Charter for Budget Responsibility

Stewart Hosie Excerpts

Wednesday 20th July 2016 Commons Chamber

[Mr Gauke]

I do not think the hon. Gentleman gives the Government the credit we are due for what we are doing on infrastructure. I understand the argument that we need to do more to improve our infrastructure, but let us remember what we have done: more than a quarter of a trillion pounds has been invested in infrastructure since 2010, the average annual investment in the last Parliament was 17% higher than in the preceding one and we have set out plans to invest more than £100 billion in infrastructure by the end of this Parliament.

We are taking measures on infrastructure, but we must put those in context. We also have to ensure that we have sound public finances. The immediate response to the shock of leaving the European Union has to be to work closely with the Bank of England as it carries out its role of providing stability and confidence in our economy. Monetary policy should be the first means of response to an economic shock such as this. We will use the summer period ahead to assess the situation, based on the economic data, and come the autumn we will report back to the House, setting out how we will respond on spending and taxation.

Let me be clear with the House: we continue to believe in fiscal responsibility. This country should not, as it did in the earlier part of this century, make itself vulnerable to economic shocks by letting public spending get out of control. As the Chancellor has made clear—and, indeed, as the previous Chancellor, my right hon. Friend the Member for Tatton (Mr Osborne), made clear—our target to reach a surplus by 2019-20 should not be sought in the economic circumstances we now face.

As hon. Members know, our fiscal plans to reach a surplus always came with a clear caveat: if our economic circumstances were to alter significantly and the independent Office for Budget Responsibility were to forecast less than 1% real growth on a rolling four quarter on four quarter basis, that target would be reviewed. With expert forecasters suggesting that we are highly likely to see that risk to our growth crystallise in the time ahead, we have announced that we will no longer seek to bring the budget into balance by 2019-20. As the Chancellor has said to the House, that does not mean that we can go forward without a clear framework for achieving fiscal balance over an appropriate timeframe. We will address that issue in the autumn statement.

I hear the argument that we should go for growth, but fiscal responsibility does not preclude our achieving economic growth. As has been pointed out in this debate, the UK has grown pretty well as strongly as any other major western economy over the past six years, even though we have undertaken a period of getting the public finances under control. The idea that there is a straightforward tension between economic growth and fiscal responsibility simply is not true. Indeed, it is by pursuing a policy of fiscal stability that we have maintained the confidence not just of the markets, as a consequence of which our gilt rates are lower than they would otherwise be, but of the general public, who know that in the end, if we keep borrowing and keep borrowing and keep borrowing, they will have to pick up the tab.

[Stewart Hosie (Dundee East) (SNP)]

For the sake of completeness, the Chief Secretary will probably want to thank the central Bank for its quantitative easing programme—flooding the market with money by buying Government gilts—because that is a substantial reason for the very low yields the market is seeing.

[Mr Gauke]

I understand the point that the hon. Gentleman is making about gilt yields, but none the less the Government’s credibility because of our determination to address the public finances—with a degree of pragmatism on timing that I fully acknowledge—has helped to ensure that the UK has not been drawn into a sovereign debt crisis or indeed anything like one. That is a significant achievement for this country.

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[Stewart Hosie (Dundee East) (SNP)]

I am glad that the Minister mentioned short-term turbulence as a result of the Brexit decision—the Chancellor has already spoken about that. The Minister is a pragmatic politician, so if that short-term turbulence turns into medium or long-term problems in two, five or 10 years—not least because of the absence of trade deals with the world’s biggest trading bloc—I hope that he will turn on the pragmatic tap even more strongly than he has perhaps tried to do in the Treasury so far.

This debate is about the fiscal charter, so I will run through a small bit of history and make some other comments. When the coalition Government first introduced the charter for budget responsibility, the fiscal mandate was for a cyclically adjusted current budget to be balanced by the fifth year of a forward-looking forecast period—that was similar to the plan laid out by the Labour shadow Chancellor earlier. As the Library has helpfully pointed out—it has helped a great deal with this debate—that plan was shortened to the third year of the forecast period in the December 2014 charter update. That also focused on the current balance, which is the difference between Government revenue and current, rather than capital, expenditure. Focusing on the current Budget was designed, at least on paper, to protect public sector capital investment, which is important.

A number of speakers have mentioned capital investment today, but the real problem is that capital expenditure forecasts, and real capital investment, have been rising and falling over the past few years like a yo-yo. There is concern that the National Infrastructure Commission was designed not so much to facilitate investment and drive it on, but rather to delay some of it further—but I digress.

The previous mandate used a measure of the budget balance adjusted for the economic cycle to allow the flexibility to run a deficit during recessions and a surplus during booms. The fiscal mandate was accompanied by a supplementary debt target. Originally that was for public sector net debt to fall as a share of GDP in 2015-16, but that was moved to 2016-17 in the December 2014 update. That target, of course, was not met—one of a number of broken promises by the Government in the previous Parliament, in which debt, deficit and borrowing targets all failed to be delivered as promised in 2010.

That brings us to the current charter for budget responsibility and the fiscal mandate. The charter sets out the OBR’s role, how it performs its duties, and the required content of its publications. It lays out the Government’s fiscal mandate, supplementary debt target, and essentially the cap on welfare spending. The OBR assesses and reports on progress against those targets in the economic and fiscal outlook. Just in case anyone has forgotten, the current fiscal mandate target is for the public sector’s overall budget—public sector net borrowing—to be in surplus by 2019-20. Once a surplus has been reached, the target is for a surplus to be achieved every year. Frankly, that is impossible if we are to manage the economy in a sensible way. The other target is the supplementary debt target, where until 2019-20 the fiscal mandate will be supplemented with a target for public sector net debt to fall as a percentage of GDP in each year. Those targets, as the Chief Secretary said, will apply unless the OBR assesses there has been a significant negative shock. That is, in effect, where we are today.

If annual real growth in the economy is less than 1%, the OBR will judge there to have been a significant economic or negative shock and the economy will be out of what it calls “normal times”. If the OBR judges that a negative shock has occurred or will occur, fiscal targets will be suspended. That is the nub of the problem with these rules. If the OBR looks backwards over a 12-month period before confirming that growth was less than 1%, that might mean that changes to monetary or fiscal policy may not be delivered or enacted as quickly as they should have been to minimise the problems of a slowing economy. Likewise, if the future forecasts are overly optimistic—quite a common phenomenon in this place—necessary changes to fiscal or monetary policy required to protect jobs and growth might be delayed longer than they should be. In essence, the charter and the rules are a policy for inertia, rather than a policy for action.

Part of the charter requirements are that, should the rules be suspended, the Treasury must set out a plan to return the budget to surplus, including temporary fiscal targets. That plan must be approved by a vote in the House of Commons. One of the last acts of the previous Chancellor was to appear to suggest a suspension of the rules. I think he said—the Chief Secretary can correct me if I am paraphrasing this incorrectly—that the automatic stabilisers would be allowed to function and that corporation tax would be subject, potentially, to deep cuts. If that was the plan, it was not very detailed. I have not yet heard of any temporary targets and Parliament has not yet voted. We are about to go into recess and there is no vote on the horizon. I think that that tells us all that the charter is not fit for purpose and that the rules in place for when promised targets fail are not even remotely being adhered to. It would be better, I think, not simply to suspend the charter, but to rip it up and start again. I am rather less concerned with a plan and a charter to deliver an arbitrary surplus. More important is a plan to deliver real economic growth.

It is worth pointing out that over the past six decades or more, budget deficits have been the norm. Surpluses have been very rare. Since 1955-56, the UK’s public sector budget has been in surplus for only eight years. The last surplus was 15 years ago. The OBR suggested that the UK was set to return to surplus by the end of the decade, but that now looks unachievable—another broken promise. There is, however, a bigger problem than a surplus rule, which the OBR described, in civil service code, as

“ambitious relative to the fiscal performance of past governments”.

I will translate that, Mr Deputy Speaker: it means the Government will not meet their targets. The bigger problem is that it is designed to suck consumption out of the economy before recovery is secured. The scale of that, even as recently as the 2016 Red Book, is breathtaking: not just cutting £10 billion a year more than is necessary to run a balanced economy, but by 2020-21 cutting spending by £50 billion a year more than is necessary to run a balanced current budget.

