Finance (No. 2) Bill

Debate between Pamela Nash and Stewart Hosie

Monday 15th April 2013 Commons Chamber

[Stewart Hosie (Dundee East) (SNP)]

May I start by making two observations? This ought to be the keynote debate on the Government’s annual flagship Finance Bill, but there are only five Government Members in the Chamber—two Ministers, a Whip, a Parliamentary Private Secretary and one solitary Liberal, who I suspect will leave at the earliest possible opportunity—none of whom is now standing to speak. It is a terrible indictment of the Government that even the normal cheerleaders are not here to back the Chancellor. That probably indicates that many Government Members consider the Budget to be as miserable as we do.

I was struck by the fact that the hon. Member for Redcar (Ian Swales) chose to defend the millionaire tax cut. One reason he gave rather explodes the “we’re all in it together” myth, which, as someone else has said, is rarely used by Government Members these days. Even if this year’s Red Book is right and the cost of the millionaires’ tax cut is only £500 million in the next five years, I think we would all argue that if £500 million is going spare it would be better to spend it on direct capital investment, capacity for the future, and job and GDP creation, rather than give it to people who are already wealthy.

The Finance Bill is a consequence of the March Budget. Apart from some measures I welcomed relating mainly to business tax, it was a pretty miserable Budget. It was miserable because, by and large, it merely continued with the Government’s failed policies. We know they have failed because the Chancellor told us that they have failed—they failed by every measure he set. The net borrowing requirement, which was due to fall to £92 billion, has gone up to £121 billion. The national debt, which was due to peak at 92.7% of GDP—£1.36 trillion—in 2014-15 on the treaty calculation, is now expected to peak, on the same calculation, at more than 100% of GDP. National debt on the treaty calculation is due to reach 100.8% of GDP, or £1.58 trillion, by 2016-17. Therefore, when we hear that the deficit is lower and debt will fall, it does not really bear any scrutiny, even by the Chancellor’s and the OBR’s own numbers. The Chancellor has failed to meet his own targets on his original time scale for his own fiscal rules: that the structural current deficit should be in balance in the final year of the five-year rolling programme, and that debt should fall as a share of GDP. Of course, according to the OBR those objectives were highly dependent on GDP growth, which, as we have seen in previous Red Books, was based on incredible, unbelievable, unmet and frankly unmeetable rates of business investment growth.

Let us remind ourselves that in 2010 the Government suggested that business investment had to grow by between 8.1% and 10.9% a year for five years. By the time we got to the OBR’s fiscal outlook the next year, growth in business investment had actually turned negative, which was extraordinary, and so it went on year after year after year. They were at it again this year, forecasting future business investment rates of between 6.4% to 10.2% from 2013 onwards. I suspect that nobody, even in Government, believes that those targets will be met. The Chancellor, or some other poor Minister, will be back at the Dispatch Box at some point in the near future explaining why this was all somebody else’s fault.

The Chancellor also failed because the Budget and the Bill continue down the path of deep cuts and tax rises. I am sorry that the hon. Member for Cities of London and Westminster (Mark Field) is no longer in his place. He gave a customary thoughtful speech, in which he suggested that perhaps we had all not been honest and that the cuts should be deeper. However, last year’s Red Book told us that the total cost of fiscal consolidation—discretionary consolidation; that is, tax rises and cuts—would be £155 billion a year from 2016-17 onwards. As I pointed out on Budget day, that 2016-17 figure of £155 billion of discretionary consolidation, tax rises and cuts had somehow been deleted from the Red Book, and there was no forecast for 2017-18.

It is fair to say that the Government have made a U-turn and that the fiscal tightening will continue to be the equivalent of approximately 7.5% to 8% of GDP stripped out of the economy in tax rises and cuts. It is extraordinary that they think they can cut their way to growth at the best of times, but that they think they can do so while pursuing a policy which, according to their own numbers, will see fiscal consolidation, discretionary tax rises and cuts of the equivalent of between 7.5% and 8% of GDP in demand stripped out of the economy. If they can cut their way to growth on the back of that, they should be given a Nobel prize. The problem is that none of us believes it will happen. Of course, the overall impact of 4:1 cuts to tax rises tells us exactly who will bear the brunt of these austerity measures.

I said at the beginning that I do not want to be wholly negative—there were some measures to be welcomed. Earlier, we discussed briefly one of the most potentially significant measures, which is the tenfold increase in the annual investment allowance to £250,000. That is for two years only, however, and the Government need to understand that even at this level investment decisions may take some time to be agreed before businesses are able to use the benefit. I therefore ask the Government to look again at the temporary nature of the increase. While we would certainly argue that it makes sense to have targeted tax allowances such as this—it makes sense for businesses to be allowed to keep more of their own money to invest, particularly when banks are still refusing to take the full share of the risk they should take—the real problem with the Budget, the Red Book and the Bill is that the Government continue to set themselves against direct capital investment when the economy needs it most, which is right now.

To understand just how damaging that is, let me give one example: the UK Government argue that they have given Scotland an additional £279 million in capital over the next two years. It is debateable whether that is true, as I will come to, but even if it is, it would still imply a 20% real-terms cut to the Scottish capital budget over the four-year spending review period. But it is not real capital expenditure: £266.5 million is classified as a financial transaction, meaning that it can be used only to fund loans or equity investments. That is a straitjacket. It is accompanied by £103.5 million cut in hard cash from the resource budget, half of which— £56 million—will be cut this year from already agreed budgets. This is not just daft; it is economically really, really silly. I despair that the Government think it makes sense to be putting administrations—public bodies of one sort or another—into a straitjacket, while removing hard cash and discretionary spending.

[Pamela Nash (Airdrie and Shotts) (Lab)]

Before the hon. Gentleman moves too far on from capital spending, will he say why his party in Scotland is imposing even more draconian cuts on local government than the parties in government here, cutting public sector construction projects in Scotland and contributing to the 40,000 construction jobs lost in Scotland since his party took power?