.

Finance (No. 3) Bill

Luke Graham Excerpts

Committee: 2nd sitting: House of Commons
Tuesday 20th November 2018 Commons Chamber

[Mel Stride]

My hon. Friend is absolutely right. The tax avoidance activities that I am describing are way beyond the reach of many businesses of a certain size up and down the country. Thinking particularly of our high street businesses, we have a duty to ensure that fixed costs in the form of taxes represented by business rates are reduced to the extent that they can be, and the Chancellor was able to announce a 30% reduction in business rates for those smaller retailers that typically populate our high streets. That was an extremely important move as we work, through our future high streets fund and other approaches, to enable our high streets to transition and become more vibrant and successful places.

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

The Minister is talking about business rates. As a result of the Government’s action, Scotland should receive about £43 million in additional Barnettised revenues. What work will he be doing with the devolved Administration to ensure that that will help high streets in Scotland as much as the Government are helping high streets elsewhere in the UK?

[Mel Stride]

As a UK Government, we are always happy, and indeed keen, to work co-operatively with the devolved Administrations, including the Scottish Government, as my hon. Friend suggests. Ultimately, however, these will be decisions for the Scottish Government to make. It will be for them to decide how to spend the revenues that will come through by way of additional funding via the Barnett formula. I can only suggest once again—I think this echoes my hon. Friend’s thoughts—that the best way forward is to keep taxes down and, in the case of Scotland, to have a country that is known for low taxation, rather than gaining a reputation for higher taxation.

Clauses 46 and 47 address the use of contrived arrangements that seek to avoid stamp duty on shares. The Government are aware that some corporate groups are transferring shares to connected companies for an artificially low consideration. The clauses create a targeted marketed value rule for transfers of listed shares to connected companies. This rule will prevent the use of artificially low consideration by charging stamp taxes on shares on the higher of the market value of, or the sum paid for, the shares transferred.

The Bill also re-emphasises our commitment to leading the way in implementing internationally agreed initiatives to combat tax avoidance. Clauses 19, 20 and 23 make changes to the UK’s rules on controlled foreign companies, hybrid mismatches and corporation tax exit charges to ensure that they comply with the EU’s anti-tax avoidance directive. The UK is a strong supporter of the objectives of the directive, as it will ensure that member states take a common approach to tackling tax avoidance. The UK’s rules are already comprehensive, and they already meet or exceed most of the requirements set out by the directive, but some limited changes are needed to ensure that we are fully compliant in all areas.

--- Later in debate ---

[Anneliese Dodds]

No, it does not. Absolute poverty measures whether people can afford the bare necessities of life. To be able to participate in society—in their communities—they cannot fall so massively behind the median income. We are talking about families whose children cannot go to birthday parties for their friends because they cannot afford a card and a present. For me, that is a failure of our society, and it is to do with relative poverty, not absolute poverty. Over 4 million children in this country are classified as living in relative poverty, and that number is rising, not diminishing.

[Luke Graham]

rose—

[Bim Afolami]

rose—

--- Later in debate ---

[Alison Thewliss]

I agree that that loss of expertise is a huge issue. I have a constituency interest, because many of these centralised offices end up being in Glasgow Central, but this also comes at a significant cost to the taxpayer. It is no secret that city centre office space in Glasgow is expensive, and there would be greater benefits in keeping those services in areas such as the Clyde Gateway, which is also in my constituency but much cheaper, or in Livingston. That would provide better value for money for the taxpayer than having them all in city centre offices.

[Luke Graham]

I thank the hon. Lady for giving way. She is making some good points about decentralisation. Would the SNP join me in looking at some of the Scottish Government’s new powers? Instead of basing offices in Dundee, offices should be located in more affordable areas, such as Clackmannanshire or Perth and Kinross.

[Alison Thewliss]

Dundee is affordable. There is a balance—[Interruption.] The hon. Gentleman is not listening, but there is a balance here. We need local infrastructure, transport and so on to support such things, but there is an argument for doing all that. It used to be UK Government policy to decentralise large office blocks, but they have cut that back over the years, and offices are now disappearing. He can give me no lectures about that. There are countless examples of the UK Government cutting offices. So many jobcentres in the city of Glasgow have been cut that my constituents now have to take two buses just to get to one, and I do not see any Scottish Conservatives standing up for that.

--- Later in debate ---

Last year’s Finance Bill ended permanent non-dom status, and this Bill adds to the track record of this Government in cutting down on tax avoidance. Conservative measures have seen £185 billion collected through anti-evasion and anti-avoidance since 2010. The difference between what should be collected and what is collected in taxation—the so-called tax gap—is now at a five-year low of 5.7%, one of the lowest in the world. These measures are more significant than anything the Opposition did on tax avoidance during their time in office, when the tax gap was about 10%. As always, Labour likes to talk the talk, but fails to act. By closing the tax gap further, we boost this nation’s tax revenues, not by putting up tax, as the Opposition want to do, but simply by ensuring that people pay the tax that they are expected to pay by law.

[Luke Graham]

I refer the Committee to my entry in the Register of Members’ Financial Interests.

Several provisions in the Bill will help to deal with money laundering and tax avoidance, and I want to touch on a few of them, as well as on some of the comments that have been made by Labour and SNP Members, but first I would like to echo some of the Minister’s comments about tax in general. Conservative Members pride ourselves on having a low-tax but fair system that rewards work and enterprise, but ensures, in all things, that when someone has a tax liability, they should indeed pay it.

Tax should be low right across the United Kingdom. One of my Scottish colleagues referred to charges for higher-rate taxpayers in relation to the movement of residency between Scotland and England. As I am sure that SNP Members will appreciate, it is not just higher-rate taxpayers who are affected. As has been well documented over the past few months, anyone earning over £26,000 in Scotland is now worse off than if they were anywhere else in the United Kingdom. In fact, it had to be confirmed by one of the senior generals in the British military that because of the SNP’s changes, men and women in the British armed forces would pay more tax in Scotland than they would anywhere else in the world. These changes are disadvantaging my constituents and companies.

The counter-argument is that somehow those tax changes will make things fairer for my constituents, that they are providing huge opportunities, and that we should be ashamed of ourselves for not doing more. As my hon. Friend the Member for Walsall North (Eddie Hughes) said, the tax changes introduced by this Conservative Government have increased constituents’ income by £1,250. The tax changes made by the SNP in Scotland have given my constituents 38p a week. That is it—all this change, all this cost and all this disadvantage for 38p a week. If the SNP Government are going to make changes, they must make real changes that make people’s lives better and follow some of our copybook.