We know where the cost of this austerity falls: it falls on the poorest in society. How do we know that? The Government have told us. As the cuts and tax rises have risen, so has the ratio of cuts to tax rises, placing the burden of austerity and an arbitrary fiscal target squarely on the backs of the poorest.

This mandate is now collapsing around the Government’s feet, along with the much-vaunted and never-delivered long-term economic plan—a plan that is a bit like a unicorn: everybody knows what it looks like but no one has ever actually seen it. [Laughter.] I used that in a previous speech, but I did not get a laugh that time. It has been said that fiscal rules can be applied in other ways, but the previous Chancellor and, I presume, the current one believe that the current level of public sector debt is too high and that running a budget surplus is the only reliable way to reduce it.

The Treasury Bench has argued that high levels of debt are too risky and too damaging for the UK, leave the UK vulnerable to future economic shocks and squeeze out other public spending through high debt interest payments. At face value that is fine, but there are other credible and fiscally responsible ways in which the deficit can come down and debt can fall as a share of GDP.

[James Cartlidge]

The hon. Gentleman is making a detailed and, in his own way, cogent argument, but—[Laughter.] It was meant to be a compliment. The key word, however, is “investment”, and my view is that investment needs to come primarily from the private sector. He talks about the benefits of getting debt down. Surely one of the key benefits is the confidence it builds in the economy among those big international companies that we want to invest in the UK.

[Stewart Hosie]

I agree that confidence will come from a reduction in debt as a share of GDP and a real reduction in the deficit, and I have no aversion whatsoever to genuine, substantial private sector investment. Unfortunately, in the current climate, because of the Brexit decision, there is a bit of a hiatus—substantial investment is being put on hold and might be lost. Trust me, in the competitive international world, every other country in Europe will be saying, “See that £10 billion you were putting into the UK—bring it here.” They will be saying that in Germany and France, and when we are independent, we will be saying it in Scotland too. This is when the UK Government should be stepping in to make sure that any gap in essential investment is filled.

On the alternatives, others have pointed out that the UK can run deficits and allow the ratio of debt to GDP to drift down over time, arguing that the value of debt can be eroded through economic growth. We have not heard a lot about growth. For many years, the mantra from the Government was: growth alone will not solve the problem. I happen to agree, but there has been no plan for growth at all. Instead, we have had almost a fetish and obsession with austerity and cutting debt, irrespective of the growth consequences.

[Jeremy Quin]

The hon. Gentleman says he has not heard enough about growth. I will give him some stats. The IMF says that UK growth will be greater than that of Germany and France. They might well try to lure expenditure in their direction, but our growth is still exceeding that of our European partners.

[Stewart Hosie]

Growth in the UK exceeds that in other countries sometimes. It is higher than G7 averages sometimes; other times it is not. The most up-to-date forecast is for a likely cut in growth to 0.8% next year. That would be lamentable and unforgivable if it is avoidable.

My biggest problem with the charter is that the poor pay the price for this obsession with cuts. The fiscal charter was not delivered in isolation; it was delivered with a welfare cap limiting how much could be spent by Government on certain social security benefits over the rolling five-year forecast period. Performance is then assessed by the OBR, which reports at each autumn statement on whether the relevant welfare spending has met or exceeded the level of the cap. It is highly likely, as we have seen and heard and as the Government have effectively conceded, that the OBR will tell us that the cap has been breached and will continue to be so for the rest of the Parliament.

We have, therefore, a fiscal mandate designed to suck consumption out of the economy; a fiscal mandate driving £50 billion a year more in cuts by the end of the Parliament than is necessary to run a balanced current budget; a mandate that, in essence, delivers inertia and might delay the necessary fiscal and monetary policy steps required to maintain growth; and a fiscal mandate that is ripped up if it fails, without a new plan—which would be necessary—put in its place. That fiscal mandate, in essence, is simply not worth having, so we will vote for the Labour party’s motion today. I would say to the Government, however, that they should suspend the fiscal charter, go for growth and build consensus on a charter or a mandate that has the confidence of politicians, the markets and the public.

[James Cartlidge (South Suffolk) (Con)]

It is a pleasure to be called to speak in this timely debate. Although the Chamber is not as full as it could be, this is an incredibly fundamental debate on the key issue of the moment.

I start by congratulating the Front-Bench team on their promotions, including my hon. Friend the Member for Battersea (Jane Ellison) as the new Financial Secretary and my right hon. Friend the Member for South West Hertfordshire (Mr Gauke) as Chief Secretary. I attended a school in Hertfordshire and represent a Suffolk constituency, while he represents a Hertfordshire constituency and was educated in Suffolk. The East Anglian Daily Times was particularly excited by his promotion as a son of Ipswich. I congratulate both of my colleagues again.

I am proud of this Government’s economic record. As the Prime Minister said when she opened a fantastic performance at Prime Minister’s questions today, we have record employment once again, we have an 11-year low in unemployment at 4.9%, and we know that the deficit has been cut by two thirds—an incredibly significant achievement that cannot be underestimated. I was reassured by the Prime Minister when she said that we still aim to live within our means. That was her key point when asked about austerity by the Leader of the Opposition. I was reassured, too, by my right hon. Friend the Chief Secretary when he said that the Government are still committed to fiscal discipline, which is so important.

As both the shadow Chancellor and the shadow SNP spokesman have said, we have been looking at this change in the fiscal target as regards a surplus. As they said, the interim fiscal mandate was for the public sector’s overall budget, more correctly known as the public sector net borrowing, to be in surplus by 2019-20 in normal times. That target was to apply unless the OBR assessed that there had been a significant negative shock. Understandably, therefore, there has been a lot of discussion about why this change, putting back the time for meeting this surplus, has come about. I found the Chief Secretary’s explanation reassuring—and the word “reassurance” is key.

My understanding is that when the British people made the decision on Brexit, it was in many ways a shock for the country. Just as the Bank of England Governor came on our television screens to reassure, talking about the steps he would be prepared to take to ensure confidence was maintained in the UK economy, so has the Chancellor of the Exchequer come forward as a reassuring presence, saying that he is prepared to take any necessary steps. I view this as part of an overall package. As the Chief Secretary said, it is of course monetary policy that has the primary responsibility when there are shocks to the economy. We have heard about the possibility even of a cut in the base rate from 0.5% to 0.25%. I see the decision about the surplus as part of the reassurance that the Government are prepared to take steps and react to circumstances.

[Stewart Hosie]

The hon. Gentleman is absolutely right that monetary policy is the first port of call when there is a shock. If it were deemed to be necessary, however, to invoke some kind of fiscal measure—whether it be a stimulus or anything else—does not the hon. Gentleman agree with SNP Members that the rules are so flawed that we have to wait until the autumn before the Government can even get a green light to make fiscal policy changes that might be necessary now?

[James Cartlidge]

I agree on the importance of monetary policy, and once again the hon. Gentleman makes a cogent point in his own way. Fiscal policy has been compared to a blunt instrument. It is not easy for the Government and the Treasury suddenly to make things happen in the way the hon. Gentleman describes. We need to wait on the figures. I understand that there are reports in the media today that the Bank of England’s agents have said it is business as normal out in the country despite Brexit, and I am very reassured by that. Let me be frank: I campaigned to remain. I was concerned about the economic impact of leaving, and I still am concerned. I always felt that the biggest potential impact would be on inward investment, but I think it will take time for us to see whether that is the case.

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[Stewart Hosie]

I welcome the Minister to her place and thank her for what she just said, which was that the Government are prepared to take whatever steps are necessary to stop potential risks crystallising. That is an important thing for her to say on the record. Notwithstanding the fact that she is saying there will be a delay until the autumn and they will look at the numbers properly, may we have an assurance that if those numbers are as bad as they might be, she will not rule out any fiscal measures to stimulate the economy if that is what is required?

[Jane Ellison]

As we have said—the Chief Secretary was clear about this, and I think the point was conceded by the hon. Gentleman—we have already heard from the Governor on monetary policy, and that is really important. Conservative Members have spent the past six years making the strength of the British economy the nation’s No. 1 priority. We will look at what is happening, and it remains our priority to make sure that we continue to chart a course that recognises some of the risks that exist in the current situation, makes sure we can manage them, and looks at the opportunities that are there to be seized. We have heard so little of that in this debate. We have heard a lot of talk from both the Scottish National party and Her Majesty’s Opposition about austerity. As the Prime Minister said at Prime Minister’s questions, the other way of talking about that is to say that it is living within our means. By being prepared to address that really difficult issue of a country living within its means, this Government and the coalition have secured hard-won credibility from which we can now move forward. That credibility is not held in every part of the House. It is not an accident that we are now able to move forward from a position of strength, or that people are prepared to invest in this country; it is because of the difficult decisions that have been taken over many years, the vast majority of which were opposed by those on the Opposition Benches.

