The Economy
Debate between Stewart Hosie and Iain Stewart(9 years, 6 months ago)
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Stewart Hosie
I would be slightly more gracious than that. I think that the right hon. Gentleman will make a contribution to his party’s policy development. Let us hope that it moves to somewhere progressive rather than sticking to the kind of austerity-lite position that it had before the election.
We need to squeeze inequality out of the system. The December 2014 OECD report told us that rising inequality in the UK had cost it 9 percentage points in growth between 1990 and 2010. It is an obvious fact: it is not possible to squeeze inequality out of the system at the same time as the squeeze is being put on the poorest in society, and once again this Government are swimming against the tide of informed public opinion.
The alternative to the Government plan is clear; it is the alternative economic plan that we pursued, rather successfully, in Scotland at the election. It is a plan aimed at balancing deficit reduction with increased investment in public services. We argued rightly that with a modest 0.5% real-terms spending increase between 2016-17 and the end of this Parliament we could release £140 billion for essential spending and investment over and above the Government’s plans. The alternative for Scotland is £11 billion of spending compared with £12 billion of cuts. Our plan makes sense. It is a fiscally responsible plan that protects public services, protects investment, really ends austerity and lifts the squeeze off ordinary people, but still sees the debt and deficit fall.
Iain Stewart
May I repeat the question put by my right hon. Friend the Chancellor? The Scottish Parliament already has significant tax powers and it will gain more in this Parliament. The leader of the Scottish Conservatives, Ruth Davidson, has pledged not to have tax rates in Scotland that are higher than in the rest of the UK. Will the hon. Gentleman meet that pledge, or does he want to pursue his expansionary agenda and raise taxes?
Stewart Hosie
I do not think that Scottish people should pay tax twice for services that we would have if we simply had full fiscal autonomy.
The UK Government have advocated an approach that will result in further spending cuts in the coming years to achieve the fiscal targets set out in the budget charter, but those cuts have not been spelt out in full. The Tories have not said where the axe will fall. The Chancellor said some things today, particularly about in-year cuts and asset sales in certain Departments, but nowhere near enough to explain what he plans to do. Perhaps he or one of his Ministers might decide to come clean with this House later today and tell us where the axe will fall.
Will they really restrict carer’s allowance to those eligible for universal credit, so that 40% of claimants lose out? Will they really increase means-testing for the contributory element of employment and support allowance, or of jobseeker’s allowance, which would see 30% of claimants—300,000 families—lose £80 a week? Will they remove the tax-free status of disability benefits to save £1.5 billion? Will this Chancellor and the Secretary of State for Work and Pensions really take the axe to those most in need to deliver £8 billion of tax cuts, which right now, and I have heard nothing today to change my mind on this, are completely unfunded?
I said that the UK Government plan is designed to achieve the fiscal targets set out in the charter for budget responsibility, but we know that the scale of the spending cuts plan, as set out in the March Budget, significantly exceeds what is required for the UK Government to meet their targets. There is therefore flexibility for the UK Government to meet those objectives without implementing in full the spending cuts that are currently planned for the coming years.
Based on plans set out in the March Budget, public sector net debt is projected to begin falling in 2015-16, and a cyclically adjusted current budget surplus of £35 billion is projected for 2018-19, rather than simply returning the adjusted current account to balance. Therefore, the UK Government have the flexibility to cut spending by less than currently planned while meeting their fiscal targets. I hope the Chancellor uses that flexibility wisely.
I want to move on to the real economy. As our First Minster, Nicola Sturgeon, said, there are three areas where we seek to achieve outcomes at a UK level that will benefit the economy in Scotland. First, we will continue to oppose spending reductions of the scale and speed that the Government have suggested. We believe that those would slow economic recovery and make deficit reduction more difficult.
Secondly, we do not think it is desirable for trade or business for there to be an in/out referendum on membership of the EU. However, since a referendum now seems inevitable, we will protect Scotland’s interests. We propose a “double-lock”, meaning that exit is only possible if all four nations in the UK agree to it, which would quite rightly prevent Scotland from being dragged out of the EU against the will of the Scottish people. [Interruption.] I think we have worked out what the Government mean by “one nation”, and they will need more than one nation to take the state out of Europe.
