Finance (No. 2) Bill

William Bain Excerpts

Monday 15th April 2013 Commons Chamber

[Mr Gauke]

That is not actually what the OBR numbers at the last Budget showed, but clearly we are faced with difficult economic conditions. It is striking, however, that whereas, when the previous Government faced difficult economic conditions, the deficit ballooned, we have taken tough action to ensure that we continue to reduce it. Would we like to be reducing it more? Of course we would. Why is that not happening? The difficult economic conditions clearly apply. But is the right approach to these difficult economic conditions to go on a borrowing splurge, as the Labour party consistently advocates? The answer is clearly no.

[Mr William Bain (Glasgow North East) (Lab)]

If the Finance Bill is such a success in stimulating additional growth, will the Exchequer Secretary explain the statistics on page 103 of the OBR’s fiscal outlook, which reveals that since its December forecasts, forecast income tax revenues are £6.5 billion lower for 2014-15, £6.9 billion lower for 2013-14 and £7.1 billion for 2015-16? Not much of a success, is it?

[Mr Gauke]

If the hon. Gentleman looks through the OBR’s analysis, he will see its explanation for growth being lower than it had anticipated, which has an impact on the fiscal numbers. It is more than explained by the disappointing performance of our export markets and the fact that we have not been able to export as much as the OBR had anticipated. The question is: how do we respond to that? Do we try to put in place a competitive tax system that makes businesses and industries want to locate and invest in the UK? We have heard nothing from Labour on that front, whereas this Government’s record is very strong.

--- Later in debate ---

[Mr William Bain (Glasgow North East) (Lab)]

The Bill is a weak Finance Bill that matches the current depressed state of the UK economy. It fails the test of promoting increased demand now for cash-strapped households. It does not promote additional demand for Britain’s retail and services sectors, comprising three-quarters of our economic output, and neither does it sufficiently boost output in construction by adopting more immediate measures to increase the supply of housing—or any new infrastructure investment—now, rather than having to wait until 2015.

The Bill fails to reverse the impact of previous Finance Acts from this Parliament on the incomes of ordinary people, with the cumulative impact in Scotland of the Government’s prior measures on pay, tax and benefits being the removal of £1,488 a year by 2015 in the spending power of the average household. That is at a time when the Office for Budget Responsibility is expecting private and Government consumption to make up a larger share of GDP than it forecast in December. The pound is a fifth lower in value than in 2008, and exports are down by 7%. That is the scale of the failure over which this Government have presided .

The Government have not only presided over that failure, but the Bill fails the even greater test of rebalancing the economy more in favour of skilled service and manufacturing output. It also fails to recast the welfare state around pro-employment and growth-friendly policies such as extending child care provision or a jobs guarantee for the long-term jobless. That is badly needed in Scotland, where the employment rate is 3.2% below its pre-crisis peak of 2007, and 1.6% below the rate between October 2008 and September 2009. It is estimated that a further 850,000 jobs need to be created in the UK to match the employment rate of 2008.

The Bill does little to address the growing crisis of falling living standards, which are faced by millions of people across the country. The median wage is some £3,200 a year lower than it was in 2009. Real wages will fall more quickly this year than the OBR predicted just five months ago and will be stagnant next year. Business investment is forecast to be 1.5% lower on average than the December 2012 OBR forecast, despite the Exchequer Secretary lauding the effect of the corporation tax proposals earlier in the debate.

The truth is that the Bill is less than the sum of its parts, and even the OBR does not believe that its overall impact will be an increase in UK growth this year, next year or any year to the end of its current forecast period. The new US Treasury Secretary last week recommended that eurozone countries should ease fiscal policy to boost demand if they can. That call should resound in the UK Treasury too. The Obama Administration tackle wage stagnation and declining living standards, so we should not put up with the defeatism we have heard from the Government and, this morning, from the Secretary of State for Business, Innovation and Skills.