Let me take this opportunity to make it very clear that any revisions to our plans will not alter the Government’s clear commitment to this country that we would restore balance to our economy. As the Chancellor has said, we will no longer pursue the target to reach a surplus in 2019-20. Our plans to do so were based on the assumption of a different-looking economic climate. As is regarded internationally as good practice and as we see in fiscal frameworks right across the globe, our fiscal plans had a flexibility built into them, so that we could make revisions in the case of significant alterations to our economic situation. Here in the UK, that means that, if the independent OBR were to forecast four consecutive quarters of less than 1% growth a year, that target would be suspended. Admittedly that risk is perhaps more prevalent now than it once was, but it remains the conviction of this Government that any responsible plan for the long-term good of this country must be centred on a determination to tackle the deficit and reduce our debt.

In the good speech of my hon. Friend the Member for South Suffolk (James Cartlidge), he made a point about intergenerational fairness. There is no greater intergenerational unfairness than bequeathing massive amounts of debt and deficit to those generations yet to come. That remains at the heart of our plans to ensure that the British economy is healthy and able to respond to unexpected shocks.

Oral Answers to Questions

Stewart Hosie Excerpts

Tuesday 19th July 2016 Commons Chamber

[Mr Hammond]

I am very happy to do that. One of the great strengths of the UK economy is our innate entrepreneurialism. We need to foster that, and we need to make sure that it works in all areas, regions and nations of the United Kingdom.

[Stewart Hosie (Dundee East) (SNP)]

May I congratulate the Chancellor and the Chief Secretary to the Treasury on their new roles? The problem we have seen over many years is that fiscal policy occasionally works against the interests of business. Innovation funding has been converted from grants to loans, and there has been a cut during this Parliament to the UK Trade & Investment budget. I ask the Chancellor, who is new and fresh to the job, to look again at those policies, in particular, to make sure that innovation and export support funding is aligned with innovating and exporting businesses.

[Mr Hammond]

I assure the hon. Gentleman that I will be looking comprehensively at all areas of the portfolio as I prepare for the autumn statement, in the context of the economic situation that we face post this shock.

[Stewart Hosie]

I welcome that, and I ask the Chancellor to look again at one other thing. One of the problems that business and the economy face is a lack of demand. May I ask the Chancellor to look again not just at headline corporation tax cuts, but at an intelligent use of allowances—for example, the reintroduction of industrial buildings allowance—to build demand for construction now and long-term supply side capacity to boost what we do, particularly in terms of exporting, in the future?

[Mr Hammond]

I assure the hon. Gentleman that when we look at the corporate tax environment, we will not just be looking at headline rates. We will be looking at the marginal effective rates of corporate tax for investors in the UK, because that is what we want to target—more investment, more jobs and the creation of more wealth in the UK.

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.

UK Economy

Stewart Hosie Excerpts

Wednesday 29th June 2016 Commons Chamber

[Stewart Hosie (Dundee East) (SNP)]

I thank the shadow Chancellor and the Chancellor for their tone so far. We will support any necessary and constructive measures to bring back confidence and stability, particularly to the markets. The shadow Chancellor was right to say that we cannot hide and that we must have a robust critique of what the referendum outcome may mean. Unusually, the vast majority of the criticism that I do make today will be directed not at the Chancellor, but at those who led the Brexit campaign, who once again since that referendum are absent from this Chamber.

We will support the motion before us, although that is rather superfluous, given that there will now be no vote. We agree with much of it, particularly in respect of the decision to rip Scotland and the UK out of the EU and the huge and real risks that that poses to the economy, to jobs and to prosperity. Those risks were brought about in part by the decision to hold the referendum, but much more importantly by the failure of those advocating Brexit to have any plan if they won. It is worth noting that when we had our first independence referendum, it was based on a 650-page White Paper, a detailed plan and a clear prospectus for what would happen. What the Brexit campaign leaders—the Lord Chancellor and the hon. Member for Uxbridge and South Ruislip (Boris Johnson)—had prepared was a few scribbled notes on the back of Nigel Farage’s fag packet. It really was not good enough.

[James Cartlidge]

The hon. Gentleman refers to the first referendum. He will recall that the big issue there was the currency that would be used by an independent Scotland. In the Bill being drafted, is it the assumption that Scotland would no longer use the pound and would have an alternative currency?

[Stewart Hosie]

We had better fix the problems caused by the Brexit decision and then, if we find ourselves unable to secure our place in the EU by any other means, the hon. Gentleman will be more than welcome to scrutinise whatever plans are brought forward.

[Mr Stewart Jackson (Peterborough) (Con)]

The hon. Gentleman makes an eloquent point, but he is totally wrong. I have to set fire to his straw man. A general election, where a policy programme is presented and a party is ready to take over with a fixed platform of policy, is different, as he knows, from a referendum. The referendum result is an instruction to the Government to deliver, and they should have been ready to take that instruction.

[Stewart Hosie]

We are now seeing the consequence of the lack of plan. The expectation that those who campaigned to stay in should be preparing the work for those who wanted to leave is preposterous in the extreme.

We back the motion also because the people of Scotland voted overwhelmingly to remain in the EU. We have shown ourselves to be a modern, outward-looking and inclusive country, and I share the view of others. We look on in horror as community cohesion is under threat as the racists and the bigots think the result of the referendum is a green light to abuse anyone from any other background. It is not, and we unreservedly condemn that racism and that bigotry.

Let us understand what happened in Scotland on the day of the referendum. The people there made it clear that they see their future as part of the EU: 62% of the Scottish people—a nation—voted to stay in the EU, compared with 48.1% across the UK, and 51.9% across the UK voted to leave; only 38% in Scotland chose to do that. Over 1.5 million people voted remain. Each and every one of the 32 council areas voted to remain—the only nation in the UK with a clean sweep of local authorities voting to stay in. At a little more than 67%, the turnout was the second highest of any referendum held in Scotland, even higher than the 1997 referendum on devolution. So while I understand what the Chancellor said about respecting the will of the UK people, I hope that the same will apply to respecting the will of the Scottish nation, who have clearly said that they intend to stay in.

[Alec Shelbrooke]

rose—

[Dr Julian Lewis (New Forest East) (Con)]

rose—

[Stewart Hosie]

I will give way one more time.

[Alec Shelbrooke]

Given the clear decision that Scotland made, if it came to a vote on the Floor of the House on whether to implement article 50, would the SNP say no?

[Stewart Hosie]

The Government have made it clear that it will be for the next Government to bring forward such a vote. I think we have got until September or October at the earliest before we need to decide whether to do that.

We are disappointed that the UK voted to leave. That is not what we wanted. The priority must be, as others have said, to stabilise markets and to protect the economy. That is why our First Minister is in Brussels today, and it is why she has said that our Government are exploring each and every potential avenue to maintain Scotland’s EU status, because that is where the instability is coming from.

Let me say one more thing about the previous referendum, and then I will move on to the economic consequences. It is democratically unacceptable for Scotland to be removed from the EU against its will. The irony is that we were told time after time before our independence referendum that the threat to our position in the EU came from independence. Alistair Darling told us that in November 2012. Ruth Davidson told us that on 2 September 2014:

“It is disingenuous…to say that no means out and yes means in, when actually the opposite is true. No means we stay in,”

she said. Even the Better Together campaign tweeted the same day:

“What is process for removing our EU citizenship? Voting yes.”

How wrong, and how misleading that all was. Our place in the EU was never under threat from independence; it was, and it is now, very much in jeopardy only because of the UK decision to leave.

I will move on from that. Now is the time for calm, measured reflection, with our First Minister and Government doing everything they can, including talking directly to Brussels today, to secure our European status and to provide as much reassurance and certainty as we can over the next days and weeks. It is the time for being reassuring, as we all should and must, to individuals from the EU and further afield, because we believe—as most in this House believe—that they remain welcome and appreciated here.