A key point has been raised about Scottish limited partnerships. I sat on the Committee that considered last year’s Finance Bill, and when we discussed that matter with several Opposition Members, I voiced my support for changing these partnerships. We saw a change in the law in 2017, and there are now disclosure requirements for those in a limited partnership, but I want to ensure that the context of these partnerships is understood. They were originally enabled under the Partnership Act 1890, and then confirmed again in 1907 by Scottish, English, Welsh and Northern Irish MPs, so this measure was not somehow imposed in Scotland.

[Alison Thewliss]

Does the hon. Gentleman acknowledge that the regime of persons with significant control has not been enforced to any extent? SLPs owe the UK Government £2 billion in fines. Would he not welcome that money for his constituents?

[Luke Graham]

I thank the hon. Lady for her intervention. Whenever we have made a law, we should enforce it. I recognise the Government’s contribution through investing more money in HMRC, but another key area is Companies House, where a lot of this information is held. I would argue that it certainly could do with extra resources to ensure that things can be properly cross-referenced. A number of issues in my constituency have revolved around significant control and ownership of different corporate entities across the United Kingdom. Companies House would benefit from additional resourcing to help to tackle some of these issues.

The hon. Member for North Ayrshire and Arran (Patricia Gibson) talked about PFI schemes. She was very critical of Labour’s schemes when it was in administration in Edinburgh. It is important that the SNP takes some responsibility for the fact that it has been in power for over a decade, as the implementation and management of a number of these PFI schemes was overseen by the SNP. Although they have now converted to the PPP scheme, there are still a number of criticisms, including of the healthcare facility in North Ayrshire. It is right to be critical, but that criticism should be even-handed.

[Alison Thewliss]

Will the hon. Gentleman give way?

[Luke Graham]

I will just make a bit more progress.

The successes that we have seen from this Government include lowering corporation tax, which has led to record income from corporation tax, and collecting an additional £185 billion of revenue since 2010, which we would not have been able to achieve were it not for the Government’s tightening of tax and tax avoidance measures.

The Conservative party prefers to have a low-tax and fair system. Some of the measures in the Bill are specifically fit for purpose in this more globalised and complicated economy. For example, schedule 4 is on profit fragmentation, which means that Government can focus on where profit is earned rather than getting caught between the different jurisdictions in which corporate bodies lie.

Clause 83, on international tax enforcement, is particularly important. Before I came to this place, I worked in international finance. With multinational companies, it is very difficult to track where income is earned and where it will finally end up, and that may not be due to deliberate action by such companies. New tax enforcement measures that give HMRC and the Treasury additional powers of disclosure will be very valuable and will increase transparency in our tax system.

The hon. Member for Oxford East (Anneliese Dodds), who is no longer in her place on the Labour Front Bench—

[Lyn Brown (West Ham) (Lab)]

She’s only nipped to the bog.

[Luke Graham]

I appreciate that; I am sure that it will be well recorded in Hansard.

I, too, was an active participant on the Sanctions and Anti-Money Laundering Bill, and I agreed with the hon. Member for Oxford East on many points, especially about looking at the actions taken on overseas territories and Crown territories. In accepting some of the amendments, the Government committed to a course of action, and I am sure they will be pushing that through.

Tax collection is one of the most important duties of the Government. Whether in central Government, the devolved Administrations among the nations or, indeed, down in local authorities within the devolved Administrations and right across the United Kingdom, tax collection and record keeping are incredibly important. I welcome some of the measures introduced by the Government to increase the resourcing to HMRC. I would hope to see from right hon. and hon. Members the sharing of best practice and that we ensure that some of the people working for our tax collection authorities around the United Kingdom are going right around the United Kingdom. A number of local authorities need additional support and help with tax collection, and the sharing of best practice in technology, to ensure that they are actually collecting the tax revenues they are due.

I have two local authorities in my constituency, Perth and Kinross Council and Clackmannanshire Council, both of which face very extreme council funding issues in terms of raising local funds and cuts imposed by Edinburgh. When we look at the local services that have had to be cut as a result of the reduction in funding from Edinburgh, despite the increase in the Scottish block grant, we see that it is having a significant impact on education services, health services and local street services in my constituency. I would hope that even SNP Members could put pressure on the devolved Administration to make sure that they focus on proper tax collection, and also on proper tax expenditure.

As I have said, action taken by this Government has helped to bring in over £185 billion of additional tax revenue that we would not otherwise have been able to collect. Corporate tax revenues have also increased.

A key point has been raised—many Labour Members have spoken about it—about inequality when talking about absolute and relative poverty. This is important to note, because I think that the House should look at more objective statistics. In last night’s debate, I talked about strengthening the OBR to make sure that we can have credible statistics that Members on both sides of the House recognise, acknowledge and accept.

One key aspect of that is to look at the Gini coefficient, which has been recognised as a measure of inequality for a long time. If we look at the Gini coefficient in 2010 compared with where we were in 2016-17, we see that there has been a reduction in the coefficient, which means an improvement in the living conditions of people in the United Kingdom. Inequality has actually reduced according to the Gini coefficient.

[Jim McMahon]

rose—

[Luke Graham]

I think that is a good thing that should be welcomed, as I am sure the hon. Gentleman agrees.

[Jim McMahon]

Statistics can always be massaged to fit the agenda of the person citing them, but what cannot be escaped is the fact that increasing numbers of people are queuing up to use food banks because they cannot afford to feed their families and put food on the table. That is my measure of whether this country is doing well. How does the hon. Gentleman respond to that?

[Luke Graham]

The hon. Gentleman proves my point. He disregards an objective Gini coefficient statistic, which is accepted worldwide, and instead puts forward a subjective view on food banks that is widely contested across the House.

I would say that the increase of food banks is a major issue that we have covered extensively in debates in the House. However, taking those on the lowest incomes out of income tax altogether, getting more people into work and introducing the national living wage are the kind of measures that really do improve things for the poorest in society, and they are exactly what the Government are delivering. Our Budget has not only prioritised expenditure elements—I welcome a city deal in my region, the Tay region, with £150 million of extra expenditure—but focused on how to get more tax collected.