Thirdly and finally, we will seek greater powers for Scotland, to ensure, at the very least, that the recommendations of the Smith commission are met in full. However, we are seeking additional responsibilities, beyond those that the Smith commission identified, in particular greater power over business taxes, employment law, the minimum wage and welfare, to enable us to create jobs, grow the economy and lift people out of poverty. That was the manifesto on which we were elected.
Those powers will allow us to tackle one of the challenges that the First Minister, and indeed the shadow Chancellor in his speech today, have raised: that of productivity. Those comments are important, not least because they chime with what Mark Carney, the Governor of the central bank, said recently at the launch of the quarterly inflation report. He said that
“productivity growth…is the key determinant of income growth. Our shared prosperity depends on it.”
However, the Bank of England also highlighted the extent to which the UK as a whole has a productivity problem. Output per hour is below pre-recession levels; it is 13% below that of Sweden and 20% below that of Germany. In Scotland we know, and I suspect that the figures are the same for the UK, that if we can boost total factor productivity by 0.1% over a decade, we can see 1.3% additional GDP growth and additional tax yield of around half a billion pounds a year. With better productivity, living standards would be higher and the budget deficit lower.
In Scotland, we have set out how we intend to do that, based around the “four I’s” of innovation, internationalisation, investment in infrastructure and skills, and promoting inclusive growth, but we have also made it clear that promoting a more equal and inclusive society is an important part of building a stronger economy.
The Scottish Government are mitigating the consequences of this Government’s welfare reform, promoting gender equality, investing in early years education and care, and setting targets to ensure that everyone—irrespective of their background—has the chance to go to university. Essentially, that economic strategy sets out a vision of an economy based on innovation rather than insecurity; on high skills, not low wages; and on enhanced productivity rather than reduced job security. We want to climb the global competitiveness rankings on quality, rather than racing to the bottom on costs, and we want to deliver positive change in the real economy to drive changes in the big fiscal numbers. So we have to improve productivity, we need to encourage innovation and exports, and we must support business growth and job creation. There are a hundred things on which we must take specific action, not least delivering fairness in electricity connectivity charges across the grid and certainty in the tax code, and ensuring that businesses have access to bank lending.
I hope that there will be scope within the enterprise Bill to replicate many of the ideas contained within the Scottish business pledge, whereby in return for support from agencies businesses must commit to innovation, to seeking and taking export opportunities, and to paying the living wage. I also hope that there will be scope within the national insurance contributions Bill to continue to bear down on employer costs, to encourage more businesses to create jobs. There must be scope within the energy Bill to end the inequity of a £25.50 per kW charge to connect to the grid in the north of Scotland and a £5.20 per kW subsidy for any old chugger to connect in central London.
I hope that the Budget will support business investment. We have gone from an industrial buildings allowance, done away with in 2007, to an annual investment allowance of £50,000 in 2008, which increased to £100,000 in 2010; decreased to £25,000 in 2012; increased to £250,000 the following year; and increased to £500,000 the year after that. It was then temporarily maintained, but will come to a cliff edge and a grinding halt at the end of the year and revert to £25,000 on 1 January. That is not tax certainty; that is a shambles, and I hope that the Chancellor undertakes to fix it, even at a little cost, in the Budget in July.
We will be a constructive Opposition. We will support individual measures, where they merit it, and seek to mend and improve provisions where they do not. We will also be a principled Opposition, because we oppose the Tory programme of cuts. We wish to see growth and fairness in our economy and more power for Scotland, and we want to support aspiration and deliver help for those who need it most. As well as being a principled Opposition, unless or until our friends in other parties work out what their economic policy actually is, we will be the principal opposition to Tory cuts in this Parliament.
Scotland Bill
Debate between Stewart Hosie and Iain Stewart(12 years, 7 months ago)
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Iain Stewart
I am grateful to my hon. Friend for that intervention but I do not think that you would be terribly enamoured of me, Madam Deputy Speaker, if I widened the debate into a discussion of the Barnett formula and fiscal matters more generally. My hon. Friend is right, however, that that is not part of the Bill. It is a subject to which I think we will return on another day.
