Surplus Target and Corporation Tax

Stewart Hosie Excerpts

Monday 4th July 2016 Commons Chamber

[Mr Osborne]

It is clearly likely that we will be impacted by a cyclical downturn in the public finances—we can already see the growth forecasts being adjusted. The OBR will help us to make an assessment of the referendum result’s structural impact on the public finances and our chances of hitting the target—as I say, it looks unlikely that we will hit it—and then, under the fiscal charter, it will be up to the Government to produce a plan that will be debated and voted on by the House. We have provided for this contingency, and now we need to let the OBR do its work.

[Stewart Hosie (Dundee East) (SNP)]

I welcome what the Chancellor said about possible monetary policy easing from the Bank, about the automatic stabilisers and, in particular, about export promotion—we hope that that will be matched by a U-turn on the cuts to the UK Trade & Investment’s export promotion budget.

In general terms, we welcome the U-turn on the arbitrary fiscal surplus rule, which, we should remember, planned to cut more than £40 billion a year and was required to run a balanced current account budget. While we support tax competition and recognise that corporation tax cuts might be a useful tool in the fight against capital flight in the aftermath of the appalling Brexit decision, it is also true if we look at the 2016 Red Book numbers as a guide, that a substantial cut in corporation tax—say, 5%—could, in the absence of behavioural change, lead to a reduction of revenue yield of about £2.5 billion a year. I ask the Chancellor one question in particular. Given that he has abandoned his fiscal rule, will he today rule out any plans to claw back potential losses in revenue yield from the cut in corporation tax, in the absence of behavioural change, through the mechanism of further attacks on the welfare budget?

[Mr Osborne]

First, as a result of the reforms we have made over the last six years, the Bank of England has many more tools at its disposal than it did in the financial crash. Obviously, it can act on monetary policy consistent with its inflation target. The Governor of the Bank of England, speaking in a personal capacity as a member of Monetary Policy Committee, said that easing was likely to be required. A number of other tools, including counter-cyclical financial tools, are available, which means that there is a range of options to deploy. Over the coming weeks, we will hear whether, how and why the Bank of England, which is independent in its decision making, needs to deploy those tools.

I am rather disappointed that the SNP spokesman has not reminded us that it was SNP policy to cut corporation tax. Indeed, that has been its policy for year after year. In the independence referendum, the SNP said that one of the benefits of independence was the ability to cut corporation tax. The great thing about being in the United Kingdom is that the SNP can get corporation tax cuts in any case.