Finance (No. 4) Bill

Debate between Owen Smith and Stewart Hosie

Monday 16th April 2012 Commons Chamber

[Stewart Hosie (Dundee East) (SNP)]

Before I begin my remarks on the Bill, may I make one small comment on the contribution of the hon. Member for Leeds West (Rachel Reeves), who was a little critical in her speech of the VAT change to ski tolls? Will the hon. Member for Pontypridd (Owen Smith) gently remind her that the systems in Glenshee, Glencoe, the Lecht, Aonach Mor and Cairngorm are important parts of the Scottish winter economy? I am sure she did not intend in any way, shape or form to be critical of the many jobs they provide for young people, or of the tens of thousands of working-class Scots who loyally use their local ski systems every winter.

[Owen Smith]

Of course my hon. Friend the Member for Leeds West (Rachel Reeves) was not in any way challenging the importance of those jobs. She was juxtaposing the Chancellor’s decision to introduce a tax break in that industry and a tax increase in the caravan park industry, in which there is another important set of jobs.

[Stewart Hosie]

Indeed—the caravan sector has my sympathy and support in attempting to change that decision.

There are many other reasons for opposing the Bill, and I shall highlight a number of them. One key reason is the introduction of the plans to reduce the 50p tax rate to 45p for those earning more than £150,000 a year—some of us have already managed to vote against the measure, but I shall say no more about that tonight. According to the Government’s numbers in the 2012 Budget book, the measure will mean that the Government forgo £360 million over the forecast period. It is quite something when a Government are prepared to sanction the loss of revenue yield when the deficit, debt and borrowing forecasts are worse than the forecasts in the previous Budget.

The changes to age-related allowances for older people—the granny tax—will impact on about 40% of pensioners, which is another a reason to oppose the Bill. The measure will affect those who are above the basic state pension and pension credit level, but below the £30,000 a year level—people on that level will not benefit anyway. That will leave some 4.41 million people worse off than they would otherwise have been.

The Budget and the Bill are full of wrong-headed decisions, not least the Government’s determination to increase air passenger duty. Let us look at what they have done. In the Budget, the Chancellor announced that APD will rise by 8%, or double the rate of inflation and confirmed that it will rise again in April 2013 in line with inflation, ignoring the fact that Scottish, Welsh and English people, who live on an island, already pay the highest aviation duty in any country in Europe.

It is therefore no wonder that Scottish airport bosses united prior to the Budget in calling for the Chancellor to rethink the planned hike in APD and give the Scottish operators what they called “a fighting chance” to compete against European rivals. Their joint statement says:

“At a time when the Government talks about creating jobs and growth, its blinkered insistence on further increases in APD achieves precisely the opposite.”

It goes on to say:

“Youth unemployment is at record levels”,

which should concern us all, and that “inbound tourism” and importing

“is a major employer of young people, but international visitors are being turned off the UK because of the exorbitant level of APD…which is by far the highest air travel tax in the world.”

We are not all in it together, and so much for Britain being open for business, as the hon. Member for York Outer (Julian Sturdy) claimed.

Let us analyse what the Government are planning for APD. The £2.2 billion the Treasury collected last year is almost twice as much as every other European country combined. A family of four travelling to Spain will pay a total of £52 in tax. If they travel to Florida, they pay £260, and if they fly to Australia, they pay £368. That is why the Airport Operators Association chief executive said that his organisation will be campaigning against the rise as the Bill progresses through the Commons. The Scottish National party intends to move amendments to cancel the rises and, more importantly, to devolve air passenger duty to Scotland and Wales.

Air connectivity is crucial to the economy. The increase in APD is unhelpful and unwelcome, and will hit the tourism industry and needlessly jeopardise the recovery of the economy as a whole, but the key problem in the Bill is the complete failure, as the hon. Member for York Outer said, to tackle the rising price of fuel. Let us be under no illusion about the significance of that. The Forum of Private Business has said that more than one third of its members cited transport costs—predominantly the price of fuel—as their main cost pressure. When they were asked what would help to improve the business climate in the UK, they said that their main priority was not regulation, but reducing the cost of fuel duty. They were incredibly blunt in their reaction to the Budget upon which this Finance Bill is based, saying:

“Businesses and consumers just can’t afford to keep paying out more and more for their fuel. There is a serious risk that economic recovery in the UK is strangled at birth if the Government doesn’t act, and act fast.”