In conclusion, I welcome Lords amendment 18, which would make a sensible change to the Bill. I welcome the Bill as a whole, as it is a sensible change and a sensible evolution of the devolutionary process, and I think that it will be welcomed both north and south of the border.
Stewart Hosie
I want to say only a few words about this group of amendments. They are very welcome, particularly the scratching out of some of the re-reservations. We tabled amendments, of course, to remove the re-reservation of insolvency and health professional regulation matters in a previous stage, but the Government rejected them at that point, as did the British Labour party. I am delighted that there is now unanimity that those re-reservations should be removed.
Public Sector Pensions
Debate between Stewart Hosie and Iain Stewart(13 years ago)
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Iain Stewart (Milton Keynes South) (Con)
Although it is always a pleasure to follow the hon. Member for Glenrothes (Lindsay Roy), I must confess some disappointment that I have not yet heard from a member of the Scottish National party. In my short contribution to this debate, I should like to focus on what I think is the Scottish nationalists’ real motive behind the motion and the debate on public sector pension reform—their ambition for the Scottish Parliament to have full control over public sector pensions as part of its drive towards fiscal autonomy and full separation. Let me draw the House’s attention to the words last week of the First Minister, Alex Salmond:
“The way to stop this Parliament and Government being hamstrung by the policies of the UK Government is to give us the financial independence that we require in order to do that.”
That is clearly his aim. [Interruption.] And from a sedentary position, Scottish nationalist Members endorse it. That aim is at the heart of the motion.
Notwithstanding the local variation within the devolved Administrations over the administration of pension funds, to which my right hon. Friend the Minister referred, it would be a hugely retrograde step to move away from a unified United Kingdom public sector pension scheme.
Stewart Hosie
There is no unified public sector pension scheme, but there is a police pension scheme, a firefighter pension scheme, a Scottish teachers’ scheme, a local government scheme and an NHS superannuation scheme. They are all different; there is no unified scheme. The hon. Gentleman is simply wrong.
Iain Stewart
If the hon. Gentleman forgives me, I was using shorthand. I am well aware that there are different schemes for different professions within the public sector, but in a UK context they are broadly similar between Scotland and England.
Paragraph 5.26 of the Hutton report reads:
“There has been scope for some variations in terms to meet local circumstances, but the resulting pension schemes have essentially been the same as those established by the UK Government. That has, for example, helped to prevent pension terms becoming an obstacle to transfers of staff and skills within a sector of the public service. It seems reasonable to continue with this approach.”
Paragraph 5.27 reads:
“The key design features should be part of a UK-wide policy framework that extends to Scotland, Wales and Northern Ireland, with limited adaptations of other features to meet local circumstances.”
I agree with that but it would be hugely disruptive to try to break apart what has been a unified system up until now.
Iain Stewart
As I said, in quoting from the Hutton report, local variations can be provided for, and that is exactly what my right hon. Friend the Minister said. There is no inconsistency at all.
Most public sector pension schemes—with the exception, I think, of the local government one—are pay-as-you-go schemes. There is not a separate fund, a pot of money or assets that are invested and then pay out. The current pensions are paid for from current receipts and underwritten more widely by the Government, with the expectation that tomorrow’s pensions will be paid for largely by tomorrow’s contributions. With fiscal autonomy or full separation, however, how would all that be disaggregated? It would lead to an enormous muddle over who was liable to pay for what and over who would be liable for the shortfall in future pension payments accrued under the current system? Were we to move down that road, I would wish to train as an actuary, because a lot of them would make a lot of money from disentangling everything. [Interruption.] Indeed, they earn a good money as it is. But they would earn even more.
Stewart Hosie
The hon. Gentleman cannot argue that these are in-year contributions and then make the case that there is a pension pot requiring actuarial rules. There is either a pot of money that is paid for and needs to be disaggregated, or there is not, but he has just said that there is not one because it is paid for in-year. Which is it?