We must also do all we can to help to restore financial stability, to reassure the business community and to emphasise that, of now, we remain members of the EU and we are firmly in the EU; that trade and business should continue; and that we should all do everything we can to say to those planning inward investment, “This remains a place where one should invest one’s capital with confidence.”

Why is this important? Because the FTSE 100 dropped by 8.4% on the morning of 24 June. On 27 June the downward trend continued; by late afternoon, the FTSE was down another 150 points, or 2.5%. Friday morning’s sudden drop meant that £137 billion was wiped off UK blue chip stocks within minutes of the markets opening. As the Chancellor said earlier, banks, house builders and others were the biggest fallers. Taylor Wimpey was down 42%, Persimmon 40% and RBS 34%. During Monday morning, trading in the shares of Barclays and RBS was briefly halted as the sharp losses exceeded 10% of their stock value. After trading was restarted, the share price of both companies continued to fall and move wildly because of the uncertainty. The FTSE 250 index, which has more businesses in it that are exposed to the domestic market, fell even further—by 7.2%, or 1,200 points. Those were extraordinary falls and changes in both markets. PageGroup led the fall; there was a 58% slump in the value of its stock.

[Mike Wood (Dudley South) (Con)]

While I recognise the figures the hon. Gentleman quotes, does he accept that the FTSE 100 is currently trading at around 6,300, which is higher than it has been for most of the last six months?

[Stewart Hosie]

Indeed, and I will come to the recovery in certain areas in just a moment. The hon. Gentleman is right when it comes to the FTSE 100, but let me come to all the other indices, and we will see the real damage and how it is being played out.

It was not simply stock prices that were affected. Sterling was trading at $1.45 before the referendum. The value of the pound against the dollar fell by almost 8% on Friday the 24th—almost twice the fall in 1992, when the UK was forced out of the exchange rate mechanism on Black Wednesday.

[Liam Byrne (Birmingham, Hodge Hill) (Lab)]

Of course the FTSE 100 is going to rebound a bit, because the vast majority of the business of FTSE 100 stocks is outside the United Kingdom. If we look at indices such as the FTSE 250, which is much more domestically exposed, we see that the fall has been catastrophic.

[Stewart Hosie]

That is absolutely correct. The FTSE 250 is far more exposed to the domestic market. Whether the index moves up or down slightly at any given time, the key point is that the exposure to the UK market and the lack of confidence at the moment are precisely what is driving that uncertainty.

[Kit Malthouse]

Will the hon. Gentleman give way?

[Stewart Hosie]

No, I will not give way at the moment.

I was pointing out that the fall in the pound was twice that in 1992. By Monday the 27th, it fell another 2%, to $1.32—a three-decade low. [Interruption.] There are mutterings from people who want everything to be fine. We have had a near three decade low in the pound because of the actions taken by the Brexit campaign, which failed to have a plan to deal with this eventuality—that is the crux of the matter. The value of the pound against the euro fell almost 6% on Friday the 24th, and it fell again on Monday the 27th.

Most alarming, given the stock placed on it, was that the UK lost its triple A credit rating from Standard & Poor’s following the Brexit vote. Standard & Poor’s said the referendum result could lead to a

“deterioration of the UK’s economic performance, including its large financial services sector”.

It was the first time that Standard & Poor’s had downgraded a triple A-rated sovereign by two notches in one go. On Friday the 24th, Moody’s cut the credit outlook from stable to negative, saying the result could lead to a prolonged period of uncertainty. By changing its outlook to negative, it has warned that the UK’s Aa1 rating is also at risk of being lowered, and with that, obviously, comes the risk of higher borrowing costs.

And that is before we get to the real world and job security. The Institute of Directors surveyed 1,000 of its members. It found that a quarter plan to freeze recruitment. Two thirds said the vote was negative for their business. The BBC has reported that HSBC plans to move up to 1,000 staff who process payments in euros from London to Paris. Others are deeply concerned about the loss of passporting arrangements, which mean that firms do not have to have different authorisations for individuals in individual countries. These are very real concerns, but they are being whitewashed and brushed over by those who are desperate to leave, because of the absence of a plan to deal with issues that should have been considered in advance.

[Callum McCaig (Aberdeen South) (SNP)]

The leaders of the Brexit campaign are conspicuous by their absence from this Chamber, which is perhaps not a surprise, given the embarrassment they face. One of those leading voices—the Minister of State for Energy—said the volatility we are seeing is not unusual. Does it not just underline the complete economic illiteracy of their case that they think these unprecedented changes are not unusual?

[Stewart Hosie]

If the pound falls by twice as much as its record fall ever, I suppose that no one sensible should describe that as minor, normal or run of the mill. My hon. Friend is absolutely right.

With regard to the indices, it is true, as I said, that the FTSE 100 has pretty much bounced back to its pre-referendum level, as of earlier today. The FTSE 250 is not yet back to the position it was in on Monday 27 June. The pound versus dollar is unchanged since its collapse and is bouncing along the bottom. The pound versus the euro is unchanged since the fall and is bouncing along the bottom. The real concern—

[Kit Malthouse]

rose—

[Stewart Hosie]

No, no.

The real concern is that this uncertainty will last for a very long time, not least because of the preposterous decision by those advocating Brexit not even to try to invoke the article 50 negotiations immediately—not so much a man without a plan as a campaign without a clue.

[Kit Malthouse]

rose—

[Stewart Hosie]

No, I am not going to give way.

We do know, though, that many of the underlying problems are deep rooted and long term. One of the arguments posited by the out campaign was that money currently going to the EU could be spent here at home. We do not need to leave the EU to reverse the decision to convert innovation funding from grants to loans in order to support new product development. We do not need to leave the EU to reverse the cuts to export support in order to help businesses sell more overseas. We do not need to leave the EU to abandon an economic plan to cut £40 billion more than is necessary to run a balanced current account. We do not need to end our membership of the EU to do these things; we do need an end to austerity.

The other argument that the Brexit campaigners posited was that we need to “take back control”, in their words, in order to achieve improvements in all the economic metrics. The problem with that is that countries within the EU are doing better on every single measure. Malta and the Czech Republic have lower unemployment. Denmark, Sweden and the Netherlands have higher employment. Ireland has higher GDP growth. Estonia and Bulgaria have lower debt-to-GDP ratios. In terms of the key issue of productivity—

[Seema Kennedy (South Ribble) (Con)]

Will the hon. Gentleman give way?

[Stewart Hosie]

No, I am coming to an end.

Productivity, as against the UK, is higher in the entire euro area. It is higher in Austria, Sweden, Denmark, Germany, France, the Netherlands, and Ireland. All the things that we want to see done can be done within the EU: that is self-evidently the case.

This is a Brexit campaign without a plan, leading to the chaos we are seeing now and potential difficulties in the economy for many, many years to come. Of course we need to get on, one way or another, to resolve this, fix it, and work with the hand we have been dealt. However, if we are expected to respect the decision taken across the whole of the UK, we would expect the same respect for the decision taken by the people of Scotland to stay in the EU.

[Several hon. Members rose—]

--- Later in debate ---

[Greg Hands]

The fiscal rules provide for action in the event of particular eventualities. I do not see a need to revise the rules at the moment. We move forward from here. The most important thing is for all of us to unite in moving forward and to make the best possible case for our renegotiation in the European Union.

We heard from the right hon. Member for Birmingham, Hodge Hill (Liam Byrne), who is a predecessor of mine in this role. I totally agree with him about being loud and clear on the rights of existing EU nationals in this country. I can tell him that my own wife, Frau Hands, would very much agree with him as well.

[Stewart Hosie]

Will the Minister give way?

[Greg Hands]

I am going to talk a little more about the debate.

My hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) made a very powerful speech, referring to his very strong business background. Like me, he strongly supported the remain campaign. He made strong points about business and the importance of making sure we secure business and trade in our new arrangements.

The hon. Member for Ilford North (Wes Streeting) said he is one of the youngest Members of this House and that he had not been alive when the country had been outside the European Union, which is food for thought. All the years he has been alive, the country has been in the European Union. He was right to say that if an economy goes wrong, it is very likely to be the poor who suffer most. That would also apply in London, which we both represent. He issued a warning to the skeleton Front Bench of his own party. It is not appropriate for me to reflect too much on that, but I am sure his points landed with those he wished to make them to.