Before developing those points, let me address the individual clauses and schedules that deserve some degree of welcome—overall, the Bill is a deep disappointment to Scotland and the UK. I welcome the fact that the Treasury has listened to the strong campaign launched by the city of Glasgow council, Members of the House representing Glasgow constituencies, and the organisers of the 2014 Commonwealth games. Clause 9 provides that Glasgow’s Commonwealth games will have the same taxation treatment as the Olympic games in London and other major sporting occasions held in the UK. That concession will mean that the organisers can attract the very best athletes from the Commonwealth to participate, and make the games the sporting and economic success for Scotland and the UK that they will undoubtedly be. Procurement contracts already decided and in the process of being awarded are likely to benefit the economy in Scotland to the tune of £350 million.

The above-the-line R and D tax credits are strengthened by clause 34 and schedule 14, which is welcome, but it is revealing that UK R and D expenditure rates are still way below those of our international trading partners. According to the World Bank, the UK’s 2011 R and D expenditure, at 1.79% of GDP, and Scotland’s, at 1.56% of GDP, are way below the most recent OECD average of 2.44% and the 2011 EU average of 2.03%. We spend less than half the share of GDP that Finland or Sweden spend on R and D. That is a particular problem in Scotland, where business R and D spending is only 0.56% of national income, which is half that of the pathetic UK total. The Scottish Parliament could use powers in that area of policy for the benefit of Scottish business and the Scottish people. I also give a guarded welcome to the provisions on tax relief for television production and video games development in clause 35 and schedules 15 and 16, which will provide some boost to these industries in Glasgow, Dundee, and other parts of Scotland.

On living standards, the Bill will do nothing to counter the regressive effects of the Welfare Benefits Up-rating Act 2013 or previous Finance Acts, which have devastated household incomes among the working poor, who receive nearly 21% of the entire welfare budget. The poorest four deciles of the population in Scotland were hit three and a half times harder than the wealthiest two deciles by the introduction of the 1% benefit and tax credits cap last Monday. This measure alone will take £47 million out of the Glasgow economy every year, and will cost working-age adults in the city an average of £114 a year. Overall, 55,700 working-age households in Glasgow will lose on average £109 a year through the cumulative cuts to tax credits made during this Parliament, and nearly 16,000 Glaswegians will lose on average £24 a week because of the Government’s wicked and iniquitous bedroom tax.

By cutting tax credits, which sustained family living standards through financial crisis—with the UK spending the joint third highest share of GDP on family benefits in 2009—the Government will further reduce economic demand. The effects on the Glasgow economy alone will be to take away £269 million in demand a year, or £647 from the average household in the city. In terms of clause 1, four times as much will be taken away by higher VAT during this Parliament from the poorest people than will be handed back through raising the personal tax allowance, three quarters of the benefit of which will go to people in the upper half of the income scale. With the introduction of universal credit, two thirds of any benefit from a higher personal tax allowance will be lost through deductions in credit, which will be assessed on the basis of net income, not gross. The further squeeze on real wages in 2013, down by a further £200 on average over the course of the year, will cost ordinary families on average four times as much as the Government will hand back through the increase in personal allowance to £10,000 from next year.

The Government have been guilty of another offence in the preparation of the Bill. They have attempted to conduct a debate on welfare by arguing that a majority of benefit recipients are scroungers or layabouts, in a way that is deeply irresponsible, divisive, and corrosive of the social solidarity that exists in Glasgow, Scotland and communities the length and breadth of the United Kingdom. Some psychologists, such as Cass Sunstein, have referred to this phenomenon as an availability cascade, whereby a simple idea takes root and goes viral, quickly becoming the new received wisdom. One wonders whether the Chancellor had that at the heart of his thinking when he began his campaign against the poor. Others may be reminded of the work of George Lakoff when he said that framing an argument in the lived experiences of others is critical. One part of the coalition seemingly wants to turn neighbour against neighbour, and shift their focus away from the skyrocketing wealth of the super-rich, or from the role that the Government should legitimately fulfil in ensuring the conditions for greater equality in society, which is now seen in studies by the IMF as critical to lasting economic growth in any democracy. But the recent study by YouGov and Cambridge university shows that this campaign of vilification of welfare recipients is not having the desired outcome for the Chancellor, because it found that people in the UK were more likely to empathise with the suffering being inflicted on the poorest by these most regressive welfare cuts than voters in Germany, France or the US. We need facts to drive this debate, not simply assertion from the Treasury Bench or the peddling of prejudice. The constituents I meet, who struggle with low paid, part-time work in a weak jobs market, are being forced on to housing benefit because of high rental costs and declining real wages. That, and the fact that we have 2.5 million people officially unemployed but more than 6 million people desperately seeking full-time work, are the reasons why the benefits bill remains stubbornly high.