As I said at the outset, it is important that we have a low-tax system that is also a fair system, and that the people who should pay tax are paying the right amount.

[Kevin Foster]

I am listening to my hon. Friend’s speech with great interest. What are his thoughts about intangible assets, which we were talking about earlier? Does he agree that we really need to address such issues and to start considering how we can make sure that tax is both collected and fair?

[Luke Graham]

I thank my hon. Friend for his intervention and I could not agree more. Intangible assets are becoming an increasing part of the global economy. Just a few years ago, I did a study in relation to the Prince’s Accounting for Sustainability project. When we looked at some of the figures, they clearly showed that up to 80% of the value of the Standard & Poor’s 500 index in the United States was being held in intangibles. In considering some of the accounting standards and taxation measures that we are introducing, we could be missing up to 80% of that value, which would not then be reflected in the share price or indeed in the tax revenues that could be captured. I agree with my hon. Friend that we should look at those measures.

Without giving the Prince’s Accounting for Sustainability project too much of a push here in the Chamber, I will say that a number of the reports that it has put forward, in partnership with businesses in the United Kingdom and internationally have been really positive. They look at how we can capture some of the value of intangibles, but they also consider human and social capital. The organisation has published a number of reports, and I encourage Members to read them, because they could help to inform our policy making not only on the digital services tax, but when it comes to evaluating the impact and true value of some of the companies and enterprises across our country. It does not matter whether it is the small enterprise on our high street or, indeed, the new multinational that is capturing funds from around the world. It is about our identifying value and then being able to show to shareholders, Government and the local community the social, human and physical capital contributions that are being made to our economy.

Some people find Budget debates dry, but I find them incredibly exciting. The hon. Member for Aberdeen North (Kirsty Blackman) said last night that she enjoyed a good read of the Budget documents at home—I could not agree more. This Budget gives us plenty to read and plenty of food for thought, which is why I will support the Bill today.

[Chris Philp]

It is a huge pleasure to follow my hon. Friend the Member for Ochil and South Perthshire (Luke Graham), who is always an incredibly eloquent and articulate commentator on matters financial.

I am delighted to see that news of my speech has spread to the office of the shadow Chancellor, the right hon. Member for Hayes and Harlington (John McDonnell), and that he has come to the Front Bench especially to hear it. I am delighted that he has chosen to come to the Chamber for this purpose; I eagerly await the imminent arrival of the Chancellor as well.

I want to speak to new clauses 5 and 6, which were tabled by the shadow Minister, the hon. Member for Oxford East (Anneliese Dodds). Their substance would require more analysis and reports on various aspects of the Government’s programme in the areas of avoidance and evasion. However, as so often in life, action and results speak much louder than reports and words. The Government’s actions and the results they have achieved are far more powerful than any call for evidence or any call for a report can demonstrate.

The hon. Lady posed some questions about whether the tax gap is the best measure. It is an internationally accepted measure and it provides for consistent comparison over time, so it is a good way of consistently comparing the record of one Government with that of another. There may be other measures, but it is at least a consistent measure and it is also a good way to compare different countries, as well as to make comparisons within a country over time.

The current tax gap in the United Kingdom is 5.7%, which is extraordinarily low by comparison with other major countries and significantly lower than it was when Labour was in office, when it was between 8% and 10%. Whatever quibbles the hon. Lady may have about the things that are included or excluded, what is clear is that the tax gap is low compared with what it was under Labour and low by comparison with other countries. That is not surprising.

Finance (No. 3) Bill

Luke Graham Excerpts

Committee: 1st sitting: House of Commons
Monday 19th November 2018 Commons Chamber

Then, of course, there has been the ultimate forecast from these people over the past 48 hours. This ERG has been going around stamping its feet and telling us all that if it does not get the extreme form of Brexit that it wants, the poor Prime Minister will have these 48 letters going in calling for a vote of no confidence in her. As far as I am aware, she is still sitting in Downing Street right now. I do not know whether the ERG has hit the 48 letters it said there were going to be, but the bottom line is that these individuals, who impugn the motives of Treasury civil servants and call into question the accuracy of their forecasts, are in no position whatsoever to lecture any of us on the accuracy of forecasts given the huge, outlandish claims that they have made over the past few years.

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

The hon. Gentleman talks about statistics. Does he not agree with me that many Members—this is shared across the House—use statistics as a drunk man uses a lamppost: for support, rather than illumination? Will he join me in trying to strengthen the Office for Budget Responsibility, so it can have more resources and ensure the statistics presented to the House are objectively verified?

[Chuka Umunna]

I have to say that when I gave way to the hon. Gentleman I did not imagine I would actually end up agreeing with what he said. He pre-empts my final point, which is that I understand the general worry about the accuracy of official forecasts. The bottom line is that we are never going to get forecasts that are 100% accurate, but we have to work with a certain number of assumptions to make policy, as I am sure he will discover if he has the privilege of serving in government.

On the point he makes about the OBR, I was quite careful in how I drafted the amendment. Its powers and capacity from a resource point of view are circumscribed, but there is no reason why we should not change the statutory remit of the OBR. At the very least, for those who worry about the accuracy of forecasts, we could see whether the OBR would be prepared to do an evaluation on the methodology and the techniques it uses to produce the forecasts by the Treasury.

Oral Answers to Questions

Luke Graham Excerpts

Tuesday 6th November 2018 Commons Chamber

[Elizabeth Truss]

As part of the spending review, we will look at the most efficient way in which we can meet our carbon targets. I am working closely with the Department for Business, Energy and Industrial Strategy in that regard.

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

I welcome my right hon. Friend the Chancellor’s announcement of £150 million of new money for the Tay cities deal, but may I ask him to direct some of his officials to speak to colleagues in BEIS to establish what support could be given to the devolved Administration and to Michelin, which is to close its tyre factory in Dundee? The closure could mean the loss of 850 jobs, which could not only have an impact on Dundee but cause ripples throughout the region.

[Mr Philip Hammond]

I am sure that both BEIS and the Department for Work and Pensions are already aware of that very large job loss, and I will ensure that my colleagues are looking at it.

Office for Budget Responsibility

Luke Graham Excerpts

Tuesday 24th July 2018 Westminster Hall

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

I beg to move,

That this House has considered the remit of the Office for Budget Responsibility.