My hon. Friend the Member for Bexhill and Battle (Huw Merriman) made a strong contribution. He made an interesting observation at the beginning of it, when he said he hosted debates with high-quality speakers in his constituency and came away thinking that they did not seem to sway voters either way. He also said that the economy will bounce back if we act with resolve, which was an important point.

We then heard three speeches from Scottish National party Members—the hon. Members for Kirkcaldy and Cowdenbeath (Roger Mullin), for Ross, Skye and Lochaber (Ian Blackford) and for North East Fife (Stephen Gethins)—and I have taken a couple of interventions from them. They made impassioned speeches and some pretty familiar points.

Finance Bill

Stewart Hosie Excerpts

Monday 27th June 2016 Commons Chamber

[Mr Gauke]

I will say a little more about clause 14, but I believe that this is a matter of fairness. For the vast majority of people, home-to-work costs do not have tax relief, and it is right to apply the same rules across the board. If there is a difference in treatment just because an arrangement is made through an umbrella company or other form of intermediary, clause 14 will put those workers on the same terms as everybody else. That underpins the Government’s commitment to ensure that the tax system is fair and treats all individuals who are doing the same thing in the same way.

[Stewart Hosie (Dundee East) (SNP)]

I understand the Minister’s argument, but this measure will offer a disincentive to many people who have chosen to go down the contracting or self-employed route. Does he share our concern that that may act as a disincentive to entrepreneurship, given that being a contractor or self-employed could be the first step to forming another business and employing other people?

[Mr Gauke]

I understand where the hon. Gentleman is coming from but I do not share his concerns. It does not seem justifiable that simply by arranging affairs in a particular way through an intermediary, somebody should benefit from tax relief for travel-to-work costs in a way that someone else does not. All Members recognise how important it is that we have an entrepreneurial economy, and that the importance of the self-employed in our economy is considerable. It does not seem, however, that there is a strong case for saying that a difference in tax relief should apply, which is why we have come forward with these measures. In recent years there has been a substantial increase in the number of workers engaged through an employment intermediary, and while many play a legitimate role in the labour market, increasingly some market themselves—at least in part—on the basis that they allow individuals and businesses to maximise their income through claiming tax relief on home-to-work travel expenses. The increase in the use of intermediaries means that large numbers of individuals are claiming tax relief that the majority of workers cannot claim, even when they hold very similar jobs.

We estimate that this change will save the general taxpayer more than £150 million this year, and more than £600 million by 2019-20. That will ensure fairness for all individuals and businesses, regardless of the structure through which workers are employed. In that context, amendment 27 is a technical amendment to correct a point in the original draft and ensure that the legislation fully reflects the Government’s original announcement.

New clauses 1 and 3—perhaps I may anticipate the arguments that we will hear from the Scottish National party in a moment—would require the Chancellor to publish a report on the impact on workers who provide services through intermediaries, and their treatment for tax purposes, within six months of the Bill being enacted. Those reviews would be completely unnecessary because those who provide services through intermediaries are taxed as either employed or self-employed. Some others operate as owner-directors of their own limited companies, and the tax treatment of the income and expenses of those individuals will depend on their employment status for tax purposes.

The Office of Tax Simplification carried out a review that considered the employment status and taxation of individuals working through intermediaries, and it published its report in March 2015. The Government accepted 17 of the 27 recommendations, and committed to consider a further six more. More recently, the Government have received the OTS’s review of small companies and accepted, or will consider further, nearly all its recommendations, including the recommendation that the OTS continues to develop the design of a look-through system of taxation for small businesses to simplify their tax affairs, and a new simple business model that would protect the assets of the self-employed. Following these recommendations, the Government have now formed a cross-government working group on employment status. The group will examine the advantages and challenges of an agreed set of employment status principles and a statutory employment status test. Given the volume and range of work done in this area recently, I would argue that an additional review is unnecessary. I therefore urge Members to reject new clauses 1 and 3.

[Stewart Hosie]

We understand the argument the Government are making against a review, but given that the Minister suggests that this will save the taxpayer—or, to put it another way, cost individuals £600 million over the lifetime of this Government—will he be prepared at least to concede that should the tax yield go up dramatically, taking yet more from the self-employed and contracting community, he might want to revisit the decision he is taking today?

[Mr Gauke]

No, I do not think the Government will be persuaded by that. Were that to be the case, it would suggest that the use of tax relief in these circumstances was even more widespread than we had anticipated. The problem we face is one of fundamental unfairness. I make no criticism of those making use of intermediaries in these circumstances—they are making use of the law as it stands—but it is an unfair outcome. Essentially, where two people are performing identical roles, one is able to gain the benefit of tax relief and the other is not simply because of the way in which they have structured their arrangements. I believe the approach we have taken in this clause is the right one.

Clause 15 makes changes to allow for the extension of voluntary payrolling to include non-cash vouchers and credit tokens. The change will enable businesses to benefit from reduced reporting obligations to HMRC and provide a simplified system for employers. Clauses 16 and 17 and schedule 3 make a number of changes to simplify and clarify the rules for employment-related securities and options. Employment-related securities and securities options are commonly used by companies to reward, retain or provide incentives to their employees. Remuneration in the form of shares would generally be liable to income tax and national insurance contributions. However, if they are rewarded under one of the four types of tax advantage share schemes, the shares acquired are exempt from income tax and national insurance contributions.

Share-based reward programmes are greatly valued by both companies and employees. The Government want to make sure the relevant legislation is as simple and clear as possible. To that end, clause 16 introduces schedule 3, which builds on the Government’s response to the OTS report on employee share schemes by simplifying and clarifying this area of tax legislation. In addition, clause 17 puts beyond doubt the tax treatment of non-tax advantaged securities options, given some uncertainty in the current legislation.

The Government are introducing amendment 28 to schedule 3 to ensure that the trading activities requirements to receive the tax advantages of an enterprise management incentive scheme will continue to apply where a company is controlled by an employee-ownership trust.

If I may anticipate what we are likely to hear, and before I move on to clause 18, I will briefly address amendment 180 and new clause 10, which relate to clause 16. Amendment 180 proposes a review of the impact of the withdrawal by HMRC of its valuation check service for small and medium-sized enterprises, including associated impacts on employee share ownership schemes. This is unnecessary. HMRC continues to operate a service for employee shareholder status and the tax advantage schemes most relevant to SMEs. HMRC has only withdrawn valuation checks for income tax and PAYE that are not part of these recognised employee ownership schemes. HMRC was considering valuations for less than 0.05% of the relevant SME population. As these taxpayers were using professional firms, the vast majority of cases submitted were acceptable. As such, the service added little value and was seen as providing poor value for money for the taxpayer. I therefore hope the House will reject amendment 180.

New clause 10 proposes that within six months of the passing of the Act the Chancellor should publish a report giving an assessment of the value for money provided by each type of employee share scheme. An HMRC-commissioned report conducted by Oxera considered the effect of tax advantage employee share schemes on productivity. This is publicly available. Owing to the difficulty of drawing conclusive outcomes from such studies, in 2012 the Office of Tax Simplification recommended that it would not be a good use of taxpayer money to produce further reports on the links between share ownership and productivity. As with all reliefs, however, the Government will continue to keep these schemes under review and will continue to publish regular statistics on the estimated take-up and costs of each scheme. For these reasons, I urge Members to reject new clause 10.

Let me conclude my opening remarks by addressing clause 18. The Government want to ensure that companies and individuals who have used, or continue to use, artificial arrangements to disguise their income, pay their fair share. These avoidance schemes involve income being funnelled through a third party, with the money often then given to the individual in the form of a loan that is never repaid. In 2011, the coalition Government successfully introduced new legislation to tackle the schemes in use at that time. Many of those who used the schemes before 2011 have still not settled. In addition, the tax avoidance industry has been selling new schemes that are even more artificial and contrived. At Budget 2016, the Government announced changes to address these issues. Clause 18 is the first part of that package.

Clause 18 addresses one type of these schemes by disallowing a relief in the current rules that the schemes exploit where there is a tax avoidance motive. It also withdraws a transitional relief and makes three minor technical clarifications to the current rules to ensure they work as Parliament intended. The reforms make it clear that everyone must pay their fair share. I will not take up any more time for the moment.

