National Insurance Contributions (Rate Ceilings) Bill

Stewart Hosie Excerpts

Tuesday 15th September 2015 Commons Chamber

[Stewart Hosie (Dundee East) (SNP)]

As the Minister said, the Bill will prevent any increase in the current rates of class 1, class 1A and class 1B national insurance contributions paid by employees and employers for the duration of the current Parliament. It will also provide that, for each year, the annual upper earnings limit cannot exceed the higher-rate threshold, which is the sum of the personal allowance and the income tax basic rate. All that is very sensible. There is nothing wrong, in principle, with any Government’s providing certainty in the tax code for the duration of their term in office. However, we clearly do not need legislation to do that.

As has already been said—so I shall say it only once—the Bill is a gimmick. It also demonstrates, in many ways, a lack of confidence. I shall say more about that shortly, but the key point is that placing such an arbitrary and unnecessary restriction on the Government’s ability to respond to unforeseen events may yet come back to haunt them.

The Bill results from the Finance Bill, which was published in July, and which provides for the tax lock on national insurance contributions, income tax and VAT. As was said earlier, it is intended to apply to a tax year that comes after the date of the Bill’s Royal Assent and before the first general election after that date. The time scope is therefore rather limited. There is also a technical issue. This is a separate Bill; the measures are not in the Finance Bill because statutory provisions for NI cannot be included in it.

However, none of this should be any surprise to us. The Conservative manifesto said that in government the Tories would not increase the rate of VAT, income tax or NICs in this Parliament. That should have been enough; the legislation is not required. In a speech ahead of the general election the Prime Minister confirmed that the tax lock also meant there would be no extension to the scope of VAT or any increase in the ceiling set for the main rate of NICs for employees.

[Kelvin Hopkins]

The hon. Gentleman mentioned VAT and the lock that the Government propose. Does he agree it would have been more impressive if they had had that lock before they raised VAT from 15% to 20% rather than after?

[Stewart Hosie]

That is the kind of thing any Opposition politician should say about any set of Tory policy decisions that ends up with the kind of outcomes the hon. Gentleman describes.

The Government also committed to legislating within 100 days of the election to rule out increases in the rates, which is what we are seeing today, but of course serious unintended consequences for spending and for other taxes may flow from this measure. Let me explain. The Government laid out in the summer Budget discretionary consolidation—that is, cuts and tax rises to you and me—amounting to £97 billion in this Parliament. Of that, new draconian cuts to welfare amounted to a full third—£33 billion—but the entire spending plan was predicated on, among other things, NICs bringing in £115 billion this year, £126 billion next year, rising to almost £152 billion in 2021. That is a forecast rise in revenue yield from NICs of 9.6% this year to next, 4.3% the year after, 4.7% in 2017-18 to 20118-19, and a rise of over one third—£37 billion—between last year and the end of the forecast period.

One of the questions the Minister has to answer today is this: given the arbitrary freeze on NICs and some other rates, should the forecast yield be significantly less than expected, will other taxes rise and if so, which ones; and will the Chancellor take the axe to yet further spending, perhaps on pensions, or will borrowing rise and deficit reduction forecasts simply be abandoned, delivering exactly the same failure on debt and deficit we saw in the last Parliament?

[Mr MacNeil]

Of the options my hon. Friend has given, may I go for option three, which means the Government will borrow? As every schoolboy in Scotland who has been paying attention knows, the UK has not paid its way since 2001; it has borrowed each and every year since then. I would go for option 3 for the UK: in debt, with a black hole.

[Stewart Hosie]

My hon. Friend is right. Harking back to 2009 and the Fiscal Responsibility Bill, the then Chancellor made great play of legislation to bring down the debt and deficit, and what was the sanction should he fail? “We would just change the targets,” he said. I suspect the current situation is rather similar, and I may come to what the current Chancellor said about that particular legislation shortly.

[Mr Stewart Jackson (Peterborough) (Con)]

The hon. Gentleman must be vying for the 2015 Caledonian brass neck award. On the arc of prosperity of Iceland, Ireland and Scotland, if we are talking about black holes, would he care to enlighten the House about the £8 billion black hole predicated on the dwindling price of oil, which means that if the Scottish people had made a different decision the country and the constituency he represents would be bankrupt?

[Stewart Hosie]

The £1.5 trillion black hole, which is the UK national debt, is of rather more significance than any cyclical deficit any country may have, but then I suspect the hon. Gentleman probably knew that already.

Returning to the scope of the Bill, it is important that the Minister says what will happen should the yield forecasts be less than planned. That is important for his Government, too, because their rationale, as stated in their manifesto, was focused on

“reducing wasteful spending, making savings in welfare and continuing to crack down on tax evasion and aggressive avoidance.”

That allowed them to commit to no increases in VAT, income tax or NICs. They argued:

“Tax rises on working people would harm our economy, reduce living standards and cost jobs.”

I have no problem with tackling genuinely wasteful spending, such as Trident, or clamping down on tax evasion, but it is this Government’s attack on welfare which is harming the economy, reducing standards of living and threatening the growth needed to ensure the forecast yield from NICs is maintained in the way the Red Book forecasts suggest.

[Kelvin Hopkins]

I have a great deal of sympathy with what the hon. Gentleman has been saying. He mentioned the tax rises that have taken place which have brought the Government considerable increases in revenue, but does he agree that those taxes tend to be regressive and the one thing the Government are protecting is the progressive tax, which is much fairer, called income tax, which they have sought to reduce for high income earners?

[Stewart Hosie]

It is certainly the case that during the downturn the decision to remove the 50p rate of tax was wrong. We would certainly argue that in the current climate that 50p rate should have been maintained. In that respect at least, I agree with the hon. Gentleman.

I wish to raise at this point the Conservatives’ future plans to replace national insurance because that is pertinent to the measure under discussion. In July, the Financial Secretary commissioned the Office of Tax Simplification to review the interplay between income tax and NICs. He said:

“I would like the Office of Tax Simplification to look at what the impacts, costs and benefits of closer alignment would be and to set out what the necessary steps would be to achieve closer alignment. We believe greater integration of the two systems has the potential to remove economic distortions, reduce burdens on business, and improve fairness across individual earners.”

These are all sensible objectives, and I assume this is still a longer-term Government objective, so let me ask the Minister how this Bill assists in the delivery of that aim.

I said earlier in my contribution, and also in a debate on the financial statement in July, that the Chancellor promised a tax lock but that legislation to stop tax rises was

“just a gimmick and no one is going to buy it”—[Official Report, 8 July 2015; Vol. 598, c. 348.]

Indeed my hon. Friend the Member for Edinburgh East (Tommy Sheppard) made the same point:

“If these provisions are included in what”

is now this Bill today

“it will only take a clause”

in future legislation

“to overturn them. They are therefore literally not worth the paper on which they are written.”—[Official Report, 21 July 2015; Vol. 598, c. 1441.]

He was right, of course, and that ties in with what I said earlier about a lack of confidence.

Of the Bill that became the Labour Government’s Fiscal Responsibility Act 2010, where levels of debt and deficit were planned but there was no sanction if they were broken, the current Chancellor said that it would achieve

“a constitutional first of imposing no legal sanction on the person who is likely to break it. No other Chancellor in the long history of the office has felt the need to pass a law in order to convince people that he has the political will to implement his own Budget”—[Official Report, 26 November 2009; Vol. 501, c. 708.]—

until now.

Let me reprise that for this Bill. This is a constitutional second. Only one other Chancellor has felt it necessary to bring legislation before this House in order to convince people that he has the confidence to implement his own Budget. We saw Gordon Brown go from Joseph Stalin to Mr Bean; I fear the First Secretary may be reverting to a rather rusty clunking fist.

As has been said, a large number of stakeholders have contributed to this debate, and key from our point of view are the words of Howard Archer, chief European and UK economist at IHS Economics, who said that such a move would restrict the Chancellor’s ability to achieve his targets:

“In particular, if the public finances fall markedly short of their targets, the chancellor would have to face making even more spending cuts and/or raising other taxes. Or just accepting the missed targets. There really still needs to be a lot more clarity on the whole Conservative fiscal policy”.

That is absolutely right.

It is also worth noting the comments of Jonathan Portes from the National Institute of Economic and Social Research. He said the pledge not to increase the main taxes

“considerably reduces our flexibility if things turn out different from expected. This is why I have absolutely no doubt that Treasury and Bank of England officials were tearing their hair out at this.”

What discussions, if any, have the Minister, the Chancellor or the Treasury had with the central bank about these proposals and the inherent lack of flexibility that they generate?

Let me turn now to some of my final questions. I ask Members to bear with me as I describe some of the complexity of the current NICs regime. Employees pay NICs on their earnings if they exceed the lower earnings limit, which is set at £112 a week. A zero rate of NICs is charged on earnings between the lower earnings limit and the primary threshold of £155 a week. Earnings above the primary threshold are charged NICs at a rate of 12%, subject to a cap on the upper earnings limit, which is set at £815 a week. Earnings above that are set at 2%.

Employers pay NICs on employee earnings at a rate of 13.8% on earnings above the secondary threshold, which, at £156 a week, is a difference of £1 from the primary threshold for employers. There is no ceiling on secondary class 1 NICs.

As everyone in the Chamber knows, self-employed people pay a weekly flat rate class 2 NIC. They may apply for an exemption from paying class 2 contributions if there are no profits, or if their profits are less than, or expected to be less than, £5,965 for the year. This replaced a small earnings exemption from April this year. In addition, they may be liable for separate class 4 earnings, and on it goes.

Tax simplification is a great idea, and we can see precisely why. Will the Minister explain how these proposals will make the NICs regime more straightforward? In addition to those categories, individuals may be entitled to make voluntary class 3 contributions to avoid or fill gaps in their NI record to ensure that they qualify for basic retirement pension and bereavement benefits. Does the Minister expect more or fewer people to make additional voluntary contributions as a result of the tax lock to the NICs described in the Bill, and will there be any encouragement for them to do so?