It is always a pleasure to speak under your guidance, Mr Gray. I thank those who have turned up on the last day of Parliament before recess; I know that we are all keen to get back to our constituencies, but the opportunity to debate the remit of the Office for Budget Responsibility was evidently too good to turn down. Before I begin, I would like to acknowledge the OBR, the Congressional Budget Office and the CPB in the Netherlands, as well as the House of Commons Library, as the key sources of my speech.

Credibility has become an enormous problem in modern-day politics—the credibility of not only individual politicians but policies and the numbers in our political discourse. The old adage rings true: Members often use numbers as a drunk man would use a lamp post—as a prop, as opposed to for illumination. We need to get back to numbers helping to illuminate our debate. They should help to inform decision making to bring a degree of objectivity to our debate—in this Chamber and the main Chamber.

I will start by looking in depth at the OBR’s current powers, in order that Members better understand why I believe we should expand its remit. First, I want to provide a brief overview of what the OBR currently does. The OBR was created by the coalition Government in 2010 to provide independent, authoritative analysis of the UK’s public finances, on the back of the 2008 financial crash. It has five main roles, and I will look at each of them, starting with economic and fiscal forecasting.

Twice every year—for the Budget and for the spring statement—the OBR produces five-year forecasts of the economy and the public finances. Forecast details are set out in the “Economic and fiscal outlook”, while the annual “Forecast evaluation report” it publishes each autumn compares the forecasts to the subsequent out-turns and draws lessons for future forecasts. The forecasts also incorporate the impact of any tax and spending measures announced in the two statements by the Chancellor.

The OBR also has a responsibility to evaluate the Government’s performance against targets, using the public finance forecast to judge the Government’s performance against their fiscal and welfare spending targets. Furthermore, in the “Economic and fiscal outlook”, the OBR assesses whether there is a greater than 50% chance of hitting the targets under the current policy measures.

For example, in March 2014, the Government set a self-imposed cash limit on a subset of their social security and tax credit spending. In the 2016 autumn statement, the Government redefined the cap to apply only in 2021-22, preceded by a pathway to that fixed date. The charter for budget responsibility requires that the Government set a new welfare cap in the first Budget of a new Parliament, so the cap was adjusted in the 2017 autumn statement, which applied to 2022-23. It is the OBR’s responsibility to monitor the Government’s progress against that pathway and to assess in each “Economic and fiscal outlook” report whether they are on course to meet the cap in the target year.

The OBR’s annual “Welfare trends report” also examines the drivers of welfare spending, including elements inside and outside the cap. Those represent just some examples of how the OBR continues to monitor and evaluate the Government’s performance against their own targets.

[Jim Shannon (Strangford) (DUP)]

I congratulate the hon. Gentleman on bringing this matter to Westminster Hall for consideration. Does he agree that the OBR’s team has withstood internal and external scrutiny and audits extremely well? There is certainly scope to expand its remit, to deliver a high level of accountability across the wider region. In other words, what the OBR does now could go further. Does the hon. Gentleman agree?

[Luke Graham]

I agree, and I will go into more detail later on exactly how I propose the powers should be extended and how to move forward.

The OBR provides sustainability and balance sheet analysis, which assesses the long-term sustainability of the public finances. The OBR’s “Fiscal sustainability report” sets out long-term projections for different categories of spending, revenue and financial transactions, and assesses whether they imply a sustainable path for public sector debt. That has arguably been a particularly important metric as we have sought to make the public finances more manageable and sustainable after the financial crash in 2008. There was a kick there aimed at the last Labour Government, but I will resist that for now.

The “Fiscal sustainability report” also analyses the public sector’s balance sheet, using both conventional national accounts measures and the whole of Government accounts, prepared using commercial accounting principles. Since 2016, the “Fiscal sustainability report” has been published once every two years, reflecting the frequency with which the Office for National Statistics updates its population projections.

The OBR evaluates fiscal risks every two years by publishing a comprehensive review of the risks from the economy and financial system in its “Fiscal risks report”. The first was published in July 2017, and the OBR analysed tax revenues, public spending and the balance sheet and included a fiscal stress test. Furthermore, the OBR produces central forecasts and projections for the public finances, while the “Economic and fiscal outlook” and the “Fiscal sustainability report” include discussion of the risks—both upside and downside—to those forecasts and projections.

The whole of Government accounts provide further information on specific fiscal risks, notably contingent liabilities such as Government guarantees, and that is in the “Fiscal sustainability report”. As a member of the Public Accounts Committee, I have the joy of taking part in, and leading on, the inquiry into the whole of Government accounts. The Committee recognised the fine work of the Departments and the civil servants that pull together those accounts, which really are of a very high standard and are certainly world leading.

[John Howell (Henley) (Con)]

One recent OBR report is about probably the biggest challenge that we as a country face—our ageing population and the associated social and healthcare risks. I found that report very useful. Does my hon. Friend think that such activity is a good use of the OBR?

[Luke Graham]

I do. That kind of objective analysis from the OBR could help to inform and shape some of our public debate. It could certainly make sure that policy debates in the House are informed by substantive, objective figures that would hopefully have cross-party support.

Finally, the OBR is responsible for scrutinising the Government’s tax and welfare policy costings, which it does at each Budget. The Government provide draft costings in the run-up to each statement, which are subjected to detailed scrutiny and challenge. The OBR also states in each “Economic and fiscal outlook” report and in the “Policy costings” document whether it endorses the Government’s published costings as reasonable central estimates and whether it would use them in its forecast. It also gives each costing an uncertainty rating, based on the data underpinning it, the complexity of the modelling involved and the possible behavioural impact of the policy.

Those five major roles all focus on the UK-wide public finances. However, the Government have also asked the OBR to forecast the receipts from taxes that they have devolved—or intend to devolve—to the devolved Administrations. It is therefore clear that the OBR already has an extensive remit, with a great deal of responsibilities, not only to deliver information to the Government, but to ensure accuracy so that that information is reliable enough that the Government can make acceptable fiscal decisions.

