Fairness and Inequality

Debate between Mike Weir and William Bain

Tuesday 11th February 2014 Commons Chamber

[Mr Weir]

The Scottish Government have invested much more in fuel poverty measures: more is now being spent than was spent in the last year in which Labour was in power, and much more is being spent there than is spent down here. As I have said, we have reduced fuel poverty at a time when it is rising in the UK as a whole, but we need to do more. We need to transfer fuel poverty measures from energy bills, which need to be reduced, and put money into a direct programme to increase the fuel efficiency of many houses in Scotland—particularly hard-to-heat houses of solid wall construction—which will help people.

[Mr Bain]

Perhaps there is surprising consensus between us on energy bills, because I support an energy price freeze. Will the hon. Gentleman tell us whether he and his party do so?

[Mr Weir]

I am getting a bit tired of hearing that from the Labour party. I have explained our position on the energy price freeze time and again. The freeze will not work. There has already been a massive increase in bills prior to its coming in, and there is likely to be another after it comes in. We had a debate in the Chamber last week about inequalities in the system of billing by energy companies. Those inequalities will be frozen in place by an energy freeze, making things even worse for Scottish consumers. A freeze will also hit the investment needed to ensure that we have jobs for the future and can bring down energy prices through moving to renewables.

Scottish Separation

Debate between Mike Weir and William Bain

Tuesday 10th July 2012 Westminster Hall

[Mr William Bain (Glasgow North East) (Lab)]

It is a pleasure to serve under your chairmanship once again, Mr Robertson. I congratulate my hon. Friend the Member for Livingston (Graeme Morrice) on securing this important and timely debate, coming as it does in the week when support for separating Scotland from the rest of the UK has fallen to as few as three in 10 people.

[Mr Weir]

rose—

[Mr Bain]

I will give way to the hon. Gentleman a little later; I want to make progress first.

I commend my hon. Friend the Member for Livingston and other hon. Members who have participated this morning in helping to ensure that the discussion on Scotland’s constitutional and economic future is informative and comprehensive, as we head towards what the Scottish people want—a clear, decisive, legal, single-question referendum on whether to stay within the United Kingdom or leave for good.

There are three points that the debate this morning has crystallised in the minds of hon. Members and those we represent. At a time of economic uncertainty in the eurozone, with economic demand predicted to fall this year and 16 million people out of work, it would be an act of folly to separate fiscal, monetary and financial policy in the way that Scottish National party members have proposed. Both the eurozone and our economies are faced with a classic liquidity trap. Keynes was very clear that fiscal, monetary and financial policy must not work against one another in such circumstances. We in the Opposition have huge concerns about how the Government are avoiding any flexibility on fiscal policy to stimulate demand and kick-start growth at home. It is a failure of policy, not a failure of the state of which we are an integral part.

The overwhelming evidence from respected economic commentators, such as Martin Wolf and John Kay in evidence to the Select Committee on Scottish Affairs, is clear and unambiguous: separation would lead to higher borrowing costs for a separate Scotland. Even under the SNP’s purported split of oil and gas revenues, with 90% being apportioned to a separate Scotland—not the universally accepted position under international law—the national debt inherited by a separate Scotland would be 70% of GDP.

On a per capita split of oil and gas revenues, debt would rise to 80% of GDP by 2014. On the deficit, even using the SNP’s preferred measure, including a geographical split of oil and gas revenues, the average deficit would have been 4% over the past five years. Three leading credit agencies have indicated that Scotland would not inherit the UK’s credit rating on separation, which would increase borrowing costs.

The First Minister says that, with the oil and gas revenues, Scotland would be the sixth richest country in the world, but to achieve that the great centraliser would have to become the great nationaliser, and there is no prospect of even the present First Minister expropriating the assets of overseas oil and gas companies to which he is in such thrall.

[Mr Bain]

Indeed, that is a powerful point. This year’s report by the National Institute of Economic and Social Research concluded that Scotland would be a significantly indebted nation on separation, with a substantial trade deficit, no insurance from risk sharing and no further fiscal transfers, which would leave us over-dependent on those very fluctuating oil and gas revenues. The strain would have to be put on borrowing or tax hikes to fund current spending.

As the economist, Brian Ashcroft, pointed out recently, the only tools available to a separate Scotland to manage aggregate demand would be of the limited fiscal variety remaining under the terms of a currency union treaty with the United Kingdom; so if inflation took off, there would have to be tax rises, a fall in public spending, or a combination of the two—hardly a recipe for economic stability or social fairness.

Those campaigning for separation never tell us what the size or role of the state would be in a post-separation world. They are keen to promise voters everything from higher benefits and pensions to lower taxes, but never with any viable fiscal prospectus to underpin such aspirations. Their ambition is to have Irish levels of taxation, but Scandinavian-style public services. That is a cruel deception to sell to the electorate, and that fatal flaw in the argument has contributed to the fall in support for separation in recent months.

[Mr Weir]

Will the hon. Gentleman give way?

