Finance (No. 2) Bill

Stewart Hosie Excerpts

2nd reading: House of Commons
Tuesday 18th April 2017 Commons Chamber

[Stewart Hosie (Dundee East) (SNP)]

I beg to move an amendment, to leave out from “That” to the end of the Question and add:

“this House declines to give the Finance (No. 2) Bill a Second Reading because it derives from the 2017 Budget which confirmed the continuation of austerity, it fails to provide the necessary stimulus to compensate for the economic impact of Brexit, it fails to address the inequity of VAT being charged on the Scottish Police Authority and the Scottish Fire and Rescue Service, it fails to provide concrete measures to support the oil and gas industry, it increases Insurance Premium Tax above the level of inflation, it increases duty on Scotch whisky, and it is a wholly inadequate response to the economic challenges being faced by Scotland and the UK.”

We oppose this Finance Bill—well, someone has to—not so much because of what it does but because of what it does not do. Let me take as an example the inequity of Scotland’s police and fire and rescue authorities paying VAT. It is a long-standing problem, and this Government could and should have taken the opportunity of this Finance Bill to rectify it, but they did not. In the Budget, there was at least a recognition of the problems faced by Scotland’s oil and gas sector, but no specific measures were announced—just another options paper, which was effectively announced last year. This Finance Bill should have been the opportunity to make concrete proposals for UK content and for oil exploration and decommissioning allowances to ensure that the sector continues to thrive, to flourish and to provide substantial tax yields for decades, but of course it does not. It does, however, put up the duty on Scotch whisky, and increase insurance premium tax again by 20%, which is way above the rate of inflation. Effectively, the Bill treats the Scotch whisky industry and the insurance sector as cash cows for the Treasury.

Having said that, we do welcome some of the measures in the Bill, particularly those that are intended to clamp down on tax avoidance and evasion. I welcome what the Minister said about restricting the use of past losses, disguised remuneration, the initial penalties for tax avoidance enablers, and the removal of the permanent non-dom status. However, it is hard to see how this Bill will assist in any substantial way to address the long-term UK challenge of improving productivity or even helping to make society a little less unequal, which is vital to unlocking our growth potential. That is particularly the case when one considers that alongside this Finance Bill are a set of welfare proposals that do not support inclusive growth but, rather, drive a coach and horses through it. They include the cut of £30 a week to employment and support allowance for claimants placed in the work-related activity group; a 55% cut in the rate of ESA for disabled people under the age of 25; the freezing of the lower disabled child element of universal credit; and the changes for full-time students who receive disability living allowance or personal independence payments who are now not treated as having limited capability for work and are therefore not entitled to universal credit until they have been assessed, which means that they face long delays without support.

I do not want to digress too far from the Bill, but delivering those cuts when disabled people and those on low to middle incomes are already facing a barrage of cuts from this Government is a disgrace. Moreover, those cuts not only fly in the face of the Tory party’s last manifesto commitment to help more disabled people into the workplace—something that is vital—but undermine the essential drive for real inclusive growth, which is vital if we are to grow the economy and maximise our potential.

[Rebecca Pow (Taunton Deane) (Con)]

I just want to point out that, under the Scotland Act 2016, we are devolving benefits worth £2.8 billion to the Scottish Parliament. That is almost a fifth of Scottish spending. It would be really interesting to hear what the hon. Gentleman thinks about that. Indeed, he could even welcome the fact that this Government have created such a strong economy that Scotland is able to have that much money gifted to it.

[Stewart Hosie]

I am sure that the Scottish people will be delighted to hear that the hon. Lady thinks that somehow they do not pay taxes and that they are dependent on the largesse of ladies like her to fund our welfare system. We have had a very small amount of welfare devolved. If she wants to make such a contribution, she can read out the rest of the Whips’ briefing note when she catches your eye later, Mr Deputy Speaker. [Interruption.] The Tories can groan all they like, but they have called a snap election, and on the same day we are debating the Finance Bill.

In this Bill, the Minister wishes to reduce the dividend nil rate from 2018-19 from £5,000 to £2,000. I will listen carefully in the next 10 days or so to what the Government say about that. Perhaps they can prove that only very wealthy people benefit from that allowance and that it may be a reasonable change. Equally, it may be the case that many small and start-up business owners depend on that money to tide them over and that the measure will be nothing more than a tax on enterprise—a disincentive to start a business, to create jobs and to power local economies.

I did find it slightly jarring when the Minister explained that wealthy people could put lots more money in individual savings accounts. That is fantastic news for people who are already wealthy: they can save tax free. Let us juxtapose that with a change to the dividend nil rate from a modest £5,000 down to £2,000, which might act as a disincentive to people who genuinely want to start a business, while allowing already wealthy people to save tax free. That might be the kind of error we would have seen under the old fiscal charter and its requirement to run a permanent surplus quickly, almost irrespective of the economic conditions. However, the new fiscal charter is more flexible than the last one, which should make such a measure unnecessary. The Government are still targeting a surplus early in the next Parliament. Let us see how early it is in the next, next Parliament.

Again, without digressing too far, the numbers and the timescale for even a modest surplus within four or five years look precarious. The forecasts for a current account surplus are tiny, not even reaching 1.5% of GDP. If there is any external shock or capital flight if sterling suffers further devaluation, which is quite likely if the Brexit negotiations go wrong—again, highly possible—the figures could fall apart very quickly indeed.

