Budget Resolutions

Stewart Hosie Excerpts

1st reading: House of Commons
Tuesday 28th November 2017 Commons Chamber

[Stewart Hosie (Dundee East) (SNP)]

It is always a pleasure to follow the right hon. and learned Member for Rushcliffe (Mr Clarke). I was struck by his discussion of his bus pass, state pension and winter heating allowance. It might be that the right hon. and learned Gentleman does not need these things, but if we begin to erode them and means test them, the problem is that those who do need them will not claim, and—I suppose this is an ideological position from the Scottish National party—we would then begin to erode social cohesion on other important matters.

I welcome much of what the Business Secretary says about the future economy, including on tackling long-term underinvestment in research and development, addressing the long tail of underproductive companies, recognising the importance of innovation, big data, the life sciences and the other sectoral areas he mentioned, and the absolute imperative for UK businesses to export more. However, the future economy cannot simply be about supporting new businesses with new products selling into new markets; it must also be about supporting businesses that are already here delivering for their customers, their shareholders and the economy, and particularly, as the right hon. and learned Member for Rushcliffe said, into the EU, which is a substantial market for the UK. So while I certainly welcome many of the specifics in the White Paper and what was said today, I make no apologies at all for talking about the impact of Brexit, which has the very real potential to undermine the good intentions of the plan.

I say that because the uncertainty created by the hard Tory Brexit plans is already harming the economy. The UK Government’s failure so far to secure a transitional deal is pushing many banks, in particular, and other companies to start looking to relocate to other parts of the EU for fear of being unable to trade freely there in April 2019. Indeed, the Bank of England has warned that 75,000 jobs might be at risk in the banking sector alone, and many of those may well move to the EU. It is vital that we remedy that, and do so quickly, as FinTech, which is mentioned in the White Paper, is undoubtedly one of the areas that ought to be able to make a positive contribution to the future economy of the UK. However, if we do not resolve this issue, meaning that banks’ head offices and decision-making functions go, I fear that FinTech and the ability to fund it will be subsequently reduced.

I also make no apology for saying that Brexit has the capacity to undermine the Chancellor’s plans for raising productivity, which we all agree will be vital if our future economy is to deliver success and prosperity for everyone across these islands. The UK is now at the bottom of the G7 for economic growth. The eurozone and other advanced economies are enjoying higher growth, as well as higher levels of consumer and business confidence. These plans and the money to be spent on them—some of the cash is substantial—might barely mitigate the damage of Brexit, rather than kick-starting the economy to power ahead, which we all hope they will do.

Let me put some flesh on the bones of that, because it is important. The OBR has slashed its forecasts for productivity, economic growth and pay growth. The new forecasts show that the economy is expected to grow at below its long-term trend of around 2% until well into the next decade. The downgraded OBR expectations lower significantly the predicted level of growth. Although the OBR previously said that growth would proceed at much the same pace as before the crisis, it has turned out to be much lower.

This goes back to something the Minister said as a throwaway. Borrowing will still be at £26 billion a year in 2022-23, but he said we want to live within our means. We all want to live within our means, but when we see a national debt of 87% on the treaty calculation, and when we see borrowing of £26 billion by 2022-23—the current account was supposed to be in balance or in surplus in 2015—I think we can say with some certainty that the Government have failed to deliver every single one of the targets they have set since they came to power, with a Tory Chancellor, in 2010.

[Sir Edward Davey]

Does the hon. Gentleman agree that the real story behind this Budget was the growth forecast, which will impact not only the borrowing he is talking about, but public spending and, frankly, the whole shape of the British economy and British society in the years ahead? Do we not need an urgent debate on how we really raise that growth rate? The industrial strategy was simply not up to that job, which is so tricky.

[Stewart Hosie]

I agree with the first part of that intervention entirely. The big story from the Budget was that the growth figures were marked down over the entire forecast period that productivity per head was almost halved for that period and that pay growth was marked down, which has an impact on real people. As for a debate, we have been having debates about the productivity conundrum and growth since before I was an MP, and given that I am now about 110, that was some time ago. I suspect that we need to look at the work that has gone into the White Paper. Let us get behind the things we can support and make suggestions when we can improve things—my goodness, there are some we can most certainly improve—but we do not need to go back to the drawing board again.

I think that each and every one of us, if given a blank piece of paper, would come up with broadly the same plan with regard to fairness about investment, infrastructure, education, and supporting R and D and exports. I do not think that there is anything particularly new there. The question for me is: can we deliver that this time, or will this be to no avail if Brexit undermines the potential of any of these plans?

[Angus Brendan MacNeil]

Both Labour and the Conservatives recently voted in this House to come out of the customs union. That will increase trade barriers with 27 countries, as well as another 67 countries that rely on 38 to 40 other deals with the European Union, so we stand a very real risk of increasing trade barriers with up to 94 countries. Surely to goodness that is putting an already perilously placed UK in an even more perilous position? That was supported by the Labour and Conservative parties, hand in hand, damaging together.