Oral Answers to Questions

Stewart Hosie Excerpts

Tuesday 7th June 2016 Commons Chamber

[Mr Osborne]

My hon. Friend is right to point out all the good things that are happening in Newark. Across the east midlands, we have seen the creation of 53,000 new small and medium-sized businesses since we came into Downing Street—a remarkable achievement. We have to ensure that we continue to move people up the job scale and that their wages continue to grow. The good news is that of the jobs being created at the moment 80% or so are full time and the majority are in skilled occupations.

[Stewart Hosie (Dundee East) (SNP)]

We all know the benefits of innovation to business and to the economy, so why does the Chancellor think his decision to change innovation support from grants to loans is anything other than a bad idea that will increase cost and risk to companies seeking to innovate?

[Mr Osborne]

I think the hon. Gentleman would accept, as I would, that it has been a challenge for the UK to turn good inventions in the laboratory into good inventions in the workplace that sell around the world. Our innovation support has had to be updated and modernised. The idea of loans is actually borrowed from a French initiative that has worked well in that economy, in terms of turning scientific invention into good products in the marketplace.

[Stewart Hosie]

That is a rather unconvincing answer. Of course it is not simply about innovation, but exports. We all understand the benefits to business and the economy of exporting more, so why does the Chancellor think it is a remotely good idea to take the decision to cut the UK Trade & Investment budget by £42 million over the next four years, making it more difficult to export and more difficult for him to meet his own target of doubling exports by the end of the decade?

[Mr Osborne]

Over the past five or six years, we have greatly increased the UKTI budget, but as with every Department, since it is paid for by the taxpayers that the hon. Gentleman and I represent, we need to make sure we get value for money. The new head of UKTI is ensuring that the money is going to the frontline to support small and medium-sized Scottish exporters and others in selling around the world. He should welcome the enormous success of many Scottish businesses, from the whisky business to agricultural industries and manufacturing, in exporting around the world, with the support of UKTI—the clue is in the first two letters.

The Economy and Work

Stewart Hosie Excerpts

Thursday 26th May 2016 Commons Chamber

[Stewart Hosie (Dundee East) (SNP)]

It is a pleasure to take part in this debate on the Gracious Speech. I am conscious of the time, so I shall be as brief as I can. Before I talk about the measures contained within this Queen’s Speech, it might be worth reflecting on what is missing from it, particularly in economic terms: an alternative to Tory austerity; real action on productivity, innovation, trade and exports; and addressing the crying need for genuine inclusive growth so that people do not fall further behind and the UK does not forgo GDP growth as it has in the past over decades as a result of rising inequality. All that is absent. As to the most important steps that should have been included in this programme for government, the Government could and should have sought to reverse the damaging impact of austerity, to reverse inequality and to stop cuts to our vital public services, which actually promote a positive economic impact. Again, all those things are missing.

It is almost as if this Tory Government are so consumed with bitter in-fighting over Europe and the EU referendum that they have pared back this legislative programme to the bare minimum required to give even the vaguest impression of a Government who are still functioning—not matter how rotten and divided they are over Europe.

The Gracious Speech could have announced an emergency summer Budget, putting an end to all the austerity that has strangled economic growth and seen the Chancellor fail to meet every single target across his key economic indicators: debt, deficit, borrowing, trade and exports. We could have had an economic plan comprising a series of economic measures to usher in an inclusive, prosperous economy through investment in infrastructure and key public services. We could have had signalled flagged-up provision for a modest increase in public expenditure. As we argued at the election, 0.5% could release something in the order of £150 billion for investment in infrastructure and our public services—spending to grow the economy, while ensuring that public sector debt and deficit continue to fall over the Parliament. That would have been sustainable and fiscally responsible.

[Jeremy Quin]

Will the hon. Gentleman enlighten us as to whether the Scottish Parliament has any plans for an emergency Budget by using the tax-raising powers it now has?

[Stewart Hosie]

We are using every single power available to us, and we will use all our powers over taxation when they come. How we choose to do that will be a matter for the Scottish Government. What I suspect we will not do is to impose a 5% increase on the poorest workers in Scotland, which was a plan posited by others and led them to come third in the election.

This Queen’s Speech could have been used for the delivery of vital and urgent aid to support trade and exports, and for measures to stimulate investment and growth to turn round what is now recognised in the real world as this Chancellor’s failed stewardship of the economy, which has seen the trade deficit widen to its worst level since the crisis in 2008 and will see the Treasury miss by £300 billion its own target of doubling exports to £1 trillion by the end of this decade.

We could and should have had a fair tax Bill, simplifying the UK tax system and delivering greater tax transparency; and, vitally, measures such as a moratorium on this Government’s programme of HMRC office closures. We should have had the establishment of an independent commission to simplify the tax code and strengthen tax transparency by guaranteeing that beneficial ownership of businesses and trusts—here, in the Crown dependencies and in the overseas territories—would be made fully public.

We should have had an energy security and investment Bill, facilitating an export-led sustainable energy sector. As my hon. Friend the Member for Aberdeen South (Callum McCaig) said, we should have had a comprehensive strategic review of tax rates and investment allowances in the North sea. In addition, we should have had a review of securing the future energy supply of the UK and an ending of the UK Government’s commitment to the failing Hinkley C nuclear project. We should have been directing investment instead into renewable energy and into carbon, capture and storage. Those, among other initiatives, would have formed the basis of solid economic proposals to grow the economy. What we ended up with in economic terms was a digital economy Bill, a criminal finances Bill and a better markets Bill. I shall deal briefly with those Bills.

We understand the benefit of digital connectivity and welcome the roll-out of superfast broadband, which has the potential to boost productivity. According to a Deloitte report commissioned by the Scottish Futures Trust last year, increased digitisation could boost the Scottish economy alone by around £13 billion. Increased digitisation and reach across Scotland would also have a direct impact on improving productivity, business creation, jobs, earnings, exports and tax revenues—and many more positive outcomes for public provision. The report suggested that if Scotland were to become a world leader, we could see a significant increase in GDP, something in the order of 6,000 extra small and home-based enterprises and potentially an extra 175,000 jobs by the end of the decade.

We therefore welcome moves by the UK Government to provide digital infrastructure, but we are unconvinced that this digital economy Bill will turn round the UK’s persistently poor productivity levels in the way that it might have done. We are particularly unconvinced about whether the implementation of this digital plan, particularly the broadband roll-out, will deliver—not least because we have evidence that the UK Government have failed in this regard before.

As long ago as July 2013 the National Audit Office reported on the Government’s then broadband programme, saying that broadband roll-out was 22 months late. The Environment, Food and Rural Affairs Committee reported last year that the UK’s target dates for broadband had been changed many times, raising concerns that the target for delivering superfast broadband to even 95% of the UK was in jeopardy—in other words, not very good with targets at all. We nevertheless welcome the UK Government’s commitment to introducing a universal service obligation, not least because it was in the SNP manifesto and we believe that if it can be fulfilled, it would bring particular benefits to rural communities.

We welcome, too, Government moves to tackle corruption, money laundering and tax evasion, but the criminal finances Bill does not go far enough to combat this systemic problem. Following the release of the Panama papers, my right hon. Friend the Member for Moray (Angus Robertson) called on the Prime Minister to go further with measures to crack down on tax evasion and aggressive tax avoidance, pointing out that illicit cross-border transfer financial flows are estimated at around £1 trillion a year, which is 10 times more than global foreign aid budgets combined. We believe that the Prime Minister and the Government should prioritise bilateral tax treaties, not least with places such as Panama and other tax havens, as part of the global efforts to co-ordinate better against tax avoidance.

Furthermore, we call on the UK Government to embolden compliance by guaranteeing that the beneficial ownership of companies and trusts is made fully public. It is also the case, as I alluded to earlier, that the UK has one of the most complicated tax codes in the world. That leads to a loss of tax yield and perpetuates opportunities to exploit loopholes. We have called on the Government to bring about a just tax system, which will assist in ensuring that all taxpayers are given a fair deal.

In our alternative Queen’s Speech, we call for the Treasury to convene a commission and report back within two years, following a comprehensive consultation on the simplification of the tax code. With a simplified—not a flat tax code—tax system, the Government could boost yield, encourage compliance, and avoid exploitative loopholes such as the Mayfair loophole. While we welcome the long-overdue measures by the UK Government to tackle corruption, money laundering and tax evasion, we wait with interest to see the detail of these measures.