We hope the Government listen to the Forum of Private Business, because the economic plan they are following simply is not working. They are following a path that is failing. Much as I like the hon. Member for Macclesfield (David Rutley), who is not in his place, I do not recognise the positive progress he said he had seen in the economy. We can see that the Government’s plan is failing because, in the 2011 Budget, the deficit was forecast to be £90 billion for 2011-12 and it is now £98 billion. The 2011 Budget forecast for 2011-12 was that the net borrowing requirement would be £122 billion, but it is now £126 billion. National debt, on the treaty calculation, was due to peak at 87.2% of gross domestic product, or £1.25 trillion, in 2013-14, but on the same calculation, it is now expected to peak at 92.7% of GDP, or £1.365 trillion, in 2014-15.

That means that even the Chancellor’s fiscal rules—that the structural current deficit should be in balance and that debt is falling as a share of GDP in the final year of the forecast—are under pressure, because both objectives are highly dependent on GDP growth, which, according to the OBR, is dependent on incredible rates of business investment, as other hon. Members have said. In 2010, the Government suggested that business investment had to grow by between 6.7% and 10.6% a year every year from 2011, but by the time of the OBR November 2011 outlook, growth in business investment had turned negative for 2011 and the forecasts had been changed to suggest business investment growth from 2012 to 2016 of between 7.7% and 12.6% a year. The Government have now changed that again—they expect business growth at heroic levels of between 6.4% and 10.1% a year between 2013 and 2016.

Nobody wants growth in business investment more than I do. If we can power the economy in that way, it will be fantastic, but there is precisely no evidence that it is happening. Indeed, the downgrade of a previous high estimate tells us that it is unlikely. That should be a concern to all hon. Members, because it makes a negative rate of central Government consumption at the same time more dangerous. There is nothing to offset the lack of growth in the whole economy as a result of lower-than-expected business investment, but that is precisely the risk that the Chancellor has put into his plans.

The Chancellor’s 2011 Budget showed that between 2012 and 2015 there would be a fall in Government consumption and expenditure of 1.2%, 1.8%, 2.4% and 1.8% a year. This Budget’s figures and the Finance Bill that delivers it are no better. They show falls of between 1.3% and 2.6% from 2013 through 2016. At a time when there is no guarantee of growth in business investment, it strikes us as particularly foolish to continue down the path of reductions in central Government consumption and expenditure. The key point is that any Chancellor getting his sums wrong on growth will deliver an economy that has a serious impact on real people, on public expenditure for the services that communities rely upon and on the Government’s ability to grow the economy out of its current stagnation.

In those three areas, because the UK Government’s policy is wrong and is not working, real people are paying the price. But that should come as no surprise. The Government inherited £73 billion of cuts and tax rises every year from 2014 to 2015 onwards. That was a balance of £52 billion in cuts and £21 billion in tax rises. That increased to £113 billion of cuts and tax rises every year from 2014 to 2015 in the 2010 Budget, and went further with cuts and tax rises of £128 billion every year from 2015 to 2016. As the Red Book made clear, this Finance Bill now sets us on a path of fiscal consolidation—cuts and tax rises—of £155 billion every year from 2015 to 2016. And of course the proportion of cuts to tax rises is no longer 3:2 but 4:1. Yet despite brutally cutting so much money from the public services on which people depend, they have still managed to deliver a tax cut for millionaires. In essence, that makes this a Tory Budget, a shameful Budget and one, of course, that we must resist by opposing the Bill.

But the Government have been honest. The 2011 Budget told us that every single population quintile would see a reduction in its net income. So they are at least clear about the impact of their polices. This year’s Budget Book and Finance Bill have delivered no help. Indeed, the Budget Book told us again that every single population quintile would still be worse off.

As I said earlier, however, of everything that ought to have been done but was not, the failure to act on fuel was the most disgraceful. My criticisms of the previous Government are well known. I criticised the fuel duty escalator and their refusal to act on and outright opposition to measures to introduce a regulator. But this Government are no better. Their plan for a stabiliser is no such thing: it will see fuel costs rise by inflation when the oil price is high and by inflation plus—an escalator—when the price is low. A real fuel duty stabiliser would see the rate of duty fall when the price rises, precisely because the UK Government are already getting VAT on the North sea windfall to pay for it.