The majority of NICs receipts are paid into the national insurance fund, which is separate from all other revenue raised by taxation. The fund is used exclusively to pay for contributory benefits. If the revenue yield from national insurance does not rise in the planned heroic way that I described earlier, can we expect to see cuts directed at the contributory benefits that people have already paid for? There is often unintended consequence from any legislative change—and sometimes perfectly foreseeable behavioural change that may affect yield forecasts. That is an argument that Treasury Ministers have, from time immemorial, fallen back on when they are implementing bad decisions. What assessment have the Government undertaken to predict whether any negative behavioural change is likely to result from these measures, particularly given the differential in rates and thresholds between employee, employer and self-employed national insurance contributions?

Finally—this is really my most important question and at the heart of our disquiet over a legislative attempt to provide certainty over this Parliament—as the majority of NICs receipts are paid into the national insurance fund and that fund is used exclusively to pay for contributory benefits, may we have a cast-iron guarantee from the Minister today that this Bill is not and will not be the start of an attack on, or an erosion of, the contributory principle that applies to national insurance contributions?

Finance Bill

Stewart Hosie Excerpts

Tuesday 8th September 2015 Commons Chamber

[Caroline Lucas]

I am grateful for this opportunity to contribute to the debate on this clause, which I believe should simply have been deleted. Ministers have failed to provide a robust or even remotely convincing justification for removing the renewables exemption to the climate change levy. This would be laughable if it were not so serious. The Chancellor has complained that this is all very fine because the UK now has

“a long-term framework for investment in renewable energy in place”.—[Official Report, 8 July 2015; Vol. 598, c. 331.]

If only that were the case! The reality is becoming increasingly distant from the rhetoric, especially now, after yet another wave of destruction has been unleashed by the Treasury on sensible and popular climate and clean energy policies.

The most outrageous of those policies is the proposal to cut support for rooftop solar by up to 87%. That risks making it impossible for my constituents and many others to afford solar panels for their homes, schools or community centres. Solar power can become subsidy-free, but not if Government cuts to support are wildly disproportionate to the admittedly impressive cost reductions that the industry has managed to achieve. And then there are the 35,000 people who work in the solar industry and who are facing a very uncertain future.

Clause 45 of the Finance Bill is one of several such senseless attacks on sustainable energy and climate policies. It will have negative impacts on existing and potential renewable energy developments, some of which are already being reported to have become unfeasible and which have now been cancelled. It will also have negative impacts on the overall investment climate for everyone from small community groups to multinational businesses, all of which are looking to put their money into clean power. This is the very last thing we need, for our economy, for our jobs and for tackling climate change, and it flies in the face of public opinion. New polling this month found, yet again, overwhelming support for renewables, including onshore wind and solar, with even greater levels of support for community energy generation. Some 78% would support local projects, even within 2 miles of their home. For all those reasons and more it seems intelligent to have an incentive, so that when a business or public sector organisation purchases clean renewable power, rather than dirty polluting power, it pays less tax.

Ministers claim that the change is intended to prevent taxpayers’ money from supporting renewable electricity generated overseas, but in reality ditching the renewable energy exemption is a completely disproportionate measure, which turns a policy designed to encourage low-carbon electricity into little more than an electricity tax for businesses. If a third of benefits do go overseas, that should surely still mean that two thirds support home-grown renewable power generation and jobs here in the UK. If Ministers really want to cut out overseas generators, they should therefore modify the policy to fix the anomaly at that rate. Did anyone ever even consult industry about what level of cut to make? We have already seen by the Minister’s inability to answer my question a few moments ago that there simply was no consultation with the industry in advance. Ditching this exemption completely is, as Friends of the Earth has said, like making people pay an alcohol tax on apple juice. It harms British renewable energy businesses and undermines efforts to tackle climate change. No wonder it has received widespread condemnation, on both environmental and economic grounds.

This is all happening less than three months before the crucial climate talks in Paris. Yet at that time we will hear the spin machine in the Department of Energy and Climate Change going into overdrive, coming out with all kinds of lovely rhetoric which is completely at odds with what the Government are doing on the ground with this measure. It is yet another example of the huge gulf between the rhetoric and the reality of the policy. When it comes to avoiding dangerous climate change, the shift to clean renewable energy is key. Phasing out fossil fuels and phasing in a 100%-clean agenda has to be at the top of the agenda. Yet, once again, the UK is going in the wrong direction, with generous tax breaks and taxpayer-funded propaganda propping up the fossil fuel companies, while the knife is being stuck into our own home-grown renewable energy sector.

[Stewart Hosie (Dundee East) (SNP)]

Does the hon. Lady not agree that this is only part of an ongoing series of issues: a lower strike price for nuclear than for renewables; the continuing unfairness with the connectivity charges, where the bulk of the renewable potential is; the pulling of support for onshore wind; the threats potentially even to the green investment bank; and the threatening of funding for future projects? This is all part of the same anti-environmental agenda.

[Caroline Lucas]

I am grateful to the hon. Gentleman for his intervention, and of course he is absolutely right; long gone are the days of hugging huskies and we are now in the days of “green crap”—even, ridiculously, when there are strong economic arguments for pursuing green policies. The idea that that is somehow against the interests of business is completely belied by the fact that so many businesses are crying out for a change in direction on the part of this Government.

Finance Bill

Stewart Hosie Excerpts

Tuesday 21st July 2015 Commons Chamber

[Lucy Frazer]

If it was the birthday boy, I would be giving way.

It is remarkable that the position of both the SNP and the Greens is that this Finance Bill does not address the economic needs of the country and it continues to deepen the social divide between those who have and those who have not. Both amendments are very similar. But on both those questions, nothing could be further from the truth.

[Stewart Hosie (Dundee East) (SNP)]

Will the hon. and learned Lady give way?

[Lucy Frazer]

On the economy, it is an economic necessity—[Interruption.] When is your birthday?

[Stewart Hosie]

Will the hon. and learned Lady give way?

[Lucy Frazer]

Let me finish the sentence; then I will give way. On the economy, it is an economic necessity that as a country, we live within our means.

[Stewart Hosie]

I have no problem at all with getting to a position where any state lives within its means; it is how we get there that matters. But the hon. and learned Lady surely has misspoken. If a Government are choosing to increase inheritance tax thresholds while taking billions from the poorest with changes to tax credits, then they are indeed taking from the poor to give to the very wealthy.

[Lucy Frazer]

The hon. Gentleman is absolutely right that the question is how we get there. But when we are in a time of economic improvement, that is the very time in which we need to make changes. The changes to inheritance tax go back to a key principle and a key policy that we hold as Conservatives, which is that when you work hard and you spend money to buy a home to look after your family, and when you are taxed on the income with which you buy your home and pay tax, in the form of stamp duty, when you pay for your home, it is right not to have a third taxation when you leave your home. We all instinctively want to leave what we have earned to our children.

[Stewart Hosie]

Will the hon. and learned Lady give way?

[Lucy Frazer]

No; I have not finished. There is one further point. We are not taking from the very poorest; we are giving to the very poorest. [Hon. Members: “You are not.”] In some ways we are giving to the poorest. The introduction of the national living wage will mean that about 2.5 million people will immediately get a pay rise.

[Stewart Hosie]

rose—

[Lucy Frazer]

I gave way and I shall just continue.

--- Later in debate ---

[Caroline Lucas]

I would love to hear it, but not that much, so I am going to continue.

Then we have the senseless proposal to tax renewable energy as if it were a fossil fuel by removing the climate change levy exemption for renewables.

[Stewart Hosie]

On the VED changes being intended to tackle the debt or the deficit, I am sure the hon. Lady will have heard the Chancellor say that the entire set of measures was fiscally neutral and has nothing to do with bringing down the deficit or the debt.

[Caroline Lucas]

I thank the hon. Gentleman—my hon. Friend—for that well-made point.

As campaigners have pointed out, the policy on the climate change levy exemption for renewables is like making people pay an alcohol tax on apple juice. The Government claim that it is intended to prevent taxpayers’ money from benefiting renewable electricity generated overseas. In fact, it is a completely disproportionate measure that turns a policy that was designed to encourage low-carbon electricity into just an electricity tax for businesses. It is interesting that Ministers remain suspiciously silent on the shocking revelation earlier this year that the Government spend 300 times more on backing fossil fuel projects abroad than on clean energy via the export credit agency. If they are that worried about the issue, one would have expected a little more consistency from them. The scandalous public spending on fossil fuel subsidies should be cut, not support for clean, green, home-grown renewable energy.

I agree with the shadow Energy and Climate Change Secretary, the right hon. Member for Don Valley (Caroline Flint), that removing the renewables exemption from the climate change levy will undermine investor confidence in renewable energy, and that we should instead be seizing the massive opportunities for jobs and investment that moving to a low-carbon economy would provide for this country. I hope that we can work together across all parties to remove this stupendously senseless provision from the Bill altogether.

The Minister spent a long time talking about how important this Bill is for productivity. I am a great supporter of productivity, but I fail to see how, for example, plans to scrap the long-established zero-carbon homes policy will support it. Indeed, in an open letter to the Chancellor, over 200 businesses warned:

“This sudden u-turn has undermined industry confidence in government and will now curtail investment in British innovation and manufacturing”.

So much for putting our economy on a stable footing; so much for this Government’s phoney concern about energy costs. Scrapping this policy means that future homes, offices, schools and factories will be more costly to run, locking residents and building users into higher energy bills. Businesses are increasingly speaking out not against the so-called green crap, but against the tsunami of Government blue crap that is putting up energy bills, harming business and undermining climate action.

I have a few last words on the welfare aspects of the Bill. The Chancellor can crow about raising the tax threshold so that fewer people on low incomes pay tax, but although that is the right thing to do, it does nothing to change the overall impact of his Budget and of the Finance Bill. As the IFS has shown, it leaves us with a tax and benefits system that is more regressive. The biggest losers are those in the second and third poorest tenths of the population—the working poor. Under the cover of austerity, the welfare cap will make housing, in particular, unaffordable for many families. Young and disabled people have been unfairly singled out to lose benefits. Child poverty already costs Britain upwards of £29 billion, and is set to rise under plans to limit tax credits, which could leave 3 million families on average £1,000 worse off, even allowing for increases elsewhere.