Whatever good may come of this, however, the counterproductive decision to close 137 HMRC offices will strip local businesses and individuals throughout the United Kingdom of the support that they need to ensure that they comply with the law. If they are to tackle tax avoidance at all levels and continue to provide local support when it is needed, the UK Government must place a moratorium on HMRC office closures. We take the view that, by and large, individuals and business want to contribute to society by paying tax, and that a high proportion of the SME tax gap—caused not by fraud, but by genuine error and miscommunication—could be dealt with by removing the threat to local offices. It is extraordinary that, although tax compliance is now at the heart of much of our economic debate as it has not been for decades, the HMRC workforce have been cut by 20% since 2010.

The final Bill that comes under the broad heading of “the economy” is the better markets Bill, whose main purported benefits are to give consumers more power and choice through faster switching and more protection when things go wrong. That is welcome. The Bill would simplify the way in which economic regulators operate to make life more straightforward for business and cut red tape, and would also speed up the decisions of the Competition and Markets Authority for the benefit of businesses and consumers alike. That too is welcome.

The intention is to deliver a manifesto commitment to increase competition and consumer choice, particularly in the energy market. However, while we welcome Government moves to challenge rising energy prices by encouraging market choice, the Bill does not go far enough to combat the problem of fuel poverty at a structural level. According to the UK means of calculating fuel poverty, in 2014 some 2.5 million households were in fuel poverty. According to the methods used in Scotland, Wales and Northern Ireland, over the last three or four years the figures have sat between 30% and 40%. The structural issue here is not a shortage of gas or electricity, it is not necessarily a shortage of competition, and it is not necessarily the ability to change suppliers quickly; it is a shortage of money to pay for the gas and electricity coming into the house.

I am sure that there are good intentions behind many of the economic measures in the Gracious Speech, but they are simply too little, too late.

[George Kerevan (East Lothian) (SNP)]

My hon. Friend has referred to fuel poverty. The Chancellor mentioned Martin Lewis. Is my hon. Friend aware that I was at a conference with Martin Lewis this week, at which he denounced universal credit as particularly hurting the poor and their ability to save and to pay for energy? The very person whom the Chancellor mentioned is the person who is actually—[Interruption.]

[Madam Deputy Speaker (Natascha Engel)]

Order. That was a very long intervention. I have already said that there is a very limited time for a very large number of Members to speak.

[Stewart Hosie]

I was not aware that my hon. Friend was with Mr Lewis, but what he has said does not surprise me in the slightest. For all the talk of an increase in the minimum wage, I think that anyone on the progressive side of politics understands that a real living wage will be undermined by the Government’s cuts to in-work benefits and tax credit.

The Government are failing in respect of almost every key economic indicator. They have missed nearly every target that they have set themselves. The numbers—not the rhetoric—demonstrate beyond doubt that their claim to economic credibility is in tatters. We are asking for a genuine, comprehensive plan for trade, exports, innovation and productivity, and a genuinely rebalanced and fair economy. The Chancellor said that trade and exports would underpin his strategy for growth, but the UK current account deficit now stands at a record £96 billion, its highest ever cash level. The Chancellor promised a doubling of exports to £1 trillion by the end of the year, but exports fell last year to £511 billion. They are going in the wrong direction. On innovation, we continue to compare poorly with our competitors, and the Chancellor’s decision to change innovation grants to loans sends the wrong signals.

[Rebecca Pow (Taunton Deane) (Con)]

Will the hon. Gentleman give way?

[Stewart Hosie]

No, I will not.

On productivity, we continue to lag behind other major economies, and our productivity rise is barely half the level of the rise that we saw during the pre-crisis period.

All those failures need a concrete plan to put them right, but instead we simply have spin and slogans such as “the march of the makers”, “the northern powerhouse” and “the long-term economic plan”. Those are empty, shallow words from a rotten, hollowed-out Government.

Oral Answers to Questions

Stewart Hosie Excerpts

Tuesday 19th April 2016 Commons Chamber

[Mr Osborne]

First, we are introducing a register of the beneficial ownership of companies and trusts that need to pay tax, and of course banks must therefore comply with it. Secondly, we are introducing—this will be in the Queen’s Speech—a new criminal offence of facilitating tax evasion, which will apply to the corporate sector in Britain as well. That is in addition to the criminal offence we have introduced that says ignorance is no defence when someone comes before the courts if it is found that they have been evading taxes.

[Stewart Hosie (Dundee East) (SNP)]

Tax havens lead to a loss of revenue here as individuals can hide through opaque structures and businesses simply do not pay UK tax in respect of where economic activity takes place. Given the revelations from Mossack Fonseca, has the Treasury carried out a new assessment to calculate the scale and size of the revenue lost to the UK?

[Mr Osborne]

There are already a large number of ongoing investigations in respect of Panama, which we hope will lead to prosecutions, and the Government already had data on Mossack Fonseca. If there is additional information available in the Panama papers—despite our requests, the media organisations have not yet handed all that information over to us—we will act on it.

[Stewart Hosie]

Can I ask the Chancellor to be more assertive and to go much further? Mossack Fonseca is the fourth biggest such firm in Panama, and I presume that there are dozens, scores or hundreds of smaller ones, and there will be many, many more in other countries. The scale and scope of this are likely to be astronomical. He and the Government need to go much further. We need to have a much clearer understanding of the scale of this. I ask him to make all the representations he can to the Panamanian authorities and other jurisdictions where similar activities are taking place.

[Mr Osborne]

To be frank, representations are not going to be enough with some of these jurisdictions. That is why we want international agreement to a blacklist that jurisdictions will go on if they do not comply with the norms that we are establishing on transparency, exchange of information and the like. Once they are on the blacklist, they are subject to penalties and punitive action—sanctions, if you like—so that it is clear that they cannot carry on doing business in the way they have been. If the whole world comes around on that—there was welcome support for this British-promoted concept at the G20 last week in Washington—so that we get that blacklist and that punitive action, I think that we will help to solve this problem.

Tax Avoidance and Evasion

Stewart Hosie Excerpts

Wednesday 13th April 2016 Commons Chamber

[Stewart Hosie (Dundee East) (SNP)]

May I make a number of small observations on what we have heard so far and gently say to the Minister, whom I like, that success is not measured merely in monetary terms? There are many, many successful people who will forgo stashing cash in the attic, the bank or the offshore tax haven.

On HMRC, we have no problem with efficiency or with organisations being fit for purpose. We have no qualms about genuine waste being eroded, but we look askance at 17 out of 18 tax offices being closed and only one being reopened, and the argument that somehow that will deliver more for substantially less.

The shadow Chancellor spoke about wealth inequality now rising to a level that we have not seen since the days of the Rockefellers or, as he said, the robber barons. I would not put the Prime Minister in the category of the super-rich, such as the Rockefellers. We know, however—the Prime Minister has been very open about this—that he bought shares, as he described it, in a trust or a fund as part of Blairmore Holdings. He sold them some years later. He did nothing illegal at all. That episode shone a very bright light in a very murky corner of offshore tax havens. One thing that struck me was that he bought the stock in 1997 and sold it in 2010. Those dates were familiar to me. It was the entire duration of Blair, Brown and new Labour. On the underlying issue, which I know the shadow Chancellor is genuinely concerned about, and on many of the points that the Minister made at the end of his speech, the Labour party did nothing for 13 years. I am glad that this is now on the agenda in a proper and cogent way.

My hon. Friend the Member for Kirkcaldy and Cowdenbeath (Roger Mullin) made a number of telling points on this subject in his speech on the Second Reading of the Finance Bill on Monday. He said:

“you cannot build economic success on the back of social injustice.”—[Official Report, 11 April 2016; Vol. 608, c. 115.]

He also said, quoting Adam Smith:

“No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.”

He argued that creating such division does not bring progress, and he went on to describe how much of this division is characterised today by people in certain quarters being able to park large sums of money offshore, and the rest—the vast majority—being unable to do that.

My hon. Friend suggested that, according to Jason Hickel of the London School of Economics, tax havens hide one sixth of the world’s total private wealth—in excess of $20 trillion. Some estimates put that as high as $32 trillion, and CNN described it on Monday evening as about 6% of total global GDP. There are higher estimates. We can probably all agree that it is around $20 trillion, or 15 times UK GDP, parked offshore in tax havens—money and assets which very wealthy people and criminals can hide from the relevant tax authorities.