Scotland Bill
Debate between Stewart Hosie and Iain Stewart(13 years, 9 months ago)
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Iain Stewart (Milton Keynes South) (Con)
It is a pleasure to serve under your chairmanship, Mr Evans. I shall address the Scottish National party Members’ amendments in a moment, but first let me make an observation about this part of the Bill, particularly clause 24. I strongly support the proposal to devolve substantial tax powers to the Scottish Parliament, making it responsible for raising approximately a third of its revenue. I shall not repeat the arguments I made on Second Reading, but the principle of the Scottish Parliament raising a good part of its revenue is vital. If that does not happen, the threat to the Union will be very real. To underline that point, let me quote from an e-mail that I received last night from a constituent, Mr Haig. It is worth repeating a couple of the points he expressed.
Iain Stewart
I agree with much of what the hon. Gentleman says, but if the Scottish Parliament were responsible for raising more of its revenue, such arguments would diminish. I think it is right to give it the flexibility to raise additional revenue, if it so wishes, to fund extra programmes in Scotland from which my constituents south of the border may not benefit.
I agree with the incremental steps proposed in clause 24. We are for the first time starting to disaggregate the unitary tax system in the United Kingdom. That will have many consequences, some of which will be unforeseen, so we need to proceed with great care and attention to detail. I strongly welcome the proposal that we should not rush to set up a completely new system in one go. In particular, proposed new section 80B, which clause 24 introduces, contains a provision to allow the subsequent devolution of additional tax powers. That is the right way to go, rather than trying to devolve too much at this stage.
The hon. Member for Dundee East raised perfectly valid points about devolving other taxes, including air passenger duty, fuel duty and corporation tax, and we might well come around to doing that in the fullness of time. The Scottish Parliament’s response to the Bill noted that
“international experience does show some scope for differentiation of corporation tax,”
and we may get to that point. However, there are huge difficulties and intricacies that we must first consider about the operation of corporation tax. A later clause goes into some detail in defining a Scottish taxpayer for the purposes of the Bill and we would have to do something very similar for corporation tax. If a company were primarily located in Scotland but had its tax headquarters elsewhere, we would have to work out exactly which components of its income were liable for corporation tax.
Stewart Hosie
I have heard the hon. Gentleman make that argument before. He is being reasonable, and is making a reasoned case, but I disagree with him. However, does he accept the principle, in relation to the last point that he made, that tax liability would follow economic activity?
Iain Stewart
There will be huge consequences, some foreseen, but others unforeseen. We would need to undertake a huge amount of research to work out how to begin to disaggregate what has been a unitary UK tax system. I am not saying that it is impossible, or that it is something that we should not look at in future, but for the purposes of the Bill, I do not think that it is necessary, because clause 24 makes provision to look at devolving additional tax powers in future.
I am not going to say anything more at this point, because I want to deal in detail with other measures when we come on to the relevant clauses. Scottish National party Members have made a point about air passenger duty and landfill tax. I am perfectly content that measures are being negotiated at European level and elsewhere. Until they are resolved, it would be premature to include the devolution of those taxes in the Bill. I accept that the Calman view was that those matters should be devolved in the fullness of time, and I support that, but it is not necessary to include it at this point. I am therefore afraid that I cannot support the amendments if they are pressed to a vote.
Ann McKechin (Glasgow North) (Lab)
What a difference a week makes, as we continue our scrutiny of the Bill after our sitting last Monday. On Thursday, we witnessed a plenary debate in the Chamber at Holyrood on the recommendations in the report on the legislative consent motion. At the conclusion of the debate, there was a vote, and we witnessed a remarkable about-turn, as the Scottish National party supported the motion recommended in the majority report. After two years of sniping on the sidelines, it has joined the three other major parties in Scotland to support the Bill, and I genuinely welcome that.
Who is surprised at the pattern that has emerged yet again? This is a party that did not join the constitutional convention, but supported the devolution referendum. It came into power four years ago, promising that its top aim above all others was a referendum on independence, which was then dropped. The interesting allegations in Wikipedia about the First Minister’s comments on the party’s real aims, rather than all-out independence, add to the mix the overwhelming conclusion that it can talk about independence as much as it wants, but the SNP has never been on the true side of the people of Scotland, which is why it constantly has to play catch-up.