According to Treasury’s own analysis, the plan to raise the inheritance tax threshold will benefit high-income and wealthy households. Given that it is one of the easiest taxes to both avoid and evade, and that the very rich often find ways to pay very little, it is clear that this whole area needs a complete rethink.

On tax dodging, I welcome the Government’s recognition that the so-called Mayfair loophole needs to be closed. Many of Brighton’s residents have written to me about this, and it is thanks to the determination and persistence of individuals and campaigners that we have got this far. Yet again, however, the Government spin machine is in overdrive and the reality does not match the rhetoric. I urge the Chancellor to address that by agreeing that carried interest counts as income and should be taxed as income.

Finally, if the Chancellor is serious about tackling tax dodging, as I hope he is, I urge him to reconsider his opposition to the Robin Hood tax and to adopt the comprehensive policies set out in the tax dodging Bill proposals, which are supported by 25 UK and international non-governmental organisations and would generate about £3.6 billion in the UK.

--- Later in debate ---

[Huw Merriman]

My constituents will be delighted that after the terror that this Government took over from, we are seeing earnings and incomes get back to their pre-recession levels. They are already there for those at pension age, of whom there are many in my constituency, and are getting there for those in other age groups. My goodness, if this Government had not taken the difficult decisions that the hon. Gentleman’s party has opposed all the way through, we would not be in the positive situation we are now in.

[Stewart Hosie]

Will the hon. Gentleman give way?

[Huw Merriman]

No, I will make some progress, if I may.

I was bemused by the Opposition’s attempts to lay claim to the policy of tax locks. Perhaps by losing the election and allowing this Government to gain a majority and introduce these clauses, they have brought the policy about.

This is a one nation Government that seek to help people into work and, in so doing, give them hope, aspiration and pride. By taking those who work 30 hours a week on the minimum wage out of the tax system, the Government are committing to the principle that work pays. Furthermore, by committing to review that principle and assess the tax position of an individual working 30 hours on the national minimum wage when reviewing the tax allowance over and above £12,500 in the future, the Government are demonstrating that they really mean for that proposal to be here to stay.

--- Later in debate ---

[George Kerevan]

I know that is true from talking to the small businesses in my constituency.

The Chancellor claims to want a productivity revolution, but that is given the lie by the fact that in the autumn statement in December and the March Budget he did not announce that the £500,000 allowance would stay or that it would in fact be £200,000. Investment requires long-term confidence—telling businesses well in advance what they can do in terms of investment. The fact that the Chancellor did not tell us, but has produced a rabbit out of a hat in the summer Budget, tells me that he is not that serious.

We have also heard today that the Chancellor intends to cut corporation tax progressively over the spending period to 18%. I do not gainsay that, but I ask the House to look at what happens when cutting corporation tax significantly is combined with a de facto reduction in the annual investment allowance. Surely we want to cut corporation tax to encourage firms to use their surplus capital to invest in plant and machinery. It is therefore necessary to maintain the £500,000 level—or perhaps even raise it further—to encourage firms to put their money into plant and machinery to raise productivity. By de facto cutting the investment allowance from £500,000 to £200,000 at the same time as cutting corporation tax, the Chancellor will encourage firms to keep their surplus capital sitting in the bank, instead of investing in plant and machinery. That is what has been happening in this country, and that is one of the reasons why productivity has fallen since 2008.

[Stewart Hosie]

Is it not therefore all the more important —at a time when the banks are still not lending fully—to incentivise to the highest possible extent to encourage businesses to use their own resources for investment?

[George Kerevan]

I take my hon. Friend’s point. We need incentives that co-ordinate and integrate, not just a series of random measures that allow the Chancellor to make headlines here and there but do not have an impact on productivity in the longer term.

The surplus balances held by British companies total something in excess of £0.5 trillion, and some estimates put it at more than £1 trillion. A reasonable estimate is £0.5 trillion or £550 billion. How do we incentivise firms to take that money out of the bank and put it into plant and machinery and create jobs? The Chancellor is doing his best to provide incentives in another direction. Raising the inheritance allowance on property is another way of encouraging shareholders—when shares are bought back by companies—to put their money into existing bricks and mortar rather than invest in companies.

We have a Budget that claims to be about productivity, but provides none of the efficient incentives required to get plant and machinery that will create jobs. Let us look at what has happened to productivity since 2008. Initially, when the recession started, UK productivity fell. What normally happens in the first few years of a recession, as workers are shed and firms rely on using their existing plant and machinery more intensively, productivity rises. It rose in most of the advanced industrial countries in Europe in the two or three years after the recession, and in America. Thereafter, we would expect firms to start to invest in new innovation and developments, and productivity would rise not simply from the shedding of labour but from expansion, new product lines and new companies. That is what has happened in America, which had a significant increase in investment and innovation, and productivity has risen significantly in a long-range curve, as American companies have grabbed market share. In the UK, we saw a second downward bump in productivity in 2011. That came just as the Chancellor realised the mistake he had made in rushing for austerity between 2010-11. He had made massive cuts, but at that point he changed. We have had several long-term plans. In 2011, his new long-term plan was to turn on the monetary tap and crank up an artificial housing boom. Of course, that created even more incentives for individuals, financial companies and businesses to put money into trading in property, rather than in factories and manufacturing.

What we saw post-2011 was British productivity getting even worse, while the productivity of other industrial countries—in particular the United States, but also China—started to improve for the very best of reasons: they were investing in new plant machinery. We have not solved our productivity problem because we have not got the incentives right. I see nothing in the Budget to change that.

Oral Answers to Questions

Stewart Hosie Excerpts

Tuesday 21st July 2015 Commons Chamber

[Mr Osborne]

I pay tribute to the work that was done during the last Parliament by the Treasury Committee, some of whose members are still in their posts, and I again congratulate my right hon. Friend on remaining Chair of that Committee. Today we are publishing the consultation document on the new Bank of England Bill, which will come before Parliament in due course. The Bill follows the reforms announced by the Governor of the Bank, which built on the work done by the Treasury Committee and others. It will ensure that a modern Bank of England is able to exercise the leadership that is required for the delivery of economic and financial stability. Moreover, for the first time—this is crucial, and I think that Parliament will appreciate it—the Bank will be open to the advice of the National Audit Office, and the value for money that that can deliver.

[Stewart Hosie (Dundee East) (SNP)]

The success of the economic plan, long-term or otherwise, and the potential to improve productivity must be driven in part by sustained infrastructure capital investment, so can the Chancellor confirm that, instead of doing that, the plans he laid out in the summer Budget show total capital expenditure down every single year between 2015 and 2019-20 compared with the March Budget?

[Mr Osborne]

We made some in-year savings in this financial year in capital budgets that were not going to be well spent. We want to deliver value for money for Scottish taxpayers, as well as for taxpayers across the United Kingdom, but we will be spending more as a percentage of national income on capital investment in this decade than occurred under the last Labour Government.

[Stewart Hosie]

That is a fascinating answer, because of course the real answer is that in cash terms the spending is down—from 2015-16 onwards down £1.2 billion, £0.8 billion, £0.9 billion, £0.7 billion, and £1.3 billion by the time we get to 2019-20. So we know the forecasts are reduced, we know the Chancellor is cutting more than he needs in order to run a balanced budget, and we know he is undermining the potential for long-term growth, so why did he ignore all the advice, particularly from the OECD who told him two days before the Budget that “gross investment is low” and

“Transport infrastructure investment is poor”?

Does he really expect us to believe every—

[Mr Speaker]

Order. Questions are too long. We have got the general drift of the argument; let’s hear the answer.

Greece

Stewart Hosie Excerpts

Monday 6th July 2015 Commons Chamber

[Mr Osborne]

Just as when people try to tell us what currency we should adopt we do not take too kindly to it, we should respect the decision of the Greek Government and people about the currency that they want to use. Clearly the Greek Government are saying that they want to remain in the euro. The tension, which has been there all along, is between that desire to remain in the euro and the conditions of membership that the other members of the eurozone are placing on them. That is the dilemma that has not yet been resolved.

[Stewart Hosie (Dundee East) (SNP)]

I thank the Chancellor for his statement and for early sight of it. The Scottish National party agrees with much of what he said.

Most people recognised last week that, irrespective of the outcome of the referendum, negotiations and difficult decisions would still have to be undertaken by both Greece and its creditors. The Chancellor observed last week that senior eurozone figures had said that had Greece voted yes, then negotiations would begin to try to find a satisfactory outcome. Given that Greece voted no to the troika conditions, but voted to remain part of the EU and the eurozone, will the Chancellor try to persuade his Finance Minister counterparts in the EU and colleagues in the ECB and IMF that they, too, should respect the outcome of the referendum, stay calm and return to the negotiating table to find a long-term sustainable solution to Greece’s problems? That is in all our best interests.

It is worth noting that, as the Chancellor said, the markets have barely moved since the referendum result. They, at least, clearly discounted the possibility of a no vote, even if others did not. Peripheral country 10-year bond yields, in particular in Spain and Italy, have barely moved and are at about 2.3%. The FTSE Eurofirst 300 index is off by about 1.2% as of earlier this afternoon, although bank stocks are down a little more. However, market sentiment may change and bond yields and European banking stocks in particular may yet come under further pressure. May I ask what are the contingency plans for that eventuality; not the detail—I understand the sensitivity—but perhaps the degree of liaison between the Greek central bank, the ECB and the Fed? What plans are there, in addition to what he has laid out, to support businesses that export to Greece, particularly in the light of capital controls, to ensure cash-flow problems do not damage perfectly viable businesses here?

The Greek people have voted against further austerity, which they argue—many would agree—has failed so far. The Greek Government have a clear mandate to negotiate on that basis. I very much welcome what the Chancellor said about respecting the decision of the Greek people. I hope he and his Government will continue to respect that decision. As he said, this situation risks going from bad to worse. Even if the immediate crisis passes, the risks that do exist may do so for some considerable time.

[Mr Osborne]

The hon. Gentleman is right in his assessment of the current state of the markets. There has been a muted reaction, although Greek bond spreads have increased. I think that is in part because eurozone leaders and Finance Ministers have acted with some restraint post the result. Some of the language we heard on all sides before the referendum has been toned down, which is very sensible. I think people are now looking at the crucial meetings that will take place tonight and tomorrow to see whether they will get around the table and try one final time to reach a way forward.