On the earlier point about the OBR’s performance, it has forecast, on average, within 0.3% accuracy of actual economic growth over the past seven years. While the exact accuracy in any given year has of course varied, the OBR has, to its credit, sustained an accurate reporting standard over a significant period of time. If anything, it has slightly underestimated economic growth in its predictions, showing a propensity for conservative estimates, which does it much credit. Indeed, the one outlier in its predictions is from 2013. For that year, it predicted a slowing of growth, but, in fact, thanks to the Conservative-led coalition Government’s policies, we experienced a 2.1% growth rate. It is worth noting that, without that outlier, the OBR has achieved accuracy to 0.1% in its predictions. That is a sound endorsement of its expertise.

Why do I believe that we should extend the OBR’s powers? First, it is worth remembering that independent budgetary offices are well established and well respected in other countries. In the Netherlands, the Bureau for Economy Policy Analysis, the CPB, has been in place since 1945. It is fully independent; it has its own legal mandate and an independent executive and advisory committee. Research is carried out on the CPB’s own initiative or at the request of the Government, Parliament, individual Members of Parliament, national trade unions or employers’ federations. It analyses the effects of current and future Government policies, and it is responsible for producing quarterly economic forecasts, as well as a spring forecast and a macroeconomic outlook, which is published alongside that country’s Budget in September. Taken as a whole, those forecasts provide a basis for extended socioeconomic decision making in the Netherlands.

The CPB analyses policy proposals, but also evaluates the effects of policy measures that have already been implemented. Since the early 1950s, the bureau has been analysing the costs and benefits of large infrastructure projects. It also conducts research in a wide range of areas, including, but not exclusively, the economic effects of ageing, globalisation, healthcare, education, the financial crisis and the regulation of markets.

Since 1986, the CPB has offered political parties an analysis of the economic effects of the policy proposals in their election manifestos. The plans of the participating parties are analysed identically, which offers voters a comprehensive tool for comparison of the parties and contributes to the transparency of the election process.

However, it was during a visit by the Public Accounts Committee to our American counterparts earlier this year that the idea of expanding the OBR’s remit came to me. During the visit, we learned about the Congressional Budget Office—a similar independent fiscal advisory organisation—based in Congress, in Washington DC. The CBO was created by the Congressional Budget and Impoundment Control Act 1974 as a non-partisan agency that produces independent analysis of budgetary and economic issues to support the congressional budget process. Interestingly, the CBO was based on the Californian Legislative Analyst’s Office, which manages the state budget in a non-partisan manner. To this day, the CBO provides analysis for state and local government where congressional committees report on legislation that applies to those levels of government.

The CBO’s mission is to help Congress to make effective budget and economic policy. The CBO discharges a number of key responsibilities, and I want to examine a few of them in greater depth. First, in broad practical terms, each year the agency’s economists and budget analysts produce reports and hundreds of cost estimates for proposed legislation. The CBO does not make policy recommendations; its reports and other instruments, which summarise the methodology underlying the analysis, help to inform policy decisions and the debates that subsequently take place in Congress.

If we look a little deeper into that, we see that among the CBO’s statutory requirements is the production of certain reports, the best known of which is the annual “Budget and Economic Outlook”. That report includes the CBO’s baseline budgetary and economic projections. The CBO is also required by law to produce a formal cost estimate for nearly every Bill approved by a full committee of either the House of Representatives or the Senate. Those cost estimates are only advisory. They can, but do not have to, be used to enforce budgetary rules or targets. Moreover, the CBO does not enforce such budgetary rules, although its work informs them; the budget committees enforce the rules. The power still lies with the politicians, but they are making much more informed choices.

It is important to remember that it is Congress that sets the CBO’s priorities; it is not the President, either of the major political parties or the CBO itself. However, I understand from conversations with counterparts in the United States that the CBO has become more open to the majority and minority leadership—both sides—in the House of Representatives and the Senate putting forward proposals to or making requests of the CBO. The CBO follows processes specified in statute or developed by the agency in concert with the budget committees and the congressional leadership. The CBO’s chief responsibility under what is known as the Budget Act is to help the budget committees with the matters under their jurisdiction.

For the CBO to be able to provide analysis to the breadth of recipients described, its analysis must be objective, impartial and non-partisan. The CBO achieves that by refusing to make any policy recommendations and by hiring people on the basis of their expertise and without regard to political affiliation. Analysts are required to conduct objective analysis, regardless of their own personal views. Strict rules to prevent employees from having financial conflicts of interest and to limit their political activities are enforced. That is in line with the requirements for our own civil service.

Importantly, the reports by the CBO are designed to reflect the full range of experts’ views, as it is required to present the likely consequences of proposals being considered by Congress. By their nature, the estimates are uncertain, but the estimates provided are in the middle of the distribution of potential outcomes. The CBO also undertakes a range of dynamic modelling. It will look not just at the impact of one policy and assume ceteris paribus that the rest of the world is held constant; it will also look at the impact that that one variable will have on other policies, to provide a more complete scenario forecast and recommendations to the various committees.

[Kirsty Blackman (Aberdeen North) (SNP)]

The hon. Gentleman is making a very interesting speech. When the Government here announce that they will put in place a particular measure—a tax relief, for example—and that it will raise such and such revenue or cost such and such, I am concerned that that number is not then properly checked to prove whether the measure did or did not. Does the CBO check policies afterwards to work out whether its forecasting was accurate?

[Luke Graham]

I thank the hon. Lady for her question. I believe that the CBO does do that and I will certainly come back to her on that point. When we were looking at some of the benefits, tracking after legislation was also, I believe, in the remit of the CBO, but I am more than happy to write to the hon. Lady to confirm that. I agree that what she refers to is incredibly important. Just in the year that I have been in the House, I have seen the pace at which Westminster moves. Policies flare up in the House of Commons; there is an enormous amount of press and focus on them; and two months later, they are almost entirely forgotten. Having some recourse is essential. Of course, that does exist through the Public Accounts Committee—and, in America, through the similar budget review committees. That is usually where the costs and benefits analysis to check whether policies have worked takes place, so this may be one less task for the OBR. It could certainly help to provide some of the analysis, but that task would probably fall more within the remit, certainly in the United Kingdom, of the National Audit Office, as opposed to an extended OBR, so that we keep the division of labour.

[Jim Shannon]

I thank the hon. Gentleman for the very detailed, comprehensive speech that he is making. He has outlined clearly the issues in relation to this organisation; I just wonder whether he has given any thought to the idea that teamwork makes the dream work. Does he agree that there is a need to ensure that there is constant training of team members, so that the natural ingoing and outgoing nature of the job that they do does not affect the high standard of work being provided by the office? In other words, it is important that the staff are trained and kept up to date with all things that are happening in order for a good organisation to work better.