We have had an interesting debate about fiscal decentralisation.
Scotland Bill
Debate between Stewart Hosie and Iain Stewart(13 years, 10 months ago)
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Iain Stewart
As I said to the hon. Member for Angus (Mr Weir), if the hon. Gentleman allows me to make a little progress, I will come to the issue of full fiscal autonomy in a moment.
Clearly, the existing Scotland Act contains some fiscal powers for the Scottish Parliament: principally, the ability to vary the basic rate of income tax by 3p higher or lower than the UK rate. That has never been used, partly because the SNP Administration in Edinburgh has allowed the levy required each year for the mechanism to stay in place not to be paid. There is a more fundamental point, however: the administrative and set-up costs for making that small change in the income tax rate are disproportionate to the revenue that would be raised.
When the House was considering the Bill that became the Scotland Act 1998, it was calculated that it would raise, at the most, an additional £450 million. Given a total Scottish Office budget of over £22 billion, it was a tiny measure and would involve considerable start-up and administrative costs and not generate enough revenue. I can understand why it has not been introduced so far.
Stewart Hosie
The hon. Gentleman talks of the amount that might be raised if the tax rate were put up. There is, however, a built-in perverse disincentive to lower the tax rate. If the income tax rate, for example, were lowered and that stimulated economic growth, and if the benefit were paid from higher corporation tax receipts, the Scottish Parliament would take the hit of reduced income tax, while the United Kingdom Government would gain the advantage of enhanced corporation tax.
Iain Stewart
I am explaining why I do not think the provisions in the current Scotland Act are sufficient, and why I welcome the measures to increase substantially the power of the Scottish Parliament to raise a significant chunk of its own revenue. There are still concerns about how they will be implemented, and I raised that point during Scottish questions yesterday. I have been reassured that proper consultation is taking place with members of the business community in Scotland, who will have to administer many of the new arrangements, but I urge my colleagues on the Front Bench to keep a close watch on the increased regulatory burden on businesses at a time when they can ill afford much additional bureaucracy.
I think the HMRC bodies should consider the possibility of certain unintended consequences. There is, for instance, the question of how payments into personal pension plans which attract the adding back on of basic or higher-rate tax contributions should be treated. If in the past contributions have been made at the United Kingdom rate and added back on, a different Scottish rate will create potential anomalies when it comes to how that income is treated. I suspect that a fairly small amount is involved overall, but it is an important detail that ought to be clarified before the Bill is implemented.
I welcome the move to devolve some taxes, and I hope that more can be devolved in time. I hope that, for instance, the issues surrounding the aggregates levy and air passenger duty issues will be resolved. I do not believe that this is the end of the story; I trust that those two taxes will eventually be devolved, and that the Scottish Parliament will be given greater fiscal autonomy.
I referred earlier to the book that I co-authored. Part of our research involved international comparisons.
Iain Stewart
Thank you, Madam Deputy Speaker. I sense a rising demand for my book. Next Christmas is a little way off, but I have a couple of boxes of back copies which I will happily distribute.
As I was saying, part of our research involved examining the way in which other countries—Australia, Germany and Canada—operated financial relationships between state Governments and federal Governments, or provincial Governments, or whatever the term was in those countries. What struck us was that each of those countries has a system that comes close to what the Scotland Bill is proposing to introduce. Certain taxes are levied at the federal level. The example in each country varies, but some taxes are levied at the provincial level—the state level—and sometimes the state level has the power to introduce specific taxes of its own. That is balanced by a form of fiscal transfers between the federal level and the state level. There are perpetual arguments in all those countries about what the right level of spending, taxes, transfers and so on is—we will never get away from those—but on the whole the arrangements are stable. We can draw some comfort from the fact that the lessons from abroad point to the sort of system that the Bill is trying to introduce.