On the hon. Gentleman’s specific point about export businesses, we are in contact with the various business representative bodies. We have the helpline available and HMRC is able to help with cash-flow problems. I repeat the point I made earlier: if Members of Parliament have specific cases, they should bring them to us and we will make sure that the businesses in their constituencies get specific advice. The hon. Gentleman can have my assurance that we remain in regular contact with the European authorities. The Governor of the Bank of England remains in very close contact with the head of the European Central Bank. We are prepared for what happens. I note again that there is a very fast timetable happening in the financial system in Greece. We have to make sure that the political timetable keeps pace with it.

Greece

Stewart Hosie Excerpts

Monday 29th June 2015 Commons Chamber

[Mr Osborne]

My right hon. and learned Friend is right to remind us that the people of Greece have paid a very high price for the mismanagement of their economy by previous Greek politicians and Greek Governments. Of course it is now a matter for the Greek people to decide their future, and we should respect that. I made it clear in my statement that most people now consider this referendum as one on whether Greece leaves the euro. Of course there are considerable consequences of taking that step, but I do not think we should be telling the people of Greece how to vote. It is for the people of Greece to make that decision, but they should be aware of the consequences. That is the broad approach that we shall take. The discussion of what would happen if Greece were to leave the euro should probably happen at a later date, but there will clearly be issues over the support that the family of western nations can provide to that country.

[Stewart Hosie (Dundee East) (SNP)]

I thank the Chancellor for his statement and for early sight of it. I welcome what he said about private sector exposures to Greece being substantially lower than they were some years ago. Exposure to the banks is around £5.3 billion, down from £9 billion some years before. That would tell us that the risk of direct contamination is relatively low, but as we have seen today there is a risk to the banking sector across the EU, and the fall in bank stocks throughout Europe is witness to that. I welcome what the Chancellor said about the Government and the central bank being ready to ensure the financial stability of the UK, but it might be helpful if he said a little more about confidence today.

In terms of other exposure, we have rather modest exports to Greece, worth about £2.82 billion, or 1.2% of EU exports and 0.5% of UK global exports. That figure is modest but nevertheless important to the people whose jobs depend on those exports. Will the Chancellor say a little more about that? Perhaps export promotion could be stepped up to help find new markets for businesses that might find the Greek export market more difficult; or, as the hon. Member for Nottingham East (Chris Leslie) mentioned, export credit guarantees and other short-term cash flow help, should they be required, could be used.

Finally, notwithstanding what the Chancellor said about negotiations being at an end, will he confirm that the IMF has some leeway in when it declares that a repayment has been missed, in that the IMF’s managing director has up to 30 days to notify the board if a country does not make a repayment deadline? Does that not provide some flexibility to ensure that a deal can be reached and provide a strong incentive for discussions continuing beyond Tuesday, notwithstanding the forthcoming Greek referendum?

[Mr Osborne]

I thank the hon. Gentleman for his questions. I should say that this afternoon we have been in touch with the devolved Administrations in the United Kingdom to ensure that they are aware of the plans and to work with them on any issues faced by them and by citizens and businesses in Scotland, Wales and Northern Ireland.

The Bank of England and the Prudential Regulation Authority are, of course, monitoring extremely closely the situation with the four Greek branches in the UK and the subsidiary, although, as I have said, the subsidiary is protected by our compensation scheme and supervised by the Bank of England. There is, of course, advice available to businesses with export links to Greece, but there are capital controls in place so there are restrictions on the settlement of payments being transferred out of the Greek banking system. Businesses should be aware of that. Cash flow problems can be addressed by contacting HMRC.

As for the IMF, I do not want to prejudge the decisions of the managing director or the board. We will just have to wait and see what unfolds in the coming days. It is fair to say that the space for substantive negotiations before the referendum is pretty limited. Of course, we shall see what the outcome of the referendum is. I would merely observe that many of the senior figures in the eurozone have said that if Greece were to vote yes, negotiations would begin to try to find a satisfactory outcome for the Greek financial situation.

Scotland Bill

Stewart Hosie Excerpts

Monday 29th June 2015 Commons Chamber

[Sir Edward Leigh]

As I explained, my personal view is that we should devolve the whole thing. It makes logical sense. As I said, setting the thresholds is often much the most interesting part of tax policy in modern Parliaments. When our friends the Liberals were in power with us—we remember those happy times—was not their proudest boast that they, as members of the Government, had lifted hundreds of thousands of people out of tax altogether?

There is an interesting argument here. For the record, I am dubious about lifting the threshold. It is expensive, and surely more, not fewer, people should have a stake in the income tax system. But that is my personal view, and I accept that there are countervailing arguments. For instance, lifting the threshold reduces the pressure on tax credits. I recognise that it is an interesting political debate.

Setting rates and bands without being able to set thresholds makes no sense. Of course, raising thresholds and personal allowances is dramatic and expensive, which is presumably why the Scottish Parliament is being denied the power, but leaving aside the need for and desirability of full control, does not full fiscal autonomy lead to full fiscal responsibility? The more autonomy a Parliament is given, the more responsible it becomes. Countries such as Belgium and Spain—not without their own separatist problems—provide exceptionally broad autonomy to their constituent parts.

That is certainly the case in the United States, where the states have full fiscal autonomy, including the power to issue bonds and the like—the whole lot, as far as I know. This country is definitely not the United States, despite the best efforts of Mr Blair, but if there is one aspect of America we should like to emulate, it is its vigorous civic culture. Its states, counties and towns have real power and the capability to respond to people’s needs and democratic desires. Surely we all want Scotland to have that capacity, just as we want the whole UK to have it. The fact that fiddling with thresholds is so expensive makes Governments and Parliaments niggardly about raising them—each £100 is inordinately expensive—but why should the Scottish Parliament be less responsible than the UK Parliament? Can anybody tell me why a responsible Scottish Parliament should not also be niggardly about that power and use it in a very conservative—small c—way?

Of course, full fiscal autonomy requires a set of support mechanisms through a formula-based grant. That should be based on need, not obscure variations on English spending, which is why I am opposed to the Barnett formula and want to replace it with one based on need—but that is a debate for another time. If the UK Parliament issued a sensible grant formula based on the specific needs of the Scottish Parliament, and if that were followed by full freedom for the latter to set personal allowances, bands and rates, I believe the Scottish Parliament would use that power responsibly and carefully. I contend that the more power we give the Scottish Parliament, the less it will be a grievance Parliament and the more the forces of canny, prudent Scottish financial conservatism will be unleashed. Indeed, the best way to encourage the growth of the Conservative party in Scotland is to give the Scottish Parliament more power. At the moment, all the pressure on it is to spend more money and blame the UK Government when we indulge in any austerity programme.

In the current situation, it is perfectly logical for the voters to choose whichever party complains the most and makes the biggest fuss. I do not blame the Scottish people for doing that. The current system leads to that sort of mindset, whereas the UK system leads to an alternative mindset—we want politicians in power who are careful about how they vary thresholds and bands. It is because Treasury Ministers have that power that people are careful about whom they elect, and Conservatives do not do too badly in that UK set-up.

With full home rule and full fiscal autonomy, the voter would be in charge and would choose representatives who would raise and spend money wisely rather than just go cap in hand to Westminster. That is surely what we want to achieve, so what is the objection? If it is said that the Barnett formula makes such natural freedom unobtainable, the solution is not the denial of power or freedom but the end of the formula. If the argument is that the Scottish tax system could undermine full UK fiscal responsibility, I find it unconvincing. For instance, the Scottish Parliament spends £37 billion and raises £30 billion—quite responsible, actually. The UK spends £732 billion and raises £648 billion. [Interruption.] I thought Scottish National party Members would respond in that way, but I could not resist helping them along.

The serious point that I am making is that the Scottish budget is very small compared with the UK budget. If we gave the Scottish Parliament full fiscal responsibility, it is extremely unlikely that it would upset our fiscal responsibility. The Secretary of State may, of course, be able to deal with that point. He has many more expert advisers than I do, and I will listen to the arguments that are made today and wait for his response. Perhaps he will indulge me, if not with a yes to my arguments then at least with a willingness to listen and, in time, to move. If he is not interested, we could return to the matter on Report.

I make my comments in the spirit of trying to be creative and helpful. We can return to these matters, but I hope that the Secretary of State will not just provide a throwaway line from the civil service brief but will try to respond to the arguments that are made. We are trying to create a responsible Parliament; let us give it full fiscal autonomy.

[Stewart Hosie (Dundee East) (SNP)]

It is a pleasure to serve under your chairmanship in this Committee, Sir David, and to speak to our new clause 54. I enjoyed much of what the hon. Member for Gainsborough (Sir Edward Leigh) had to say, apart from his description of the “separatist problem”, which we tend to call “national aspiration”—I think I know what he meant. I am conscious of the time, so I shall try to cover the debate as briefly as I can.

Paragraphs 75 to 79 of the Smith agreement covered issues of income tax, and stated that income tax would remain a shared tax and that both the UK and the Scottish Parliaments would share control of it. The agreement said essentially that MPs representing constituencies across the whole of the UK would continue to decide the UK’s budget, including income tax. That certainly makes sense with the very partial devolution suggested by the Bill.

Within that framework, the Scottish Parliament will have the power to set the rates of income tax and the thresholds at which they are paid for non-savings and non-dividend income only. As part of that, there will be no restrictions on the thresholds or rates that the Scottish Parliament can set. All other aspects of income tax will remain reserved, as the hon. Member for Gainsborough said, so that even such things as the definition of income could be changed by a UK Government, making subsequent and consequential serious change to the yield forecast by the Scottish Government. That is one reason why, with the partial devolution, we should all continue to vote on that component of income tax in the Westminster Parliament—and it is an even stronger reason, of course, for the devolution of all income tax.

The Scottish Parliament Information Centre analysis for the Scottish Parliament Devolution (Further Powers) Committee—for the rest of the evening, termed “the devolution committee”—found in its interim report on the draft Scotland Bill that draft clauses 10 to 12, now clauses 12 to 14,

“broadly seek to give effect to the extension of income tax powers recommended by the Smith Commission. These would give the Scottish Parliament the power to set rates and bands in relation to non-savings and non-dividend income…above the UK personal allowance.”