No doubt the failure properly to address this issue is why the Federation of Small Businesses has expressed its disappointment that the Chancellor

“did not announce a cut in the level of Fuel Duty”.

It is why the Licensed Taxi Drivers Federation has said:

“rising fuel costs are creating detrimental factors”

and leading to businesses being unable

“to invest in businesses as they’d like to.”

It is why bodies as diverse as the Scottish Grocers Federation, the National Farmers Union of Scotland and the Road Haulage Association, among many others, all recognise that rising fuel prices are inhibiting economic growth and are calling for Government action to deal with it.

The costs are being borne across business and society. The NFUS has told me that it is

“very concerned about the rising cost of fuel and its effect on rural businesses and communities. This is being felt most acutely in the Highlands and Islands of Scotland, where public transport is severely limited and fuel prices are among the highest in the UK.”

I say to the hon. Member for Bassetlaw (John Mann) that if unleaded or diesel was only £1.45 a litre in some of these communities, the constituents there would be absolutely delighted.

The NFUS accepts, as we all do,

“that the global price of oil is beyond the Government’s control, however MPs could help to address this critical problem through introducing a fuel duty regulator to cushion the blow of soaring oil prices. Such a mechanism would benefit not only the farming community, but also Scotland’s rural economy as a whole. Transport is at the core of the rural economy, where there is far less scope to use public transport than in urban areas.”

The NFUS makes a key point:

“The cost of transporting the inputs of feed, fertiliser and fuel is so high, as is the cost of delivering produce to the market, that it is putting Scotland’s already fragile rural communities at a competitive disadvantage with other EU producers. Rural businesses could play a vital role in…economic recovery and high fuel duty is holding them back”.

I would have thought that if the Government recognised anything, they would recognise the drag on growth and recovery that all these trade bodies and others recognise in their day-to-day lives. So we need to take action, and we need to take it now. As the NFUS has said, we cannot mitigate all price rises because they occur for a variety of reasons, but we need to militate against the worse rises, particularly when they are driven by the barrel price of oil.

That was the same fundamental point made by the Scottish Grocers Federation, which also appreciated

“that the rising cost of fuel cannot indefinitely be reduced”,

but which would

“support any measure which would provide more stability and predictability in fuel prices.”

It continued:

“The rising cost of fuel, along with other significant increases in overheads including energy prices”—

again, the fuel dependents—

“continue to erode the viability of many small and medium sized retailers in Scotland… Government should be doing everything it can to support small and medium sized businesses which are fundamental to economic growth and employment. And that is why we are certain that the Government should introduce a proper Fuel Duty Regulator - to smooth out spikes - provide certainty - allow for investment - And most importantly remove this drag on recovery.”

The FSB spoke for everybody when it said it was

“disappointed that the Chancellor has not announced a cut in the level of fuel duty and that the rise deferred to August is still to go ahead. This will still hit small businesses and households hard and so we need to see a long term solution to address high and volatile fuel prices. We remain concerned that the Government’s Fair Fuel Stabiliser will not trigger an actual reduction in the price paid at the pumps.”

Nor will it because it was never designed to do so. That is why businesses such as those in the taxi trade, which are not in control of their own prices—they cannot set their own fees or fares because they are set by local authorities—have to take this hit on the chin. As the taxi industry said, that is leading to many detrimental factors: profit margins cut, people unable to invest in their businesses in the way they would like to, drivers having to put in extra hours and take-home pay for families reduced.

The taxi industry supports our position on the introduction of a fuel duty regulator, but the Government argue that this cannot be done and that there is no yield to fund a cut in fuel duty. They have made that case several times. But how much worse is it without a regulator in place and businesses of all sorts being forced to take these hits—hits that are a drag on economic recovery? The Forum of Private Business has said:

“The pips are squeaking, and everybody is feeling the pain.”

And by goodness they are. Yet action could have been taken. Businesses and consumers cannot afford to keep paying out more and more for their fuel. There is a serious risk that economic recovery in the UK will be strangled at birth if the Government do not act and act fast.

With those remarks on fuel and the absence of certain measures in the Bill, plus my other remarks, I hope that I have put our opposition on the record. We hope to return, with appropriate amendments at the appropriate stages, to issues such as the 50p tax cut, changes to age-related tax allowances, APD and, most importantly, the failure to deal with the fuel issue.