Conversely, there are few examples of a federal or devolved system of government where the lower level has full fiscal autonomy. Our research encountered only one example that came quite close to such an arrangement, which was in the Basque part of Spain. Since we did our work Catalonia has also adopted such an arrangement, but it is still fraught with difficulties. I do not believe that there is sufficient evidence from abroad to warrant the type of policy that the Scottish nationalists wish to introduce.
Stewart Hosie
The hon. Gentleman says that the approach of the Basque country and others may be fraught with difficulties, but that country’s gross domestic product growth is now 30% higher than that of Spain as a whole and its credit rating is stronger than that of Spain as a whole. Although that sort of model may need to overcome obstacles, it clearly has had some success.
Iain Stewart
The hon. Gentleman has a more detailed knowledge of the current state of the Basque economy than I do, but our research showed that there were specific problems there. I shall discuss them in a moment, as they are directly relevant to the example in Scotland.
Iain Stewart
I am grateful for that intervention. I think it is unhelpful to make an exact analogy with a particular model. Spain has a very curious multi-speed system of devolution between its different constituent parts.
I promised to discuss why I do not believe, certainly at this point, that fiscal autonomy is feasible or desirable for the Scottish Parliament. There are huge unknowns in the fiscal relationship between Scotland and England, for the simple reason that we have never assigned tax revenues or allocated public spending on a straight territorial basis—that just has not happened. As part of our research for the book, I spent many hours enjoying and analysing the various forecasts and documents that the Scottish National party had published over the years giving its view on what Scotland’s net contribution to or net borrowing from the United Kingdom had been.
Part of the SNP’s criticism was that the official Government figures, as published in the annual Government Expenditure and Revenue Scotland survey, were based on assumptions about what Scotland’s share of corporation tax or income tax should be. However, the SNP’s own figures are based on assumptions and projections. They disagree with the assumptions made, but they could not analyse particularly and exactly what the Scottish revenues were.
Iain Stewart
Before the hon. Gentleman intervenes, I wish to illustrate that point by discussing two SNP publications that examined the period between 1979 and 1997. In one document, published in October 1996, the SNP estimated that Scotland had contributed £91 billion to the UK over that period. Three months later, however, it published a separate report covering the same period which calculated that the figure had been £27 billion. Well, what is £60 billion between friends? The point is that anyone wanting to analyse this has to do it on the basis of assumptions, not hard facts.
Stewart Hosie
I certainly agree that the Government Expenditure and Revenue Scotland—GERS—survey is based on certain assumptions and calculations. Most of the documents, certainly over the past decade, have effectively taken the GERS assumptions and, if they have differed from them, have always explained why. Those differences tended to be marginal. The key question here is not SNP figures versus those of another party; it is the work done by organisations such as Oxford Economics or, about a year ago, Reform Scotland, which calculated a broadly balanced budget of about £50 billion out and £50 billion in. Those seem to be generally accepted pre-recession figures.
Iain Stewart
But surely the point is that, if we want to set up new fiscal arrangements between the constituent parts of the United Kingdom, we should not do it on the basis of assumptions. We should do it on the basis of hard facts, and one of the conclusions of the book is that we need to do more hard research and assign revenues and spending on a territorial basis. Such proposals are not in the Bill, but I hope that the Government will take those matters forward.
I shall give the House an example to illustrate why there would be a huge debate about the revenue. Let us take Standard Life, which is headquartered in Edinburgh. If corporation tax were devolved, the company would be domiciled as Scottish, yet it trades throughout the United Kingdom and has many policyholders in England who contribute to its profits. How would we determine which profits were Scottish and which were English? These are huge issues and they would have to be resolved before a full system of fiscal autonomy could be introduced.
Iain Stewart
That is exactly the point. The relationship between Scotland and England is so interwoven that to start to unpick it now would be hugely complicated and difficult. On the point about pensions, I have mentioned the potential difficulties under the current proposals that would need to be clarified. If there were full fiscal autonomy, those problems would be magnified many times over. People might have made national insurance contributions all through their lives. How would all that be untangled to sort out the different rights and contributions? The process would be enormously complicated. I am not saying that it would be impossible, but I do not believe that it is practical at this point in time. I hope that my right hon. Friends on the Front Bench will take up my point that we should move towards assigning revenues and spending on a straight territorial basis, so that in time we might be able to move to a system involving much greater devolution of fiscal power down to the Scottish Parliament.