Clause 14 also deals with the interaction between income tax and capital gains tax. Currently, individuals who pay income tax at the higher rate also pay CGT at the higher rate. The clause sets out that the rate of CGT that applies to Scottish income tax payers will continue to be calculated using the UK income tax rate limits. That would create an imbalance should there be a change or proposed change for Scotland and people choose to do something in a different way.

There were, however, no draft clauses in relation to the corresponding adjustment in the block grant or the Scottish Government’s reimbursing the UK Government for costs arising from implementation or administration of the powers. Can the Secretary of State confirm that these recommendations do not require legislation?

The Scottish Parliament’s devolution committee interim report said in its conclusion about income tax powers that

“the essence of the Smith Commission’s recommendations has been translated appropriately by the previous UK Government into the draft legislative clauses”,

and that it had “no particular concerns” with “the drafting”. However, it highlighted the

“significant issues still to be resolved regarding the implementation of the new powers, such as an appropriate definition of residency…the details of the administration of the new regime (who collects the tax and how it will function…the need to avoid double taxation and the timing and phasing of the new powers on income tax relative to those already devolved under the Scotland Act 2012”.

Those are all matters that I am sure the Scottish Secretary will address. At paragraph 166, the devolution committee also recommended that

“details on the implementation of the new powers over income tax be produced before the Scottish Parliament is expected to give its legislative consent”.

That is extremely important. It concluded, too, that

“any final detail of the fiscal framework and the other matters we have considered is provided to the Scottish Parliament before the question of legislative consent to any new bill is considered”.

That is a view endorsed by the Scottish Government, and I understand that discussions on these issues are ongoing with the UK Government, in parallel with the passage of the legislation.

It is normal practice for the Scottish Parliament to consider legislative consent before the final stage of a Bill in the Commons; with the Report stage likely in the autumn, usual practice would suggest September. However, the devolution committee suggested 2016 as a more likely date, so when does the Secretary of State believe the Bill will reach Report?

Because of the lack of information on the various technical aspects of the delivery of the tax powers, beyond the wording of the Bill, the committee said:

“As yet, we are not able to conclude that we are content with the fiscal framework and no detriment arrangements as these details are currently being discussed between the two governments.”

Will the Secretary of State confirm that discussions are under way and update us on progress, particularly in respect of the no detriment and no advantage clauses—principles agreed by Smith before the committee reported?

The devolution committee also said:

“both the process of these negotiations and the outcome requires proper parliamentary scrutiny. We recommend both Governments reach an urgent agreement on just how this will be achieved and for the Scottish Government to report to the Committee on what arrangements it proposes to put in place for parliamentary oversight.”

Will the Secretary of State describe what actions his Government are taking in respect of parliamentary oversight, particularly if we do not—as may well be the case—get through the debate on all the clauses and groups of amendments tabled for debate today?

In their response to the devolution committee’s interim report, the Scottish Government made it clear that they were

“broadly content with the clauses in the Scotland Bill relating to taxation”.

It added, however:

“as the Committee recognised, there will need to be extensive discussions between the Scottish and UK Governments over the plans for implementing these provisions.”

I note at this point that there were changes between the draft clauses and the Scotland Bill. In paragraph 165 of the interim report, the devolution committee highlighted one area that required specific clarification, so I ask the Secretary of State to confirm—I am sure he will—whether clause 12(5) of the published Bill now contains a change to specify that a zero rate of income tax is possible?

It is also worth saying a little about the nature of the taxation powers, which has been touched on. They are very limited. Even if we include the VAT assignation, the Scottish Parliament would raise the equivalent of around 50% of devolved expenditure. However, excluding the VAT assignation, the figure falls to barely a third. That is important because many of the submissions to the devolution committee called for more. In its written evidence, the Scottish Trades Union Congress called in its recommendation 2.1 for the

“devolution and assignment of taxation amounting to…two thirds of Scottish public spending (over 50% of all spending in Scotland)”.

The Bill clearly does not reach that standard.

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[Sir Edward Leigh]

rose—

[Stewart Hosie]

I shall give way once, yes.

[Sir Edward Leigh]

That is a very important point. We always moan about tax avoidance. I have been talking to people in Scotland, and it appears now that wealthy people will be putting more and more money into dividends precisely to avoid tax. I cannot understand the logic of encouraging people to avoid paying tax by putting their money in dividends.

[Stewart Hosie]

I agree entirely. None of us should be encouraging tax avoidance or evasion—not least a Tory Government, which is why I am sure the Secretary of State will want to support the full devolution of tax on earned and unearned income. It is a jolly good idea.

However, whether the devolution of income tax is extended or not, issues of implementation must be fully resolved. I ask the Secretary of State to confirm that, as part of the fiscal framework discussions, the following issues are now being fully addressed: the timing of the implementation of the Smith provisions; the length of the transition period and how it relates to the transition period for the Scottish rate of income tax; how the costs of implementation will be met; whether there will be an agreement to revisit the memorandum of understanding between the Scottish Government and HMRC for the Scottish rate of income tax, to ensure that it remains fit for purpose; the enforcement and compliance regime under the Smith income tax proposals; how gift aid and pensions relief will be treated under Smith; how the block grant adjustment will work, although that is much broader than simply income tax; the forecasting of revenues, the interaction between the Office for Budget Responsibility and the Scottish Fiscal Commission and the detail of how we calculate the transfer of revenue; and the continued role of the National Audit Office in working in partnership with Audit Scotland.

The key issue is the forecasting that will drive the revenues that the Scottish Government will get and the block grant adjustment. There has to be a fair balance between the role and input of the OBR and the Scottish Fiscal Commission, particularly given that the OBR uses Treasury numbers to drive its calculations.

As I said at the outset, I am conscious of time; we have many groups of amendments to get through and others will want to speak. I hope that the Secretary of State can answer those important detailed questions on the proposed devolution. I commend amendment 54 to the Committee.

[Ian Murray (Edinburgh South) (Lab)]

I was not able to make it to the House earlier, Sir David; I would like to express my sympathies to everyone involved in the tragic events in Tunisia. Our thoughts are with the families all across the United Kingdom, but especially the people in Scotland who have been caught up.

I want to speak to new clause 32. Part 2 of the Bill devolves significant new powers to Scotland over income tax and other taxes, and it is a real opportunity to provide the powerhouse Parliament promised by the Smith agreement. Clauses 12, 13 and 14 make provision for transfer to the Scottish Parliament of the power to set rates and bands of income tax, including, as the hon. Member for Gainsborough (Sir Edward Leigh) was pushing for, the ability to set a zero rate. The full impact of that and other tax measures should not be downplayed.

Lord Smith himself outlined that the measures proposed in the agreement would create one of the most powerful devolved Parliaments in the world. When taking taxation and spending clauses together, Scotland would be only slightly behind the Canadian provinces and Swiss cantons. Likewise, according to the OECD, in exercising power over setting both the rates and bases of income tax, Scotland would rank above sub-central legislatures in Sweden, Norway, Finland, the US and even Germany.

The economic evidence suggests that fiscal devolution can work. It is our responsibility, and that of the Scottish Government, to make sure that it does—that is the genesis of our new clause 32. However, these are hugely complicated processes; anyone who has tried to read the fiscal framework analysis in the Smith agreement will know that. I note that the Scottish National party and its new friend, the hon. Member for Gainsborough, have tabled new clauses that would seek to devolve income tax in its entirety.

I should say at the start that those are perfectly legitimate arguments that have been debated at great length at both the Calman and Smith commissions. Labour disagrees, because we believe fundamentally in the pooling and sharing of resources across the United Kingdom; that is not a criticism of the SNP position, but merely a disagreement on a fundamental broad principle. We have rightly and repeatedly criticised the Smith agreement and the Bill on a number of occasions, particularly on Second Reading and in last Monday’s debate, but I agree with the hon. Member for Dundee East (Stewart Hosie): in this instance at least, the Bill and the Smith agreement have got it right. That is probably why there are so few substantive amendments to the income tax clauses. The Chartered Institute of Taxation has echoed that by saying that the commission has made a

“pragmatic set of proposals which shows a lot of thought has been given to balancing the desire of Scots for greater tax powers against the practical obstacles to devolution”.

It is worth reflecting on the Scottish Parliament’s current position on income tax. Since 1999, Scotland has been able to vary the rate of income tax by 3p in the pound. Despite the current clamour for more powers, that power has never been used—incidentally, I believe that it has now lapsed, which shows the problems with the fiscal framework. Notwithstanding that, under the Scotland Act 2012, and as a result of the Calman commission, the Scottish Parliament has been afforded control over the first 10p of the basic rate of tax. Obviously, the Smith agreement and the Bill go much further.

The Scottish Parliament will have total control over income tax rates and thresholds and complete freedom over the levels at which those rates and thresholds are set. That is significant as the estimated devolved income tax liabilities on income tax in 2013-14 amounted to almost £11 billion. That is a considerable sum, the collection and deployment of which confers a substantial degree of responsibility on the Scottish Parliament. If they wish, the Scottish Government—of any colour—can increase or decrease that liability.

--- Later in debate ---

[Ian Murray]

I am delighted by that intervention, because I was going to speak about that issue later. Given the time constraints, I will take that point out of my speech, because my hon. Friend has made it well. The Scottish Council for Voluntary Organisations has raised the relationship between income tax and gift aid. Although that matter is not mentioned in new clause 32, I hope that if there is a reporting mechanism, it will look not only at gift aid, but at pension relief. That is another matter that was not mentioned by the Smith agreement, but which has been raised by many of the organisations that have been in touch with us about the Bill. Gift aid is worth £1 billion a year to charities, so we must ensure that it is considered properly.

[Stewart Hosie]

The hon. Gentleman spoke about the principle of pooling and sharing, and I have heard that argument before. However, if it were a real principle, it would apply to the aggregates levy, landfill tax, air passenger duty and other small taxes that have been devolved. There is no principled reason why it is required to be applied to income tax. He rather gave the game away when he spoke about the ability to vary the rate by 3p either way, which was the original plan, and the ability to set the first 10p of income tax. Why does he think that so little is enough for a nation like Scotland? Why is he so afraid of giving our national Parliament all the powers it needs to tax income properly?