[Stewart Hosie]

My hon. Friend is right. Every single assessment that we have seen, starting with the leaked Treasury document of a couple of years ago, says that the worst-case scenario—if there are tariffs, other regulatory barriers and an immediate reversion to World Trade Organisation rules—is a 10% hit on GDP, full stop, before we start. I do not understand why anyone—even Tories, and certainly the bulk of the Labour party—voted to come out of the customs union. That was an idiotic thing to do. If we must leave at all, we should look to have the closest possible formal links, so that we maintain as much trade as possible on current terms.

[Sir Edward Davey]

Will the hon. Gentleman give way?

[Stewart Hosie]

I will in a little while.

The Resolution Foundation has reported that productivity growth in the 10 years to 2020 will be the lowest for 200 years. As a result, we have the worst economic growth forecasts that the OBR has ever delivered. Equally importantly, the forecast for the UK’s balance of payments current account as a share of GDP has also been downgraded significantly due to a slowdown in business investment and the deterioration of the UK’s net trade balance. That is expected to be a whole 1% deeper in deficit this year and next, and for the following year a 2% fall is predicted compared with the spring forecast.

We know that this is not a new problem. The Tory plans for post-Brexit policy—trade is vital if the future economy plan is to work—are delusional. The Tories aim to leave the single market, but apparently want to keep all the benefits of the club, while creating this preposterous “Empire 2.0” nonsense and signing trade deals across the globe. However, as my hon. Friend the Member for Na h-Eileanan an Iar (Angus Brendan MacNeil) pointed out, the UK already has trade deals with almost 90 non-EU countries, besides the 31 other members of the European economic area, thanks to our membership of the single market and the customs union.

[Sir Edward Davey]

Will the hon. Gentleman give way now?

[Stewart Hosie]

In one second. These existing trade agreements will be vital if our economy is to thrive. I give way one more time.

[Sir Edward Davey]

I am very grateful to the hon. Gentleman. I was trying to tee him up before. Given the growth forecast and the shocking impact that the situation will have on people’s incomes and the public finances, is not now the worst possible time to be leaving the European Union, the customs union and the single market? Is this not the most disastrous economic decision, given the economic forecasts?

[Stewart Hosie]

Of course, leaving the world’s most successful trade body and access to half a billion customers, tariff-free, would be an idiotic thing to do at any point. The fact that we are doing it now—and, more importantly, unprepared—is key. I will say a little more about that.

The existing trade agreements that are being discussed are vital if our economy is to thrive. The Government have suggested more support for exporters to new markets, but that seems to be at the expense of the trade routes that companies already have. To put some flesh on the bones of the last intervention, the EU accounts for 43% of the UK’s goods and services exports, and 54% of imports. The UK Government have failed in their intention of starting to negotiate the future economic relationship with the EU at the same time as negotiating the divorce settlement. The delays in the first phase of the negotiations are deeply worrying and undermine the plan. We risk approaching a Brexit deadline without having concluded negotiations, and without a transitional arrangement.

In case anyone is in any doubt about how our friends in the EU view this, Federica Mogherini has said:

“It is absolutely clear on the EU side that as long as a country is a member state of the EU, which is something that the UK is at the moment…there are no negotiations bilaterally on any trade agreement with third parties. This is in the treaties and this is valid for all member states as long as they remain member states until the very last day.”

We have heard all the rhetoric from the Trade Secretary, who has conceded that his staff do not have the ability to cut the deals. At the same time, the EU is continuing talks with multiple countries across the globe, including Australia and New Zealand, which many Members point to as post-Brexit allies. That means that we will be playing catch-up with the EU’s trade policy, and it will take years—possibly decades—simply to replicate the arrangements we already have, if we can even do that. Doing so is vital to the trading future of Scotland and the UK and to our future economy.

Another point to make about the EU concerns the free movement of people. Part of the plan is to attract the best and brightest. In my view, we must not just continue to attract them, but keep the ones we have. The 128,500 EU citizens employed in Scotland contribute some £4.2 billion to the Scottish economy. We must not send a signal to people—to those who are here, to those from the EU or around the world who want to come here, or to those who seek the collaborative partnerships in research and development contained in the plan—that the door is now closed. That would be catastrophic, whether it is said officially or that impression is given. It would add to the potential loss of 7% of gross value added to Aberdeen, of 6% to Edinburgh and of 5.5% to Glasgow—a £30 billion loss of GVA to the cities of the UK alone. We will therefore continue to defend Scotland’s economic interests now and in the future, and we will prioritise maintaining membership of the single market and the customs union for Scotland—and, so far as I am concerned, the free movement of people, on which this plan, to a large measure, is predicated.

I do, however, welcome much of what the Secretary of State has said alongside the publication of the industrial strategy, which aims to tackle the productivity slowdown and address the challenges and opportunities brought about by technological advance. We agree with many of the five foundations of productivity that he has laid out and many of the key policy areas that he has suggested, including raising R and D investment to 2.4% of GDP by 2027 and the increase in R and D tax credits rate to 12%, as well as the £725 million industrial strategy challenge fund.