Stewart Hosie
The hon. Gentleman’s speech is throwing up practical issues that would have to be resolved in any circumstances. On his first concern, would the broad principle not be accepted that the tax liability would follow the economic activity? On his second concern about corporation tax rising, I would prefer to see corporation tax falling. Is it not odd that we have a party that is very keen on tax competition until it comes to Scotland’s competing? Is that not slightly contradictory?
Iain Stewart
It is not a contradictory at all and I am not saying that I rule out that possibility. My book does not rule it out. All I am saying is that at this point in time it would be an enormous leap in the dark that would throw up so many unintended consequences that it would be a foolhardy move. I welcome the sensible incremental step that the Bill is taking.
I have probably been indulged by the House rather longer than I intended. I want to move briefly to one other point before I resume my seat. It concerns another part of the Bill about which I have a specific concern, and that is the proposal to devolve down to the Scottish Parliament the power to set the drink-driving limit. I am a member of the Select Committee on Transport and we have just concluded an investigation into the drink-driving limit. Part of the evidence we received was a strong representation from the police that we should not have a different drink-driving limit in different parts of the United Kingdom. I am not against the power’s being devolved, but want to put it on the record that I would not wish the consequence of that devolution of power to be a marked difference in the Scottish and English drink-driving limits. That might cause some practical problems in border constituencies such as that represented by my hon. Friend the Member for Carlisle (John Stevenson), who is no longer in his place.
In conclusion, I welcome the Bill. It is a huge step forward, even for people like me who were devolution sceptics to begin with. It will do an enormous amount to strengthen the Scottish Parliament and the Union. I look forward to supporting it in the Lobby tonight.
Stewart Hosie
Notwithstanding the deflationary bias, there might be growth in some elements of income tax revenue, but in terms of sharing risks the downsides for Scotland are much greater. In an intervention, I said that, if a future Scottish Government chose, for example, to reduce income tax to stimulate economic growth and it worked, they would take the hit in reduced income tax revenue, but the UK Government would benefit from the additional corporation tax yield. There are probably more downsides than upsides, because the range of devolved taxes is limited and, in cash terms, involve almost exclusively income tax.
The other problem is that the provisions fall foul of not being fully devolved. Income tax rates do not stand on their own; they must be looked at alongside allowances and thresholds, neither of which is being devolved. So the consequence of a significant change, in particular the UK Government’s plan to increase personal allowances to £10,000, which in principle is a very good policy, could mean a reduction in funding to Scotland of between £800 million and £1 billion a year.
Stewart Hosie
One second.
I am sure that such a change will not be allowed to happen, but UK Governments have announced 17 changes to income tax since 2007, and they would have affected the proportion of income tax revenue or receipts assigned to the Scottish Government. Those changes included not only the big headline splash on the £10,000 threshold, but 16 others, each of which would have affected the assignation of receipts to Scotland.
Even if the provisions did not result in a real-terms cut to the Scottish budget, which I believe they do, and even if they did not create an in-built deflationary bias, which I believe they do, they would still provide an unstable platform for the Scottish Government, precisely because of the volatility of income tax receipts in difficult times. At no time was that clearer than between 2007-08 and 2009-10, when income tax receipts fell by 7.3%. Over those two years, that would have led to a drop in Scottish revenue in excess of £1 billion, and that is presumably the point at which the revenue-borrowing powers are meant to kick in and help. I shall take the hon. Gentleman’s intervention now, because the next part of my speech is complicated.
Iain Stewart
I want to return to the hon. Gentleman’s point about changes to income tax allowances and other changes to the UK rates of income tax that would have a consequential effect. If I have read the Command Paper correctly, there will be a no-detriment rule. Therefore, if a change in the allowance structure has a consequential effect, the block grant will be adjusted appropriately.