[Luke Graham]

I do agree. As I have mentioned, a hallmark of the CBO is the high standard of staff it employs. That is based on their expertise and ensuring that the right people are hired for the right role and that training is maintained in the office as well, so that expertise is not lost with standard staff turnover.

The CBO maintains its objectivity through a rigorous system of checks and balances. All the CBO’s cost estimates and reports are reviewed internally for objectivity, analytical soundness, and clarity. That process involves many people at various levels in the agency. Analysts’ consultations with outside experts help them to hear all perspectives on an issue.

Furthermore, the CBO evolves as the needs of Congress evolve. It has remained true to its original mission, but, as legislation has grown more complex, it has found itself spending more time providing preliminary analysis and technical assistance during the drafting stage of laws. The CBO is being asked more often to prepare cost estimates for Bills that are heading for votes without being marked up by committees first.

I emphasise that the CBO is strictly non-partisan. It conducts objective, impartial analysis, and importantly that analysis is accepted among economists and, consequently, by both parties in Washington. The CBO has historically issued credible forecasts of the effects of both Democratic and Republican legislative proposals.

That brings me to the last thing that I want to propose for the OBR. It is crucial that the independence of the Congressional Budget Office is accepted and beyond reproach, because it monitors and marks the policies and proposals of not only the Government, but the opposition. The independence of the Office for Budget Responsibility is, I believe, beyond reproach, but it only monitors Government policies. The Budget Responsibility and National Audit Act 2011, which founded the OBR, states that where any UK Government policies are relevant to the performance of the OBR’s duty of examining and reporting on the sustainability of the public finances, the OBR

“may not consider what the effect of any alternative policies would be.”

That rules out analysing Opposition spending plans.

My proposal, therefore, is to extend the powers of the Office for Budget Responsibility to create a body that replicates the function of the CBO in the United States, providing independent analysis to hold spending commitments to account. The aim of my proposal is to extend the powers of the OBR, providing it with additional responsibility to assess, analyse and score every piece of legislation that goes through the Houses of Parliament for financial or fiscal impact. It will maintain its strict independence, making it acceptable on both sides of House, regardless of which party is in government.

The purpose of my proposal is to enable the OBR to provide independent information and analysis, in order to combat “fake news” and misinformation being circulated on Government and Opposition spending plans. Wild spending commitments have been made, particularly by Opposition parties in the past, for example over the abolition of tuition fees, with no responsibility to deliver while out of office and, therefore, no accountability.

Let us look at the Brexit debate. How much better could the debate have been had there been an independent body, such as the OBR, providing accurate analysis of the impact of the costs and opportunities of Brexit? It would have taken the pressure off the Government and given us analysis that would be accepted by all parties. We could then have debated how to make the best of Brexit—or not—rather than the endless debates we have had over bus-side promises, scaremongering over power grabs or whether the Brexit deal was sufficiently hard, soft or anywhere in between.

[John Howell]

How does my hon. Friend think the OBR would have reported, if it had been given that role?

[Luke Graham]

I do not know whether I am sufficiently qualified to project on to the OBR the conclusion it might come to. I am sure it would have provided additional food for thought, to contribute to the debate.

As I have already mentioned, other countries have long-established and well respected independent fiscal bodies, which provide analysis that is respected and accepted across the political spectrum. That allows the politicians to debate the substantive matter, not subjective opinion. Establishing an independent system of accountability will hold manifesto commitments to account before an election, making fiscal sustainability a manifesto premium, and negating the opposition’s ability to garner support through unsustainable spending commitments. In turn, this will allow us, as politicians, to focus our debates on the content and direction of our proposals without having to waste time debating the credibility of the figures.

This is not the first time that this proposal has been suggested. In March 2014, Robert Chote, the chairman of the OBR, recommended to the Treasury Committee in a hearing that opposition party policies should be costed by the OBR, in order to improve the quality of public debate. Mr Chote was confident that it was within the OBR’s capabilities, although not in its current remit, to review party manifestos for a general election, so long as the parties could agree the terms of reference. During that Treasury Committee hearing, Mr Chote said that he supported

“the OBR having a role in the costing of political parties’ manifestos in the run-up to an election”.

He said:

“if Parliament wishes us to go down this route then it does offer the prospect of improving the quality of policy development for individual parties and it potentially improves the quality of public debate”.

The then shadow Chancellor, Ed Balls, wrote to Mr Chote, asking the OBR to assess the Opposition’s manifesto pledges, while Danny Alexander of the Lib Dems—then Chief Secretary to the Treasury—also supported the proposal.

The New Statesman, hardly known as a Conservative party mouthpiece, wrote in 2015:

“Successful fiscal councils overseas demonstrate the need to balance responsibility with credibility. The Dutch CPB is an established part of the political landscape and plays an instrumental role in setting budgets and evaluating manifesto pledges. In the US, the Congressional Budget Office assesses alternative policy options for the government. The credibility of these institutions has been built over decades…evaluating manifestos should be the beginning of the OBR’s expanding set of responsibilities, not the end.”

Each piece of legislation put before the House, would, therefore, be scored, costed, and subjected to objective analysis and scenario planning, so that politicians can have a more informed debate. That would give us greater focus on smaller initiatives, many of which are announced in the House and passed within one news cycle. It would give us a better understanding of not only central Government funding, but devolved Government spending, so that we would always be clear about Barnett formula consequences and what direct funding is given to the different levels of devolved Administration throughout the United Kingdom. Finally, it would give us a more comprehensive view of our economic and fiscal outlook, so that politicians could have a more informed debate, hopefully leading to better decision-making.

There is something of a credibility crisis in politics just now. The public feel they cannot and do not trust politicians and the promises we make. That is why we should provide an independent, verified and reliable source for the figures we use in debates, one which all sides can agree on. The OBR already exists and has respect and esteem as an independent assessor of the Government, so why not extend that remit to cover all parties regardless of whether they are in Government or Opposition? There is clearly cross-party support for the proposal, as seen in my submission to the Backbench Business Committee. It would be a small but important step on the path back towards believability and reliability in our politics.