[Mr Bain]

I will make this point and then give way to the hon. Gentleman.

Without a central bank to print money and control the money supply, a separate Scotland would find itself with higher long-term borrowing rates and higher interest payments on Government debt, whether with the Bank of England as lender of last resort or even with a less structured relationship with sterling. Those problems with rising costs of borrowing would manifestly worsen if oil and gas revenues continued to fluctuate as predicted. Martin Wolf wrote in the Financial Times on 19 January about the higher borrowing costs that a separate Scotland would face:

“It would need to lower its debts quite rapidly. This would require even greater austerity than in the UK as a whole. Given its close ties to the rest of the UK, Scotland could not get away with taxing corporations or skilled people more heavily than its neighbour. So the bulk of this extra austerity would surely fall on public spending.”

The First Minister came to London a few months ago and, as my hon. Friend the Member for Glasgow North (Ann McKechin) said, boasted to the Institute of Directors that he would always align income tax rates in a separate Scotland with those of the United Kingdom. He now says that his key fiscal policy would be to cut corporation tax to 20%. However, the Institute for Fiscal Studies said in its green budget report this year that increasing corporate tax competition between the nations of the UK would increase business compliance costs and lead to a race to the bottom on tax rates and revenues collected. The Scottish Government’s own figures reveal that lowering corporation tax by just 1% results in a loss of revenue for the Scottish taxpayer of between £67 million and £83 million a year. So the First Minister is prepared to throw away up to £166 million of taxpayers’ money a year on a punt that Laffer curve economics works, when the evidence from the United States is that it fails every test of economic fairness.

Whatever happened to that young radical who interrupted a Tory Budget in 1988 to protest against the reduction in the top rate of tax by Lord Lawson? Whatever happened to his dream of a land of bountiful plenty with freedom from London rule? He wants London to regulate Scotland’s banks, insurance, mortgages and pensions, and to set Scotland’s interest rates—with no reference to the needs of our economy—and income tax rates. We are told that Scotland would have equality in the world, but that is instead a manifesto for complete economic instability.

With business investment slumping, the construction sector on its knees, infrastructure crumbling and our green jobs sector without the capital that it needs, how on earth can the First Minister believe that Scotland’s future lies in lining the pockets of the banks and big business, by promoting a fiscal climate that would encourage short-term profit taking instead of long-term investment? If he cannot identify crony capitalism as being as much a part of the problem in Scotland’s economy as it has been in the rest of the UK, no wonder he can never be part of the solution.

As my hon. Friend the Member for Livingston has said, having to join the euro would also damage Scotland’s economy. The evidence from most credible experts is clear: if Scotland were to be admitted to the EU as a new state, having left the United Kingdom, it would have to make an in-principle commitment to membership of the euro. That would mean compliance with the Maastricht convergence criteria, with further spending reductions to follow. The destination would be clear, and it would be bad for job creation and growth in Scotland.

At a time of uncertain economic prospects in the UK, we need strong fiscal and monetary union to support job creation and diversification of the Scottish economy. Scotland Office figures from January 2010 show that net fiscal transfers from the UK to Scotland over the two decades to 2008 were of the order of £75.8 billion, and, even factoring in every penny from oil and gas revenues, there was a net transfer of £30 billion over the same period.

We need a central bank that can fully support the Scottish economy, without ifs or buts. The best means of securing that is by maintaining the fiscal and monetary union that has been successful within the United Kingdom for three centuries. Some nationalists claim co-ownership of the Bank of England, even in the event of separation, and the Finance Secretary laughably even claimed to have the right to appoint a member to the Monetary Policy Committee, but that is the politics of denial. In quitting the United Kingdom’s fiscal and monetary union, Scotland would also abandon the unconditional guarantees provided to it by that financial system, including the Bank of England’s role in ensuring macro-economic stability for Scotland.

Paying another state to set interest rates and prop up part of the banking system, without a collective institution that could be held democratically accountable by Scotland’s elected representatives, would be the worst of all worlds. Scotland’s parliamentarians would not be able directly to scrutinise or influence the Chancellor’s decision on the fiscal mandate or the definition of financial stability under the Financial Services Bill, which is vital in the precise remit that the Financial Conduct Authority will have in relation to our financial system. We would lose the potential to influence the Chancellor’s decisions on income tax, even though the First Minister has said that he would always follow them. There would be no influence over major macro-economic issues such as the Bank of England’s inflation target, set by the Chancellor in consultation with the Governor.

Labour Members consider it clear that Scotland benefits from fiscal, welfare, monetary and financial union with the rest of the UK. When other countries across Europe are bringing down obstacles to co-operation, it would be absurd for us to erect new barriers at home. We would survive as a separate state, but our ambitions should be higher than that for the people of Scotland. If we are to thrive and prosper, strong devolution within the United Kingdom, while meeting the current huge economic challenges together, is the best solution. I hope that the Minister will reflect the message that we have heard this morning and increasingly from the Scottish people about their future: we are far weaker as separate states, and far better together.