[Ian Murray]

What the hon. Gentleman is asking for is full fiscal autonomy. There are many amendments that will allow us to have a full debate about that later this evening, but I fundamentally disagree with that principle because the pooling and sharing of resources is important. The difference between income tax and the aggregates levy, landfill tax and all the other taxes he mentioned is that they are removable taxes, whereas income tax is not. We should be pooling and sharing resources, and we should therefore ensure that the significant sum of £11 billion is part of the overall matrix of the United Kingdom.

As I said at the start of my speech, I do not disagree with everything that the hon. Gentleman said, but we disagree on the fundamental principle of pooling and sharing. His speech was completely reasonable in terms of what he is seeking to achieve, but Labour Members simply disagree with the broad principle of not pooling and sharing. There is no right or wrong on these issues in terms of what should be devolved; the issue is whether one believes in these broad principles or not.

I find it difficult in these debates to have 56 SNP MPs braying at me from behind, when I am actually agreeing with them. I have no idea what they will be like when I disagree with them. I am paying a compliment to the hon. Member for Dundee East, which I do not do often, and he is still unhappy with my contribution. Never mind; given that they have signed most of our amendments to the welfare clauses, perhaps we will be much more collegiate tomorrow.

I was explaining new clause 32. The Scottish Affairs Committee report on the fundamental principles of the Smith agreement, which was published in March, said:

“The Smith Agreement represents the best of both worlds. It presents Scotland with much greater powers over taxation, meaning for the first time the majority of the money the Scottish Government spends will be paid for by its own taxation. This will make it more fiscally accountable to the people of Scotland for how it spends their taxes.”

I am confident that the income tax provisions in the Bill strike the right balance between reserved and devolved taxation, although I agree with the hon. Member for Gainsborough that some movement might be required in the future.

I believe that these clauses are in the spirit and the letter of the Smith agreement and the vow. The vow is quite concise on these issues. It says very little or nothing at all about taxation. One thing that it does say, which goes back to the pooling and sharing of resources, is that the Barnett formula should be maintained. The Bill and the Smith agreement are utterly in accord with that stand.

--- Later in debate ---

[David Mundell]

The Scottish Government already have to manage their finances by building in estimates of revenue. That is part of the system in which we operate and part of the decision to have a United Kingdom-wide tax. I will come on to that point in a moment.

The Deputy First Minister has confirmed that the Scottish Government are already considering using the tax powers that they will shortly receive under the Scotland Act 2012 to put up income tax. The powers contained in these clauses will increase the scope for action considerably. With the SNP in government, Scots might pay the highest income tax in the UK. Perhaps the party will dust down its old “penny for Scotland” policy, although now, with inflation, it might need a little more.

[Stewart Hosie]

Will the Secretary of State please tell the House which person in the Scottish Government has suggested that income tax is going up in Scotland?

[David Mundell]

The Deputy First Minister, Mr John Swinney.

Ruth Davidson, however, has set out the Scottish Conservative position by saying that Scotland would never have higher rates of income tax than the rest of the UK. If people elect Scottish Conservative MSPs next May, that is what they will get. Scots voted decisively to remain within a United Kingdom. The UK is more than just a name and a flag; it is a social and fiscal union in which risks and rewards are pooled and shared. The Smith commission looked closely at a range of tax powers and agreed on a package of devolution that enhances Scotland’s place within the United Kingdom. It strikes the right balance, by empowering the Scottish Parliament, while maintaining the UK’s strength and coherence. There is a good reason for transferring every power that we are devolving in the Bill, and a good reason for keeping in reserve everything that we are not devolving.

Turning to amendment 124, devolution of income tax is a significant step, but it is important to remember that in the independence referendum only last September, the Scottish people decisively opted for the security of being part of the UK family of nations, and part of that is a single, cohesive income tax system. That is why HMRC will administer Scottish income tax for the Scottish Parliament as part of its UK-wide management of income tax, thus minimising the burdens on employers and individuals. It is also why the Smith commission—which it is important to remember all parties present in the Scottish Parliament signed up to—specifically decided after careful consideration not to devolve the personal allowance.

--- Later in debate ---

[Wayne David]

No, of course not. What I am saying is that it would have been far better if the Government in Scotland and the Government in London had sat down maturely and worked things out for the benefit of services in Scotland rather than pursue a fixation with the idea that things had to be brought together on a centralised basis in Scotland, irrespective of the consequences. The Government were absolutely adamant on this. Presumably they could not find parliamentary time, or did not have the political inclination to bring forward an amendment to have a scheme that would have benefited everyone.

The sensible thing would have been to do precisely what I have said, but that is in the past. The important thing now is to move forward and resolve this situation. Our proposed new clause 20 calls for a review of the situation. It is a modest request, which I very much hope that the Government will accept. If they do accept it, it could provide an opportunity for everyone to get together and, hopefully, resolve the issue.

It has been suggested by the Scottish Council for Voluntary Organisations that VAT rebates should be devolved so that they better conform to devolved policy to support society and public services. A suggestion has been made that the UK Government could allocate a Barnett formula-based share of the VAT rebates to the Scottish block grant. That is one possibility, but, like all the other suggestions, it needs to be soberly and carefully discussed. It could be a part of the review that we propose. I hope that the Government will accept our amendment so that we can have that meaningful discussion and reach a decision for the benefit of Scotland.

[Stewart Hosie]

It is a pleasure to take part in this debate on clause 15 stand part and proposed new clause 20 in the name of the Labour party.

Let us turn to the way that the Smith commission has spoken about the assignation of a proportion of VAT. It said:

“The receipts raised in Scotland by the first 10 percentage points of the standard rate…will be assigned…All other aspects of VAT will remain reserved.”

The Scottish Parliament Information Centre analysis for the Scottish Parliament Devolution (Further Powers) Committee referred to it in its interim report on the draft Scotland Bill clauses. It said:

“Draft clause 13 [now 15] would give effect to the Smith Commission recommendation that the Scottish Government be assigned receipts from the first ten percentage points of VAT. With the agreement of both governments it also proposes to go slightly further by notionally assigning 2.5 percentage points of the reduced rate of VAT as well…The amount of VAT receipts attributable to Scotland is to be the subject of an agreement between the UK Government and the Scottish Government.”

It did point out that there are no draft clauses in relation to the corresponding adjustment to the block grant. Hopefully, the Minister will confirm that that does not require legislation. In effect, the Scotland Bill proposes the assignation of half of VAT receipts to the Scottish Parliament. However, that will provide no actual control of VAT.

The Devolution (Further Powers) Committee had no particular concerns with the draft clauses, but it did want details of the assignment of VAT revenues and the share of any benefits to be produced—the mechanics of the assignment—before the Scottish Parliament could be expected to give its legislative consent. The committee said:

“There is still significant uncertainty on how the assignment of a share of VAT revenues will be calculated and whether the Scottish Government will be able to reap the rewards of any economic stimulus that yields higher VAT revenues.”

It is also worth noting that the Devolution (Further Powers) Committee’s analysis paper, which set out the differences between the draft clauses and the published Bill, noted that:

“No further detail is provided on the assignment of VAT revenues, or the corresponding block grant adjustment.”

There are a number of technical issues for consideration notwithstanding the fact that there is no particular issue with the legislation as such.

The committee’s interim report considered the evidence on VAT assignment from a range of sources. It said that the bulk of the evidence received by the committee, while welcoming the principle, called for greater clarity in how the assignment of revenues would work. As the Institute of Chartered Accountants of Scotland told the committee:

“Clause 13 in the ‘Draft Scotland Clauses 2015’ regarding VAT delivers the mechanics of the assignment of VAT, but with the large caveat that it applies ‘where there is an agreement between the Treasury and Scottish Ministers’...The rules for agreeing this have not been provided and it may not be easy to identify ‘Scottish VAT’”.

I take on board what the Scottish Secretary said earlier about not giving a running commentary, but on that specific point—and I shall have more specific questions—at least I hope we can get clarity.

In oral evidence to the Scottish Parliament committee, Charlotte Barbour of ICAS elaborated:

“The assignment of VAT offers more opportunity for discussions on how that might be calculated. It slots in with the difficulties with the fiscal framework”—

we discussed those in the last debate—

“and some of the no-detriment issues”—[Scottish Parliament, Official Report, Devolution (Further Powers) Committee, 5 February 2015; c. 4.]

I mentioned those previously. The Scottish Trades Union Congress was broadly supportive of the assignment of VAT. Its deputy general secretary told the Committee that

“I am quite a fan of assigned revenue”,

but he took the point that

“it is not a power in the sense of being usable to promote particular behaviours”.

However, he said:

“A degree of assigned revenue clearly rewards the Scottish Government for economic growth and, in our view, the closer we get to an amount of revenue that is derived from positive actions undertaken by the Scottish Government, the better.”—[Scottish Parliament, Official Report, Devolution (Further Powers) Committee, 15 January 2015; c. 13.]

I do not think that any of us would disagree with that. We want responsibility, which rather prompts the question that given that there is no control over VAT, why assign only half of it? Why not assign it all? The Scottish Government could then quite rightly benefit, if there was a benefit, from the entire rise in VAT in Scotland rather than just half of it and could take responsibility if there was a shortfall, not just for half the shortfall.

Speaking to the committee, John Swinney, the Cabinet Secretary for Finance, Constitution and Economy, highlighted two issues for discussion with the UK Government, which are both important:

“One is establishing the analytical base for how VAT should be apportioned and the other is the policy question of guaranteeing that if those estimates are exceeded, Scotland retains the benefit of that improved economic performance”.—[Scottish Parliament, Official Report, Devolution (Further Powers) Committee 12 March 2015; c. 26.]

The former Secretary of State for Scotland also commented on the issue of VAT in a letter to the Committee, in which he said that he could

“confirm that VAT assignment will link the Scottish Government’s budget with economic activity in Scotland, providing incentives for growth. The amount of VAT to be assigned…will be based on an estimated share of the total VAT generated in the UK...The UK and Scottish Governments will need to agree a methodology”.