We also welcome some of the smaller things, because although many of them are England-only or England and Wales-only, they are still good for the Secretary of State to do. They include the introduction of the T-levels, the additional money for maths, technical and digital education, and the £64 million for retraining. We welcome many investment announcements, including for infra- structure, broadband, energy and transport.

We would not disagree with the four main challenges—artificial intelligence and the data revolution; clean growth; mobility; and an ageing society—although I am rather at a loss to see how the Government can trumpet clean growth when they have refused for a decade or more to address the challenge of the imbalance in connectivity to the grid, which damages the potential of offshore wind in the north-west of Scotland. If the Government could finally resolve the imbalance, which means that a charge is paid by the Western Isles whereas central London receives a subsidy, there might be unequivocal support for the policy of clean growth.

[Angus Brendan MacNeil]

My hon. Friend brings up a fantastic point, on which his view is shared by the SNP and the Scottish Government. The UK Government choose to penalise the place where the wind resource is, but unfortunately the wind just will not blow at the whim of the bureaucratic pen of the UK Government. I would have thought that they would have realised that after all these years.

[Stewart Hosie]

One would have thought so, given the number of times the Government have been told that this is an ongoing problem. I could almost repeat it verbatim: there is £23 per kWh charge in the north-west of Scotland and a £7 per kWh subsidy down in the south of England. At some point soon, now that the Government have a clean energy strategy as part of the future economy, I hope that even they might think to address that fundamental inequity.

I want some real joined-up thinking. I know that the industrial strategy recognises, as the Secretary of State said in his statement yesterday, the contribution of the Scottish Government and the other devolved institutions. It is worth putting on record that the Scottish Government already have an economic strategy, with strategic plans for trade, investment, manufacturing, innovation and employment. Following the recent enterprise and skills review, they are aligning their agencies and resources behind those plans. The UK Government should have such a joined-up approach.

The Scottish Government are taking action to support the economy and to counter some of the uncertainty brought about by Brexit, despite the real-terms Budget cuts. This includes the £500 million Scottish growth scheme to target high-growth, innovative and export-focused small and medium-sized enterprises. The first tranche of that money was delivered in June, and a further tranche will be made with an expansion of the SME holding fund, along with the leveraging in of private capital. The Scottish Government are also taking forward infrastructure investment plans, with projects valued at more than £6.5 billion either in construction or starting this year.

In addition to the innovation and investment hubs in London and Dublin, the Scottish Government have established hubs in Berlin and Paris. They are maximising the opportunities there while also developing our existing presence in Brussels into a hub. That is important because there is no point in just supporting big businesses that already export. If we are ever to mitigate the potential loss of export trade with the EU, we need to have the people and resources in place to hold the hands of businesses and ensure that more of them start to export. The Scottish Government are establishing a new south of Scotland enterprise agency.

The Scottish Government are implementing a number of other measures, the most important of which is the roll-out of digital connectivity. Had the roll-out of 4G been left to the market and the UK Government, I understand that we would be about 60% of the way there. However, because of the additional hundreds of millions put in by the Scottish Government, we are at 95%, and we are driving forward the “Reaching 100%” project to deliver superfast broadband access to all residential and business premises by 2021.

[Angus Brendan MacNeil]

My hon. Friend is giving a long list of impressive boasts by the SNP Government, but he may not know that people on the west side of one of the smallest islands in the Outer Hebrides can get 48 megabits per second. I believe that central London and many other places cannot match what the SNP Government have achieved in the west of the highlands and islands of Scotland.

[Stewart Hosie]

That sounds to me like a pitch for inward investment for Barra, given what my hon. Friend says about 48 megabits per second. The whole point is that it is possible to deliver to some of the most remote communities the kind of access to technology that every business and individual needs.

We welcome the fact that the UK Government have published their industrial strategy, and we are committed to working with them to ensure that the strategy delivers the maximum benefits for Scotland. However, as my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) said yesterday, we are disappointed that the Scottish Government were not formally consulted ahead of the publication of the strategy, even though the White Paper recognises the critical role that the Scottish Government have to play. That is a worry in areas such as life sciences, in which Scotland is a world leader, because a sectoral deal seems to have been agreed without any consultation with the Government in Scotland.

We have set out our programme for government in Scotland, which includes a commitment to create a Scottish national investment bank to deliver infrastructure development, finance for high-growth businesses and strategic investments in innovation. That mirrors much of what the UK Government have said—[Interruption.] I am conscious of the time. I have had 20 minutes, but I will finish soon; I am sure there will be plenty of time for Labour Back Benchers. We are also committed to a transition to a low-carbon economy, as this is an important economic opportunity for Scotland.

Finally, let me make a point that my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey also made yesterday. We welcome the plan and the substantial sums that are being invested, but we note that the £7 billion for the extension of the innovation fund will not to be spent until 2022-23. If it is important to spend that money, and it is, and if it is important to mitigate the damage that Brexit might do, and it is, I simply say to the Secretary of State that he should perhaps bring forward that spending.

[Several hon. Members rose—]