The revelations in the millions of documents in the Panama papers from Mossack Fonseca are but the tip of the iceberg. I am told that it is the fourth biggest law firm in Panama providing these services, which means there are three larger firms, and I presume that there are dozens, scores or hundreds of smaller firms doing the same. And it is not simply in Panama. Indeed, Panama does not even make it into the top 10 tax havens. Taken together—I do not think this situation has changed yet, notwithstanding the measures that the Government have announced—the UK and the overseas territories collectively are No. 1, outstripping even Switzerland by some margin, it is argued.

It is worth reminding ourselves that at a single address in the Cayman Islands, Ugland House, there are 19,000 registered businesses. I am certain that some of them will be legal, but many will not be. Many will be companies whose beneficial owners remain hidden from the tax authorities there, here or elsewhere. That means that income that should be the subject of taxation will go untaxed, to the detriment of public services here and elsewhere.

We have, in essence, an international system of finance that enables tax avoidance on an industrial scale, a system that hides from scrutiny the owners of vast wealth while the ordinary man, woman or business in the street does not have, and does not want, that luxury. They pay their fair share, and they simply want others to do the same. What makes it most unfair—I think this is why people are so angry—is that when assets or income are hidden and go untaxed, we all suffer as the resources we need for vital public services are reduced and squeezed.

It is also the case that much of the tax stashed in tax havens is looted from developing countries, so this is not simply an issue for the west. It is a matter of fundamental importance to those developing economies, which frankly are in even more need of the tax receipts that are effectively stolen from and then parked in tax havens around the world. That is why part of the solution must involve a global agreement on country-by-country reporting to ensure that tax authorities and others can follow the money.

The question from my hon. Friend the Member for Aberdeen South (Callum McCaig) was absolutely right. We are moving to having data shared between the Crown dependencies and overseas territories and the law enforcement and tax authorities here. We think that should be public—there is absolutely no doubt about that—but it should also be shared elsewhere. If miscreants are identified by the Revenue or the police here, I hope that there will be a very swift phone call to the appropriate authorities elsewhere so that they, too, can follow the money.

[Paul Flynn]

Does the hon. Gentleman think it is significant that China has £44 billion invested in the Cayman Islands and £49 billion in the British Virgin Islands? Is not one of the reasons why the Government might not want to act against these tax havens that they are ingratiating themselves with the Chinese, who are busy destroying our steel industry?

[Stewart Hosie]

I suspect that the Chinese authorities are interested in that £93 billion just as much as we are, because I suspect that much of it is not there—how can I put this gently?—officially. They have as big a problem with money being fleeced from their system as we and other countries have with ours.

Another issue raised by my hon. Friend the Member for Kirkcaldy and Cowdenbeath, and by my hon. Friend the Member for East Lothian (George Kerevan), is the question of where the money actually is and how it is set to work for its beneficiaries. As we know, cash funds do not actually sit in the Cayman Islands or the Bahamas. One of the biggest centres for the cash is London, and we can see where some of that money is spent. For example, hundreds, if not thousands, of rather expensive properties in London have been bought by persons unknown. We have therefore called for radical reform to address tax avoidance, outright evasion and criminality and to deliver fairness across the board so that the very wealthy pay the tax that is due in precisely the same way as those on more modest earnings.

The starting point for paying tax in this country is the Revenue knowing precisely who owns what assets and what income is derived from them. In short, that means a public register of beneficial ownership of companies, and not just in the UK, but for the Crown dependencies and the overseas territories as well, precisely so that nobody can hide assets or incomes through an opaque structure of a company registered in an overseas territory, registered by a Panamanian lawyer while the money comes swiftly to a bank account in London and is parked in a multi-million pound mansion in Mayfair through an anonymous shell company.

That also means taking serious action on trusts. The argument that the Prime Minister used was that he would not have got the agreement had trusts been included. He argued—possibly correctly historically—that those trusts were set up in order to allow sophisticated investors to invest in dollar-denominated stock. But times have changed. I took a cursory look at the stock exchange website this morning. On its “frequently asked questions” page, I saw the following question: “Can a company have its securities traded in currencies other than sterling, for example euros and dollars?” The answer was, “Yes, your shares can be denominated and traded in any freely available currency you choose.” Indeed, the stock exchange launched a Masala rupee-denominated bond last week. The old arguments that these structures are required for non-sterling trades or investment are now simply wrong. As my hon. Friend the Member for Kirkcaldy and Cowdenbeath put it, even if the Prime Minister was right some years ago, he is wrong now and public opinion has changed dramatically.

That brings me to what else the Prime Minister said on Monday. He said that he has published all the information on his tax returns for the past six years. He has provided details about money inherited from and given to him by his family. He has published other sources of income and his salary. He dealt specifically with the shares that he and his wife held in a unit trust called Blairmore Holdings, set up by his late father. That, from our point of view, was precisely the right thing to do. However, in a sense, all of that is irrelevant because it did not actually address the fundamental issue of individuals holding assets through overseas shell companies and being able to hide them and their income from the tax man.

Also, in describing the actions that the Government are taking to deal with tax evasion, aggressive tax avoidance and international corruption more broadly, the Prime Minister said that they have put an end to rich homeowners getting away without paying stamp duty because their houses are enveloped within companies. He said that they had made 40 changes to close loopholes, and they have sought agreement on global standards for the automatic exchange of information, and in June this year, as the Minister has pointed out, the UK will become the first country in the G20 to have a public register of beneficial ownership so that everyone can see who really owns and controls each company. We recognise that there has also been work on base erosion and profit shifting.

All of that is to be welcomed. What we are saying is that we need to go further. It will simply not be enough for the police and the tax authorities to see beneficial ownership of companies registered in Crown dependencies; it must be public, so that the citizens of those countries and ours can see who precisely owns and benefits from what. Also, while we welcome the publication of beneficial ownership of companies in the UK, I ask the Government to ensure that sufficient resources are now dedicated to HMRC so that it can forensically scrutinise the sources of income to ensure that they are legal and that the tax due is paid. Of course, as I said earlier, the Government must also pass on to other authorities the details of any miscreants suspected of looting cash from other countries.

I am delighted that this subject is now under real scrutiny. I am also delighted that we have gone wider than the parochial. Oxfam has pointed out how significant this is in its report “Ending the Era of Tax Havens”. It gives encouragement to the Government, stating:

“The UK is especially well placed to show leadership here because it controls or directly influences by far the largest network of tax havens in the world. This network, encompassing the UK’s Crown Dependencies and Overseas Territories and centred on the City of London, is estimated to account for nearly a quarter of global financial services provided to nonresidents within a jurisdiction. Taken together, this UK entity would sit at the top of the ranking in the Tax Justice Network’s Financial Secrecy Index”.

That is not something we should be proud of. However, Oxfam goes on to talk about the opportunity the Government have, saying that success in tackling corruption and tax evasion could be transformative not just in terms of our revenue, but in terms of the fight against global poverty and inequality, which, for the SNP, is just as important.

I will end by saying one thing to the Government: the cat is out of the bag. This is not just about Mossack Fonseca; this is the tip of the iceberg. The public will not allow this matter to be quietly swept under the carpet again.

Budget Changes

Stewart Hosie Excerpts

Monday 21st March 2016 Commons Chamber

[Mr Gauke]

I entirely agree with my right hon. and learned Friend that it is the long-term approach that he took as Chancellor of the Exchequer that we are now taking forward so that we can secure prosperity and economic security for the British people.

[Stewart Hosie (Dundee East) (SNP)]

We are shortly to hear a statement from the Department for Work and Pensions, and if rumours are correct, it will announce a substantial change to the Budget announcements that we heard only last week. That is likely to result in either substantial extra borrowing or a requirement for substantial extra taxes or, potentially, the shredding of the fiscal charter rules. In any case, there is likely to be a substantial change to last week’s Budget. It is not good enough to announce that in a quick statement; surely it should require a supplementary corrective Budget. Let me ask the Minister whether his right hon. Friend the Chancellor has pencilled in a date for a summer Budget—and if he has not, may I suggest he does so now?

[Mr Gauke]

As the hon. Gentleman says, there will be a statement from the Secretary of State for Work and Pensions, and we also have two further days of Budget debates. As for changes to the fiscal position, in view of the oil price changes of recent months, I think we should look at the consequences for Scotland if it had been independent.