Will the Minister provide further details, not on the specific discussions with the Scottish Government but on the themes? What are the options for how VAT will be assigned? Will it, for example, be a consumption-based approach? How can we improve the robustness of the measure and the timescales, for example by improving the survey data? What will be the costs of implementation and how will they be met? Does there need to be a proxy measure over a transition period until the methodology is robust? Has any thought been given to indexation and comparable measures of growth? What has been said about governance and accountability, for example developing a separate strand to the memorandum of understanding with the HMRC on VAT to expand the role of the project board?

The question of the robustness of the survey data is vital. At present, VAT is estimated by the Scottish Government in the Government Expenditure and Revenue Scotland report, based on a household survey of expenditure, therefore missing tourism spend entirely. That is corrected by a percentage share adjustment, meaning that the Scottish Government estimate what percentage of UK tourism happens in Scotland, but if the Scottish Government managed to increase tourism spend through other actions, such as reducing air passenger duty, that would not show up according to the current methodology. We therefore need to agree a new robust methodology and, perhaps, an interim measure until that methodology is in place.

As the Minister has said, VAT cannot be varied within a state and we understand and respect that. So let me repeat the question: why give only half rather than all, unless to camouflage the fact that the tax over which Scotland will have control will be such a small share of our tax base? Could the assignation of VAT revenue be designed simply to make that number seem a little bigger?

Let me turn to new clause 20, on the subject of VAT on Police Scotland and the fire service. We heard the hon. Member for Caerphilly (Wayne David) describe the amendment, which proposes a review of the application of the VAT refund scheme for business in Scotland. It has been tabled with the intention, it would appear, of addressing the anomaly of the inability of the Scottish Police Authority and the Scottish Fire and Rescue Service to reclaim VAT. Although we agree that that is an inequitable position for both services, we do not necessarily believe that a review is the way to address it. Instead, the UK Government—as the hon. Gentleman said, where there is a will, there is a way—should simply amend the VAT status of the single police service and fire and rescue service in Scotland.

--- Later in debate ---

[Wayne David]

rose—

[Stewart Hosie]

In a moment. We think that the better approach to fix the problem might be through a forthcoming Finance Bill after the Budget in July, but nevertheless we are happy to back the new clause today if Labour presses it to a vote.

[Wayne David]

I was going to ask the hon. Gentleman if he was going to support us, but he has pre-empted me. It is very good that he will, because, of course, the SNP did not table an amendment on this issue. I thank him.

[Stewart Hosie]

We did not table an amendment because there was not an amendment that we could table to fix the problem. As I have just said, that requires an amendment to a Finance Bill. One might have thought that an experienced old hand like the hon. Gentleman might have known that and advised his younger and less experienced colleague, the shadow Secretary of State, on how things work. Having said that, and that we are happy to support new clause 20, I will sit down and hopefully we can move on.

[Mr Alistair Carmichael]

I rise to say a few words in support of new clause 20, tabled by the hon. Members for Edinburgh South (Ian Murray) and for Caerphilly (Wayne David). When considering schemes such as those that lie at the heart of the new clause, it is worth starting with the principle that underpins them. Is it, as the Financial Secretary to the Treasury suggested, the principle that local government finance should not go straight into Treasury coffers? I can understand that principle and it holds water in so far as it relates to the scheme for police and fire services across the UK, as originally envisaged. The difficulty for the Minister, however, is that there are other schemes of a similar nature that go beyond the ambit of police, fire and other rescue services. The hon. Member for Caerphilly mentioned one related to the national health service.

The principle that underlines such schemes is fairly sensible—that for public services to pay money back into the Treasury is essentially an exercise in robbing Peter to pay Paul. It only creates work for accountants and achieves no public good. There is a more fundamental principle at stake, however, in the proposal before the Committee and in the new clause tabled by the Labour party. That is the principle that there should be equality of treatment across the board and across the United Kingdom. The hon. Member for Aberdeen South (Callum McCaig) hit the nail on the head when he referred to the pooling and sharing of risks. I think I have perhaps a greater commitment to that principle than he has, but I must say in all candour to those on the Treasury Bench that if they are sincere in their belief that risks and rewards should be pooled and shared across the UK, whatever the technicalities this situation should not be allowed to continue. Whether it is done through the review in the new clause or through action in the forthcoming Finance Bill, amendments for the sake of the continued constitutional integrity of the United Kingdom should be produced in early course.

--- Later in debate ---

[Mr Gauke]

The Isle of Man has different constitutional arrangements. What we are proposing is consistent with the conclusions reached by the Smith commission.

The hon. Member for Dundee East (Stewart Hosie) made a number of technical points about how that will work. I accept that a number of details will need to be worked out as part of the fiscal framework. There is a need to agree the methodology for estimating how much VAT is generated by Scotland and by the rest of the United Kingdom. The UK and Scottish Governments will also need to agree the operating principles, including mechanisms for verifying that the methodology has been applied correctly, how many adjustments might be carried out and arrangements for audit and transparency, including publication of results. It is worth pointing out that other countries operate similar systems and could provide a reasonable starting point from which to build.

Again, those considerations will be part of the fiscal framework, and I think that it is agreed on all sides that it would not be helpful to provide a running commentary on it. Of course, there have already been meetings with the Deputy First Minister and the Chief Secretary to the Treasury on some of those points. All I will say to the hon. Member for Dundee East is that the UK Government are determined to work constructively, as I am sure the Scottish Government are, to ensure that we reach an agreement that is fair and reflects the appropriate assessment that should be made.

[Stewart Hosie]

I thank the Minister for that answer; it is genuinely helpful, as he always is. However, will he confirm for the Committee that the agreement will be reached in good time for the Scottish Parliament to consider it fully before any legislative consent motion has to be passed?

[Mr Gauke]

It is kind of the hon. Gentleman to say that I am being helpful. In the spirit of continuing to be helpful, let me say that I certainly hope that that will be the case, but of course agreements will require both parties to act in a co-operative way, which I have no reason to doubt will be the case.

With those remarks, I hope that the Committee will support clause 15 and that I have said enough to persuade the Labour party not to press new clause 20.

Question put and agreed to.

Clause 15 accordingly ordered to stand part of the Bill.



Clause 16

Tax on carriage of passengers by air

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Graham Stringer]

I do not agree with the point the hon. Gentleman makes in his fourth intervention. Demand management is not the solution for our regional airports, which have huge extra capacity, but if I went down that line, I expect you would rule me out of order, Mr Crausby. I look forward to the Financial Secretary’s response.

[Stewart Hosie]

I will come on to the comments made by the hon. Member for Blackley and Broughton (Graham Stringer) in a moment.

The provisions relating to the devolution of air passenger duty—I will concentrate on the duty, rather than the aggregates levy or the further provisions in clause 18—were set out clearly in the Smith agreement:

“86. The power to charge tax on air passengers leaving Scottish airports will be devolved…The Scottish Government will be free to make its own arrangements with regard to the design and collection of any replacement tax, including consideration of the environmental impact.

“87. In line with the approach taken in relation to the Scotland Act 2012, if such a tax is introduced by the Scottish Parliament to replace Air Passenger Duty (APD), the Scottish Government will reimburse the UK Government for any costs incurred in ‘switching off’ APD in Scotland.”

Given that they simply would not collect it, I do not imagine those costs would be very high. The provisions also require:

“88. A fair and equitable share of associated administrative costs will be transferred to the Scottish Government. The…block grant will be adjusted”.

A wide range of organisations that gave evidence to the Scottish Parliament Devolution (Further Powers) Committee backed the devolution of APD, including the Institute of Directors Scotland, Glasgow chamber of commerce, the Scottish Chambers of Commerce and the Scottish Council for Development and Industry. As the report says:

“This was coupled with support for either a reduction or scrapping of this duty after devolution had taken place.”

The Scottish Parliament Information Centre analysis for the Committee, referred to in the report, found that:

“Draft clause 14”—

now clause 16—

“would make this a devolved tax, as recommended by the Smith Commission. It would give HMRC the ability to ‘switch off’ these UK taxes in Scotland from a date to be set by secondary legislation.”

As with many of the clauses we have discussed, there is no recommendation as to how the transfer would work or how the block grant would be adjusted, but, as I understand from other clauses, there is no requirement for legislation to achieve that. Essentially, the legislation delivers on the Smith agreement in the way anticipated. We have no concerns with the drafting of the clause, which did not change between the Command Paper version and the Bill.

In terms of the policy approach on air passenger duty, on which much of this clause stand part debate is centred, the Scottish National party supports the devolution of air passenger duty to the Scottish Parliament. We are pleased that the Scotland Bill will deliver this recommendation. We have previously set out our proposals to halve APD when control over the tax is devolved, and we fully intend to abolish it when public finances allow. We believe that taking that action will encourage greater tourism and investment in Scotland, boosting our economy and creating new jobs.

There are a substantial number of benefits for consumers from the reduction of air passenger duty, not least because the UK levies are some of the highest aviation taxes in the world—indeed, APD is relatively rare in other countries. APD is currently £71 for an economy class long-haul flight, which is extraordinary—that is over 2,000 miles. Abolishing APD would mean that a family of four, with children over 12-years-old, would save something under £300 per long-haul flight—a substantial saving by any measure. Reducing APD would therefore save consumers money, and, in certain circumstances, significantly reduce the cost of family holidays.

There are broader economic benefits from a reduction in air passenger duty. A report commissioned by Edinburgh airport in March 2015 found that a reduction in APD would bring considerable economic benefits to Scotland. The report argued that the Scottish Government’s policy of halving APD in the first instance would create new jobs, and that a failure to take action would cost Scotland tourists and tourism revenue. Its key findings included the fact that a 50% reduction would provide benefits to Scotland worth £200 million a year, meaning a £1 billion economic boost over the lifetime of a Parliament; and that a 50% reduction would bring considerable benefits to local communities, creating something in the order of 3,800 new jobs by 2020. On the other hand, it was estimated that we could lose out on about 1 million passenger journeys a year if APD was not reduced. Again, by 2020, that would cost the Scottish economy up to £68 million in lost tourism expenditure every year. It is clear, therefore, that devolving and reducing APD would have a considerable economic impact on Scotland and that failure to act would mean Scotland missing out on significant tourism and hospitality revenues.