--- Later in debate ---

[Kirsty Blackman (Aberdeen North) (SNP)]

It is a pleasure to serve under your chairmanship, Mr Gray.

I thank the hon. Member for Ochil and South Perthshire (Luke Graham) for securing this debate and the Backbench Business Committee for agreeing to it. I particularly thank the hon. Gentleman because his speech was not terribly partisan but just laid out the facts, which is important, and I will attempt to do the same.

First, I will give a bit of context about the Scottish Fiscal Commission and what it does, so that we are all aware of the situation regarding budgetary scrutiny in Scotland, and then I will talk about some of the things that the hon. Gentleman talked about.

The Scottish Fiscal Commission is structurally and operationally independent of the Scottish Government, and it produces robust forecasts about devolved revenues, spending and onshore GDP. The interesting thing about it is that because it was formed fairly recently, we can talk about how it was formed and the decisions that were made about it. When the Scottish Government proposed it and introduced the Bill to create it, they engaged with MSPs and the proposed commission to ensure that the strongest fiscal commission possible was created. In Scotland, we sought to learn from international experience in designing the legislative proposals, and we reflected on the work of the OECD and the International Monetary Fund.

The proposals for the Scottish Fiscal Commission recognised that there was not a one-size-fits-all model for fiscal councils. I think that is part of what we are discussing now; the debate is not so much about a one-size-fits-all model as about the best possible structure for a fiscal commission, given how the UK operates and how the UK Parliament operates, and about whether the hon. Gentleman’s proposals actually fit with the way our democracy works and make sense for us.

The Bill to create the Scottish Fiscal Commission expressly provided that it would not be subject to the direction or control of any member of the Scottish Government in performing its functions, and it would be directly accountable to the Scottish Parliament. The Bill also gave the commission the full freedom to determine how it scrutinised forecasts, and protected it from any actual or perceived direction or interference from the Government in carrying out that scrutiny. That is really important, and it is part of what we have discussed today, in terms of the genuine separation between the Government and fiscal forecasting. If we are to have what has been said is the position of the Congressional Budget Office and agreement from all parties that the Office for Budget Responsibility is non-partisan, we need that very clear separation; the OBR clearly needs to be an independent body.

It was interesting to hear about the situation in America and Australia in relation to how those countries’ fiscal commissions operate. However, it would be particularly useful—I am always suggesting this when policies or suggestions are put forward—to hear about countries in which these things do not work, so that we would be aware of any potential pitfalls before we make any decisions. It is always useful to consider how things operate differently in different countries—where these commissions work and where they do not work—so that the pros and cons can be assessed before any decision is made about any changes.

Regarding where things are different, it would be useful to look at other fiscal commissions to see whether their scrutiny works. Whatever any organisation does, there is an accusation of bias, and my particular concern about the OBR is that it would be difficult for it to be in a situation where it was not accused of being biased and that it would find it hard to find that middle ground, if you like. Generally, my view is that the right middle ground is when people on both sides are disagreeing with someone or something and saying that they are wrong—if that happens, they have probably found something there. That is certainly the position that most politicians find themselves in. However, it would be difficult for the OBR to prove that it can strike that balance.

[Luke Graham]

The hon. Lady is making a very valid point. I just want to refer back to my speech, where I looked at some of the results of OBR forecasts. On average, when we take out the one outlier for 2013, the OBR is actually only 0.1% off, and that was the result of it working on a more conservative basis and underestimating growth. So perhaps we can let the facts speak for themselves, which will help to build credibility, both for the OBR and the Scottish Fiscal Commission, which she has mentioned—obviously, they already work together.

[Kirsty Blackman]

Absolutely. I am definitely not saying that extending the remit of the OBR is impossible; I am just suggesting that it would be a difficult task for the OBR, particularly if it was forecasting on the basis of individual policies, which it has not done to any great extent in the past. That would be a new place for the OBR to prove its worth and to prove it is non-partisan. However, as I say, I do not want to say that that is an impossible task; I am just suggesting that it is a difficult one and that the OBR would probably take time to find its feet in performing it.

Looking at individual policies and their wider impact would be a very good thing to do. We should consider the fact that we have had so many Finance Bills; even in my three years as an MP, the Finance Bills have kept coming and coming. In each of those Finance Bills, there are changes to legislation; sometimes there is new legislation, and sometimes there are changes to legislation. However, I do not feel that we have adequate information about exactly what the full impact of those changes to legislation will be.

For example, in the last few years, the Government have increased insurance premium tax, and there has not been particularly wide-ranging analysis—certainly not independent analysis—of the cost of that change. It is all well and good for the Association of British Insurers to produce a forecast of that cost, but I assume people would argue that such a forecast might be biased. Equally, it is all well and good for the UK Government to produce an analysis, but, again, people would assume that that analysis was biased.

So we have a situation where there is not an independent forecast of exactly what the cost of increasing insurance premium tax will be. If increasing insurance premium tax means that individuals could no longer afford to pay their insurance, might such individuals become homeless, and would the state have to step in to help them? If that happened, there would be an additional cost that was perhaps not accounted for in the Government’s forecast of how much additional revenue would be created. Consequently, looking in-depth at such policies would be very important.

Policies such as the bedroom tax could be considered. In considering the reduction in benefits for individuals who have an additional bedroom, we must ask what the resulting cost of that policy will be. It perhaps saves the Government money, because people will choose to downsize rather than live in properties that are too big for them. Actually, the evidence perhaps bears out that that does not happen nearly as much as the Government predicted it would. People would perhaps also have to move away from their communities and the support mechanisms they have around them, so there would be an additional cost for the state, as it would have to pay for the lack of support structures that those people have around them if they move. There are incredibly wide ramifications with some of the costs of such a change, so it would be good to have an organisation such as the OBR—if it could be proven to be independent in this regard—looking at the wide-ranging impacts of a policy and examining the draft clauses for the Finance Bill later this year.

I think there is a clause in the upcoming Finance Bill—I think it is clause 31 or clause 32—in relation to VAT interest accrual payments. Basically, the Government proposal is that Her Majesty’s Revenue and Customs will no longer pay interest on repayments that it is due to pay to VAT-paying organisations that have overpaid their VAT. I am not clear what the wider ramifications of that will be. Will it cause cash-flow problems for small businesses? I do not know, but for me to be reliant on the Government’s forecast on that issue would cause me some issues, because I would be concerned that the Government’s forecast might be biased.