Stewart Hosie
That is what the Command Paper says, but because the Barnett rules have the effect of squeezing income, we will have to see precisely how the no-detriment clause works. Will it be an up-front no-detriment clause that pays against forecasts, or will it be retrospective and pay only if the estimate be lower than the forecast? None of that is at all clear yet. That is precisely the kind of issue that we want to probe with more detailed amendments in Committee.
The limited borrowing powers are slightly poorly designed and would constrain the Scottish Government, rather than assist them. Fundamentally, the borrowings can be made not against forecast reductions in revenue, but against reconciled outturn receipts 12 months after the end of the financial year. That means that revenue borrowing cannot even act as an automatic stabiliser to fill the tax gap during a downturn—something that every party accepts is necessary and supports. In short, the powers will expose the Scottish Government to the full negative impact of the economic cycle, rather than present them with the ability to mitigate those problems.
Secondly, revenue borrowing will be capped at £200 million in a single year and at £500 million in total. Therefore, even if the timing of the borrowings could have been sorted out, the limits would have been inadequate to close the revenue gaps in 2008-09 and 2009-10, when the calculated budget shortfalls were £400 million and £800 million respectively. That might be what the hon. Member for Kilmarnock and Loudoun meant when she referred to the economic parts of the Bill.
Thirdly, the repayment of borrowings within four years almost certainly means that repayments will have to be made at precisely the wrong point in the economic cycle. To make that point more solid, I should explain that the proposals would have required the revenue borrowing needed to cover the shortfalls between 2008-09 and 2009-10 to be repaid in the current comprehensive spending review period, when the Scottish block grant is already under pressure from proposed cuts of more than £3 billion. Borrowing and repayment should be possible over the entire economic cycle and should not have arbitrary timelines attached to them. Cyclical borrowing can mitigate volatility, but the proposals will generate additional volatility in future budgets.
The highly limited revenue borrowing powers that are proposed will be further constrained because the first 0.5% of any shortfall—about £127 million in 2014-15—will have to be found from cuts in the cash reserve before retrospective revenue borrowings can even be found.
The second borrowing power in the Bill is for capital expenditure. It is welcome, but could be improved. The cumulative borrowing total that is set out is £2.2 billion. That is quite low compared with recent Scottish Government investment of more than £3 billion a year. Borrowing in any year will be limited to 10% of the capital DEL—approximately £230 million by 2014-15—not the total budget. For example, a replacement Forth crossing costing between £1.7 billion and £2.2 billion would use up the entire additional capital borrowing, if we were able to secure it under the constrained limits set out by the Treasury. The only way to increase the limit to allow additional borrowing would be for the UK Parliament to agree to a legislative amendment. I am not sure that that is the best approach for securing long-term sustainable capital investment.
The borrowing powers in the Bill will limit the Scottish Government to certain types of borrowing. They will be able to use loans, rather than bonds or other instruments that would provide greater flexibility. Transport for London, which is a local authority in respect of its borrowing powers, is currently issuing commercial paper worth £7 billion for Crossrail and other projects. Birmingham city council issued paper to the tune of £250 million in 2006, and it seems passing strange that what should be seriously enhanced powers for the Scottish Parliament would not even put it on a par with TFL or Birmingham city council in its ability to raise cash through commercial paper for important national infrastructure works.
We are also concerned, like the hon. Member for Kilmarnock and Loudoun, that the Bill might not provide access to capital quickly enough to meet Scotland’s needs. The proposal is that access will commence from 2013, subject, as we heard earlier, to Treasury approval on a per-project basis. In the face of the budget cuts and the urgent need to invest in infrastructure, that is not soon enough.
The remaining tax proposals in the Bill are limited, although welcome. I have to say, however, that the Conservatives appear to have U-turned on some of the taxes that Calman said should be devolved. As I said, this is not a dry, academic exercise, and we would like stamp duty to be incremental, so that people do not pay the full whack for hitting the threshold. I am glad that responsibility for that is being devolved. It was worth £593 million in Scotland in 2008-09, but that was only 1.4% of all the non-North sea revenue raised in Scotland.