Budget Resolutions and Economic Situation

Stewart Hosie Excerpts

Wednesday 20th March 2013 Commons Chamber

[Stewart Hosie (Dundee East) (SNP)]

I apologise to the House for having to leave the Chamber for a short time earlier.

I welcome one or two of the things in the Budget statement—the changes to national insurance are very sensible, and the reiteration of the general anti-avoidance rule will be important in time. The announcement of flexible inflation targeting for the Bank of England could be significant in how the economy is managed in the future.

First, however, I would like to talk about tax. The Government are right to try to take as many people on low and modest wages out of tax as possible, and the savings so far of £326 a year for basic rate taxpayers, whose personal allowance rose last year from £6,475 to £8,105, makes sense. However, if we are “all in it together”, a saving of £326 makes rather less sense when we are persevering with a tax cut for millionaires who might consider a £326 saving no more than a decent lunch.

It is welcome that the Government are taking people at the bottom out of tax, but we should look at what they are doing to those in the middle, who have seen tax relief before the 40% band kicks in fall from £37,400 in 2010 to £34,370 last year. Therefore, for every £326 saved at the bottom on the 20p rate, people have had to shell out an extra £560 at the 40p rate. I welcomed the announcement that the basic rate tax threshold will increase to £9,440 and then £10,000, but the Chancellor has pulled the same trick with that as he did previously because relief for the 40p band will shrink again to £32,010, as announced last year. Importantly, that means that in the three years before today’s announcement, the Government have increased the number of taxpayers paying 40% tax from 10% to 13% of all taxpayers—a whopping 670,000 extra people. In the past 25 years—this is instructive—the number has doubled. Some 2.1 million extra people pay tax at 40%. The rate used to be for the rich, but the people paying it are not rich or wealthier.

It is not as if the economy has come out of the austerity period—the UK teeters on the brink of a triple-dip recession. People feel poorer because they are poorer. Last year, the Office for Budget Responsibility changed its forecast by reducing household disposable income every year from 2013 onwards. It has done the same for this year’s Budget. People are poorer for many reasons. In the 2010 Budget, child benefit was frozen, and later removed entirely for many people, costing families £2.5 billion a year. Households are and feel poorer because their wages have been frozen or capped while inflation has been higher than forecast. For pensioner households, notwithstanding the much vaunted triple lock, the pensions calculation has gone from the retail prices index to the consumer prices index.

What do the Chancellor’s previous decisions mean? The 1% benefit cap hits 1 million households in Scotland to the tune of, on average, around £165 a year; the tax credit changes hit 110,000 families in Scotland to the tune of around £700 a year; and the child benefit changes hit 91,000 families to the tune of, on average, around £1,400 a year.

I should explain that lesson in recent history. Last year’s Red Book told us that the Government’s discretionary fiscal consolidation—tax rises and cuts—would rise to £155 billion a year every year from 2016-17 onwards. I checked the Red Book today to find out the scale of the increase in the discretionary consolidation—tax rises and cuts—only to find that there is no 2017-18. Indeed, the Government have taken out 2016-17. They are hiding the future. The one thing we know from this year’s Red Book is that the Government continue to be determined to change the ratio of cuts to tax rises to 4:1.

We therefore know precisely where the Government’s priorities lie, and it is not with people, jobs or growth, as we have seen with the announcement of another £11.5 billion of cuts, the detail of which we will get in June. That tells us—the Chancellor is the only one who does not see this—that plan A has failed. He has failed according to his own metrics. The net borrowing requirement, which was meant to be £126 billion last year, falling to £92 billion for 2012-13, has been increased to £121 billion. The national debt—this should worry everybody—was due to peak at 92.7% of gross domestic product, or £1.36 trillion, in 2014-15 on the treaty calculation. It is now expected to peak at more than 100% of GDP—100.8% of GDP—on the treaty calculation by 2016-17. That means a national debt of £1.58 trillion. The Chancellor has therefore failed by his own measures.

On the fiscal rules that the structural current deficit should be in balance in the final year of a five-year rolling programme, and that debt should fall as a share of GDP, the objectives were highly dependent on GDP growth, which, as we have noticed in previous Budgets, is massively dependent, according to the OBR, on incredible, unbelievable, unmet and unmeetable rates of business investment. In 2010, the Government suggested that business investment had to grow by between 8.1% and 10.9%. By the time we got to the OBR’s fiscal outlook the next year, growth in business investment had turned negative. So it went on year after year. The Chancellor is at it again today, forecasting future business investment rates of 6.4% to 10.2% from 2013 onwards. These will not be met either, and the Chancellor will be back at the Dispatch Box making more excuses for why the failure is not his fault.

The biggest disappointment is that although the Government announced a modest stimulus of £3 billion a year in capital investment, it will not be immediate. The crisis is with us here and now. This is a delayed reaction Budget—it does not kick in until 2015-16—and implies a fiscal stimulus in capital expenditure terms of less than 0.25% of GDP. The benefits of that, if there are any, will almost certainly be offset by the other cuts, the details of which we will get in June.

We have an immediate crisis of huge proportions: the national debt is forecast to reach 100% of GDP; all the other metrics have failed; and the much-vaunted triple A rating has gone—that was not mentioned today. The Government’s response is a 0.25% of GDP capital expenditure stimulus, most of which will be gobbled up by cuts made elsewhere. That is a timid, weak and inadequate response. What should have been a bold demand to go for growth instead locks us into austerity. To be frank, it risks a decade of austerity and a decade of stagnant growth to go along with the Government’s failure to invest when it was necessary, and when they could, to get the growth in the economy that we all want.

[Several hon. Members]

rose—