As I have said already, I am similarly concerned that organisations with a vested interest might have a biased position in this regard. It would be very good to see an unbiased perspective on some of these proposals, particularly, as I mentioned, because of the number of Finance Bills there have been and the number of tweaks they have made to policies. I have yet to see a Finance Bill that has not made changes to benefits in kind for people who have vehicles for their work. Now, in the grand scheme of things, not that many people have vehicles for their work, but the fact that every single Finance Bill tweaks the legislation means that there was something wrong with the legislation in the first place, and it is also difficult for us to consider the potential ramifications, because we are not getting extensive information about these things.

Finally, I just want to highlight another issue. In my intervention earlier, I asked whether the policies the Government have put forward have produced the outcomes the Government said they would. I appreciate the point of view of the hon. Member for Ochil and South Perthshire, and the Public Accounts Committee does a huge amount of work, getting through an incredible amount of information and producing very good reports. Perhaps it is my feeling as an MP that I am not saying to the PAC, “How about you check out this tax relief and whether it has had the impact the Government said it would.” With some of the tax reliefs that have come through in the past, I have asked the Treasury, “Can you tell me whether this tax relief has made the saving, or had the additional cost, you suggested it would?” Generally, it comes back with, “Oh yes, we keep all reliefs under regular review,” but it does not provide me with the tangible information I would like so that I can be assured that the position the Government took, and the case they made, were the correct ones, so that, if they make a similar case in the future, we can agree or disagree with it. That is really important.

I still think there is an issue with the information the Government provide to the OBR, regarding not just the post-situation, after policies comes through, but before they come through. I want to read some statements from the OBR’s 2017 “Economic and fiscal outlook” and elsewhere:

“We asked the Government if it wished to provide any additional information on its current policies in respect of Brexit…it directed us to the Prime Minister’s Florence speech from September and a white paper on trade policy published in February.”

About the Brexit negotiations, it said:

“we still have no meaningful basis on which to form a judgment as to their final outcome and upon which we can then condition our forecast.”

It is all well and good to argue for the OBR to have a wider remit, and I am not opposed to the idea—it is interesting, and we should explore it further to see how it might work—but the OBR can make good forecasts only if it is provided with good information from the UK Government. I get that the UK Government have very much struggled to convince all their MPs to support any proposal on Brexit, but if the OBR had the flexibility to say, “This would be the fiscal outcome if the Government chose this path, and this would be the outcome if they chose this other path,” that would help parliamentarians make the correct decisions about how to go forward.

I was shocked when I read that 2017 Office for Budget Responsibility “Economic and fiscal outlook”, and as soon as I heard about this debate, I immediately thought of those words. It was as if the OBR was having to act with one hand tied behind its back, regarding forecasting. Whatever the situation, and whether or not the OBR is further reformed to look at specific policies—I am not opposed to that—we must ensure that the quality of information that the UK Government provide to the OBR to make good forecasts is better. They should provide as much information as possible, and if they cannot provide information on their policies, they should ensure that the OBR has the flexibility to make forecasts on two, or three, potential outcomes, so that parliamentarians, during the Budget, or any spending process, can make better decisions.

--- Later in debate ---

[Anneliese Dodds]

In the context of the OBR, the problem is that we have just heard from some Members that the OBR’s remit should be extended to cover party political manifestos, and we have the Government making a huge spending commitment during its period in office, and yet no details have been provided for how the spending will arise. Many public servants are reading the tea leaves, not least those in the police, and assuming that the spending will come from cuts elsewhere. They are probably not wrong to do so.

Some Members referred to the discussion of Labour’s spending plans at the general election. It was possible to have that discussion because Labour had set out its spending plans in our grey book. I can see the hon. Member for North East Derbyshire smiling. He will smile even more when I provide him with some summer reading: Labour’s grey book, “Funding Britain’s Future”. It is very simple to read. I am sure other Members who are former accountants will find its layout very simple because it sets out on one side where more revenue will be derived and on the other side where expenditure will go. It is enormously simple to understand.

[Luke Graham]

Will the hon. Lady give way?

[Anneliese Dodds]

I would be very happy to do so.

[James Gray (in the Chair)]

To intervene only about the OBR, I call Luke Graham.

[Luke Graham]

I look forward to that interesting summer read. Hopefully the hon. Lady will support my proposition that those figures would have even more credibility if an independent body could check them to ensure that the assumptions and figures featured in that document are credible, real figures and not socialist fantasy.

[James Gray (in the Chair)]

To speak only about the OBR, I call Anneliese Dodds.

--- Later in debate ---

[James Gray (in the Chair)]

Before I call the Minister, may I clarify something that has been worrying me throughout the debate? When I was brought up in the foothills, I remember those hills being called the “Ochils” as in “ochre”, rather than the “Ochils” as in “Och aye the noo”. Perhaps the hon. Member for Ochil and South Perthshire (Luke Graham), who led the debate, will clarify precisely how we pronounce the name of his constituency.

[Luke Graham]

It is the former, not the latter.

[James Gray (in the Chair)]

Thank you. I call the Minister.

--- Later in debate ---

[Luke Graham]

I thank all colleagues for joining me to take part in this important debate. I take to heart some of the comments made by my hon. Friend the Member for North East Derbyshire (Lee Rowley), and the hon. Members for Aberdeen North (Kirsty Blackman) and for Oxford East (Anneliese Dodds).

We have seen that the performance of the OBR is not in dispute. It has established itself as an independent and credible body for scrutinising Government expenditure plans. The Minister referred to points made in the debate and said that, at the moment, the Government have no plans to take forward any proposal to expand the OBR’s remit. Any proposal has to be matched by political will. My purpose in introducing the debate was to raise some questions and shine some light on an area of policy that is perhaps a little less sexy than some others that get debated in the House of Commons.

I certainly hope that our next debate will be much better attended. As the Minister mentioned, the measures could be good things in themselves. They would cost more and require more resourcing, but if that were to lead to more informed debate and better law-making, that is a cost that the House and our constituents would be more than willing to pay.

Question put and agreed to.

Resolved,

That this House has considered the remit of the Office for Budget Responsibility.

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.

--- Later in debate ---

[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.

--- Later in debate ---

[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.

--- Later in debate ---

[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—

--- Later in debate ---

[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.