According to the OECD only last week, the UK is spending 5.9% of GDP on cash benefits, but we spent more in 1980—6.4% of GDP. In comparison with other major countries, the UK is neither a particularly large nor low spender on welfare. Only three of 19 major OECD states spent less than the UK on cash benefits in 2009 in the depths of the downturn.

We need to recast the debate on the welfare state, a debate that should have been recast in the Bill, in three main areas: full employment, higher pay and stronger family services. Simply to restore the employment rate to its pre-crisis levels, we need to create 850,000 additional jobs now. To reduce structural unemployment to 3%, we need active labour market policies, such as the jobs guarantee policy being promoted by Opposition Members, to help the long-term jobless—a plan that put Sweden back to work in the 1990s, at the same time as cutting its deficit too. A jobs guarantee, paid for by restricting pensions tax relief for higher rate taxpayers, would help 600 long-term jobless people in my constituency who have been out of work for two years or more to get the right to employment now. It would also begin to boost tax receipts, which are forecast by the OBR to be £55.2 billion lower between now and the end of its forecast period since its December projections, with £2.8 billion of that shortfall directly attributable to the Budget that the Bill seeks to enact. It is only by increasing the levels of participation in the jobs market that we will be able to generate the growth and the tax revenues required to restore our public finances.

The key to achieving that is to raise the number of women in employment. The biggest barrier to becoming economically active that as many as 1 million women face is the poor availability of affordable child care. Shifting resources into providing households with more extensive child care or early years education at an affordable cost should be a priority for a pro-growth and pro-equality welfare reform and finance Bill. We know that child care costs take up as much as a third of families’ after-tax income in the UK, compared with just 9% in Denmark. In 2009, the UK, under the previous Government, was spending the joint third highest amounts in the OECD as a share of GDP in terms of cash benefits to families, but the Nordic countries were spending much more on supporting child care. That is where policy on welfare will need to change.

On pay, nearly a third of my constituents earn less than the level for a living wage, leading nearly 10,000 households to need subsidies through the tax credit and housing benefit systems to reach any kind of an acceptable standard of living. The median wage is £3,200 lower in real terms now than it was in 2009. Welcome though the announcement today on the increase of the national minimum wage in October by 12p to £6.31 an hour is, that will represent the fourth successive year of a real-terms fall in the level of the national minimum wage. It will be returning to levels it was last at in real terms in 2004, and comes at a time when the coalition appears severely divided in its commitment to the national minimum wage. According to a study published by the Resolution Foundation this morning, the top 1% in our society are earning on average £60 a hour, taking home at least £123,000 a year on a 40-hour working week. Someone on the minimum wage would need to work 24 hours a day for 830 days in order to match the annual earnings of a person in the wealthiest 1% of our society. The failure to deal with that surging inequality under this Government means that the Finance Bill has to be opposed tonight.

In response to this growing crisis of low pay, the Bill could have considered giving the Low Pay Commission a wider remit to consider an affordable wage, sector by sector, bringing the living wage into those parts of the economy where it will work. The benefit would have been a boost to demand and reduced staff turnover. Our focus has to be on welfare and fiscal policies that reduce joblessness and inequality, not a politics of division peddled by the Chancellor and pitched at the very worst sentiments of human nature. As the Social Market Foundation reported just last week, cutting in-work benefits again and again impedes the operation of the automatic stabilisers, which is something the Chancellor promised he would not do in his early months in office.

This should have been a Finance Bill that properly taxed the bonuses and profits of the banks, instead of perpetuating the nearly £2 billion windfall they have received under this Government through corporation tax cuts. It should have been the Finance Bill that reversed the millionaires’ tax cut, which is handing 643 bank employees a tax cut of £54,000 a year, while 5.1 million working-age people are struggling with a 1% cap on in-work social security. It should have kick-started growth and increased demand, but it has instead cemented the reputation of this Government as the no-growth Government, setting a course for a lost decade in the British economy. There is another way, and Opposition Members will not rest until we have put it with conviction to the British people at the general election that this country so badly needs.