At its heart, this is a Finance Bill delivered with the pretence that the hard Tory Brexit is not happening. It sits in splendid isolation from reality. We cannot assess whether it will assist with the challenges that lie ahead. We cannot even assess properly what the consequences of the limited measures in it will be, because the Office for Budget Responsibility told us about Brexit at the Budget:

“There is no meaningful basis for predicting the precise end-point of the negotiations as the basis for our forecast.”

In short, this Finance Bill, like the 2017 Budget, is effectively based on a central assumption that pretends that Brexit does not exist. That is a ridiculous thing to do, given that article 50 has already been triggered.

[Mr Rees-Mogg]

The hon. Gentleman quotes the OBR, which was one of the few forecasters that was responsible enough a year ago not to make wild assumptions about what Brexit would mean. Most of the other forecasters thought they knew what would happen and got it comprehensively wrong. It shows prudence, caution and common sense not to try to forecast that which is essentially unknowable.

--- Later in debate ---

[Stewart Hosie]

I think the hon. Gentleman has been on record attacking the OBR for its forecasts. If he has not, I apologise, but I am sure that many of his colleagues have. No one seriously suggested that on day one or in week one, month one or even year one, even before the negotiations were complete, Brexit would result in any kind of catastrophe, reduction in GDP or other such thing. The real danger is for the medium and long term. As the hon. Gentleman brings it up, let us remember what some of the forecasts said. The Treasury itself said that we could lose up to £66 billion from a hard Brexit, and that GDP could fall by about 10% if the UK reverted to World Trade Organisation rules, which echoed the Chair of the Treasury Committee and other assessments. The London School of Economics said:

“In the long run, reduced trade lowers productivity”—

a huge problem for the UK—which

“increases the cost of Brexit to a loss of between 6.5% and 9.5% of GDP.”

It put a range of figures on those costs of between £4,500 and £6,500 per household.

There are other assessments from the Fraser of Allander Institute, from the FTSE 500 senior executives and from the British Chambers of Commerce. The hon. Member for North East Somerset (Mr Rees-Mogg) may not believe those assessments. Some of them may not come to pass, but given that the warnings are very real and credible, one would have imagined that they would instruct a far bolder Finance Bill. That is the point that I was trying to make.

[Mr Rees-Mogg]

The point I was trying to make was that we have had incredibly wrong forecasts from all these illustrious bodies. The hon. Gentleman was only wrong on the OBR. I criticised lots and lots of bodies; the OBR was the one I singled out for not being so foolish as to make erroneous forecasts. The Treasury, the International Monetary Fund and the Bank of England all said that the day we left there would be Armageddon and we would have a punishment Budget. This turned out to be nonsense, and it is much wiser of the current Chancellor to avoid foolish speculation.

[Stewart Hosie]

I do not want foolish speculation; nor do I want rose-tinted spectacles or ostrich heads in sand. There are very credible warnings of what Brexit might deliver. If the Government fail to mitigate the risks, they fail the people, and that is incredibly important.

To be fair to the Chancellor, in terms of what mitigation measures he could take and has taken, last autumn he announced additional support for capital investment and research and development; and he has since reiterated some of his R and D statements and put some more flesh on the bones of investment. However, the figures from the last autumn statement show that public sector net investment falls in 2017-18, and presumably 2018-19, depending on what happens after the 8 June election. The figures announced only a few months ago for public sector gross investment show them falling again this year, compared with the forecast made last winter, and not increasing again until 2020 or beyond. We would argue that money should have been allocated, and the Finance Bill should have reflected this, to mitigate the damage that we and many others believe is likely as a result of a hard Tory Brexit.

Of course it is not all about Brexit. Nor is it about reminding the House—I will not do it today—of the failures and broken promises on debt, deficit and borrowing. It is not even about repeating the mistakes of the past on investment. We are now in such uncertain times that in order to protect jobs, to protect yield and to protect the current account, trade should be front and centre, but little was said about that today and there was nothing in the Finance Bill that would assist in that regard.

The Budget Red Book tells us already that the current account is in negative territory for the entire forecast period. The impact of net trade will be zero or a drag on GDP growth, without the impact of Brexit, for almost every year of the forecast period in the Budget. That is after a near 15% devaluation in sterling since the referendum. More should have been done, and it should have been done in this Finance Bill.

My hon. Friend the Member for East Lothian (George Kerevan) intervened earlier on how growth will be generated. It is forecast to be based on heroic levels of business investment after the uncertainty of Brexit ends, which we do not believe will be any time soon. It will be propped up by household consumption with a commensurate rise in household indebtedness; by central Government investment, which I welcome; and by fixed investment in private dwellings, but house price rises are forecast to be two or three times the rate of already rising inflation. That is not a balanced recovery, and there is nothing in the Finance Bill that would assist in balancing it.

However, the issue of trade is most worrying. The figures are clear, notwithstanding one quarter’s blip in either direction. The last full years for which we have figures saw the current account £80 billion in the red, and a deficit in the trade in goods of over £120 billion. Nothing in the Finance Bill today would assist businesses to trade in a way that would even begin to shrink or erode those deficits.

This is a thin debate today because of other announcements, so I will conclude by saying what I said at the start. We will oppose this Bill—not so much for what it contains as for what is missing. We will do so because, like the Budget that drives this Bill, it is wilfully blind to the damage that Brexit will do, and in our view it is a completely inadequate response to the challenges that the economy will face.