We have heard what happened in the Republic of Ireland and Northern Ireland. Although the 2014 study by Ulster University was a little more ambivalent and suggested only a limited number of scenarios in which Northern Ireland might benefit, supporters of a reduction pointed to the success of this approach in the Republic of Ireland. As the BBC reported:

“Tourism NI chairman Howard Hastings said: ‘If you compare with our nearest neighbour in the Republic of Ireland, in the two years since they abolished air passenger duty, they've seen arrivals grow by 1.1 million passengers.’”

It is self-evidently a success, and if we can replicate that, we can deliver the benefits I have described. If we do not, we will face the cost of failure.

The hon. Member for Blackley and Broughton and others tabled amendments that are not being debated—although the debate has been very similar to the one I would have heard had we been debating them—and expressed concern that the devolution of APD to Scotland would disadvantage airports in the north of England, as travellers journey across the border to Scottish airports in order to travel to holiday destinations abroad. The SNP makes no apologies for championing Scotland, and we believe that the reduction and eventual abolition of APD would benefit Scotland’s economy and tourism sector in particular. Its devolution is also a cross-party commitment agreed through the Smith commission.

Attracting more tourists to Scottish airports by reducing APD could also benefit the north of England by rebalancing the economy away from London’s pull and bringing more visitors to the northern parts of these islands as a whole. If one considers Edinburgh to be a hub airport, I am sure that businesses in the north of England would rather spend an hour on the train from Newcastle to Edinburgh than four, five or six hours on the cross-London journey to Heathrow, let alone travelling to a hub airport such as Schiphol or Charles de Gaulle. Edinburgh is the ideal solution for people from Durham, for example.

A stronger Scottish economy will also bring significant economic benefits to the north of England, as new trade and investment opportunities arise. However, we are concerned about some of the UK Government’s threats in relation to APD—this relates to what the hon. Member for Blackley and Broughton said about competition. During the election, the Prime Minister astonishingly expressed concerns that a reduction in APD would “distort competition”. He said:

“The SNP government in Scotland is committed to using its new powers to cut and eventually abolish air passenger duty for flights from Scottish airports. That could distort competition and see business drawn north of the border with a huge impact on airports in the rest of our country so we’re reviewing the way air passenger duty works to make sure other cities don’t lose out”.

Devolving and amending APD is not a distortion of competition; it is competition.

The Prime Minister’s comments chimed with his so-called Carlisle principle. It was reported that the Prime Minister had

“outlined plans for an annual review of the impact of Scottish Devolution on the rest of the UK. He announced what he’s calling the ‘Carlisle principle’”.

He did that during a speech in Crewe—one would think he would go to Carlisle to do it, but Crewe it was. He said that the aim was to make sure that policies devolving more power to Scotland did not have a negative impact on other parts of the UK—in areas such as air passenger duty, tax rates, university tuition fees or energy policy. If only we had thought of that, we would not have abolished the subsidies for onshore wind.

The Prime Minister said:

“I want to set out a new principle—you could call it the Carlisle Principle—that we will make sure that there are no unforeseen detrimental consequences to the rest of the country from Scottish devolution, for either England, Wales or Northern Ireland.”

Will the Minister explain what the Carlisle principle—whatever it actually is—will mean in practice for the devolution of APD? I hope that when he gets up, he will say precisely nothing.

--- Later in debate ---

[Ian Murray]

That is a rather strange intervention. If Members read new clause 1 and new clause 21, they will see very clearly that what we are asking for is an independent commission to analyse the consequences for Scotland of full fiscal autonomy. If the SNP is so confident about its figures, it should back that proposal and then we will have the transparency, impartiality and independence of those policies. If it is so confident that it was not fiddling the figures, it should help us to set up a Scottish office for budget responsibility and let that body analyse its figures. However, it is clear once again that, when we shine the light of scrutiny on SNP policies, its Members want to talk about the process but not look at the impartial and independent evidence before us. If they are so confident, they will back new clause 1 and new clause 21 and bring much needed transparency, credibility and accountability back to the Scottish Parliament’s finances.

[Stewart Hosie]

We have just listened to one of the worst speeches I have heard in 10 years. The Labour party now has one argument: we have gone from being too small, too poor and too stupid for independence to being too small, too poor and too stupid for any powers at all. The hon. Member for Edinburgh South (Ian Murray) spoke about something that was “credible”. Credible? The Scottish people decided what was credible at the election in May, and they did not say it was his party. He spoke about right-wing, Thatcherite Tories, but it sounds to me like the core vote of the only Labour MP left in Scotland.

New clause 33, which stands in my name and those of my hon. Friends, would require the Scottish and UK Governments to enter into an economic agreement setting out a plan for implementation of full fiscal autonomy for Scotland and establishing a framework within which the two Governments co-ordinate their economic and fiscal policies in the context of full fiscal autonomy for Scotland. The Scottish Parliament and Government would have competence for revenue raised in Scotland through taxation and borrowing and for determining levels of public expenditure in or as regards Scotland.

We see the framework including arrangements for facilitating fiscal co-ordination, overseeing economic co-operation, safeguarding fiscal sustainability, and setting out the joint responsibilities in certain areas. In the agreement, the two Governments must seek to ensure the maintenance of monetary stability throughout the UK and the single market of the UK and the EU. They must also ensure co-operation in the exercise of all the respective functions relating to the administration and collection of taxes and an equitable and transparent approach to the consequences, resources and rewards. The Scottish Parliament and Government would retain the benefits of increased tax revenues as a result of positive policy impacts and would have the powers they need to manage the consequences of full fiscal autonomy.

I turn briefly to new clauses 1 and 21. New clause 1 would require that a Tory Secretary of State appoint a commission of between four and 11 members, none of whom can be a Member of Parliament, a Member of the Scottish Parliament or an employee thereof. It is backed by Labour and United Kingdom Independence party Members, so we have a Labour amendment backed by UKIP asking a Tory Secretary of State—

[Ian Murray]

rose—

[Stewart Hosie]

No, no, no.

The new clause asks for a Tory Secretary of State to appoint a commission of the great and the good from the House of Lords to determine Scotland’s future. What a lot of absolute rubbish!

[Ian Murray]

On that point, Madam Deputy Speaker. For the sake of clarity, the Committee will know that the procedure of this House is that any hon. Member can sign any amendment they so wish.

[Stewart Hosie]

So we have confirmation—Labour and UKIP hand in hand, empowering the Tories to run the rule over Scotland again.

As for new clause 21 on a Scottish OBR, we already have one—it is called the Scottish Fiscal Commission. The consultation on its expanded power closed on Friday. One would have thought that Scotland’s sole Labour MP might actually have known what was going on.

New clause 33 would have the Scottish and UK Governments enter into an economic agreement that set up a plan for the implementation of full fiscal autonomy and establish a framework within which the two Governments would co-ordinate their economic and fiscal policies in the context of full fiscal autonomy. That would mean the Scottish Parliament and the Scottish Government having competence for determining revenues raised in Scotland through taxation and borrowing, and for all of the spending, paying compensation to the UK for shared services. This is the right approach to take. I am just disappointed that we did not have proper time to debate it rather than being subject to the nonsensical rant and talking Scotland down by the so-called shadow Secretary of State. By taking responsibility for key areas of Scottish life, we can improve the Scottish Parliament’s ability to deliver real progress for the Scottish people. New clause 33 does that. It rejects the miserablist approach of the Labour party, and I commend it to the Committee.

[David Mundell]

I do not need a commission to tell me what a disaster full fiscal autonomy would be for Scotland. The hon. Member for Dundee East (Stewart Hosie) set out the facts, and the facts are clear—a £10 billion black hole for Scottish taxpayers to fill. We do not need a commission to tell us that.

I do not accept the new clause on a Scottish OBR, because one thing that the hon. Gentleman said is correct—it is for the Scottish Government to determine for the people of Scotland how they will ensure independent oversight of fiscal policy. The UK Government would like legislation brought forward by the Scottish Government to be consistent with OECD principles for best practice in independent fiscal institutions. We therefore look to have those discussions during the negotiation of the fiscal framework.

I therefore reject the new clauses and propose that we pass the clauses as stated.

Question put, That the clause be read a Second time.

Oral Answers to Questions

Stewart Hosie Excerpts

Tuesday 16th June 2015 Commons Chamber

[Mr Osborne]

I certainly commend my hon. Friend for his consistency. I remember that in his maiden speech he made the case for Britain leaving the European Union, and he will of course have his opportunity in the referendum. I would say that this is precisely the judgment that the British people and this Parliament have to make: what are the economic benefits of our European Union membership, such as the single market, and what would be the alternative? That will be part of the lively debate, and as I say, the Treasury will be fully involved in that debate.

[Stewart Hosie (Dundee East) (SNP)]

There have already been a number of serious interventions in this debate suggesting that the in/out referendum will be disruptive for inward investment. At the very least, businesses seeking to invest need the certainty of knowing what the Chancellor believes success will be in the Prime Minister’s negotiations. Will he tell the House today what he considers success in terms of the outcome of the Prime Minister’s negotiations?

[Mr Osborne]

There are, of course, a number of things that we want to achieve. Speaking as the Chancellor of the Exchequer, I want to ensure that the European Union works for the citizens of the European Union and of the United Kingdom. That means that it must be a place where businesses want to grow, where jobs are created and that attracts investment from around the world. I do not want Europe to be the place that used to be the dynamic centre of the world, but is not any longer. That is what we are fighting for, and if we achieve it, it will be a success.

[Stewart Hosie]

We all want to see a dynamic EU, but there were no specifics in that answer. Is it not the case that however bad the negotiations, the Chancellor will declare them a success, and however good the negotiations, the out-at-any-cost brigade will declare them an unmitigated disaster? Instead of pandering to the UKIP agenda, should the Government not pull the whole idea of this daft referendum?

[Mr Osborne]

I do not want to say this to the SNP spokesman, but I am not sure that he is speaking for Scotland, because 58% of Scots want a referendum and 63% of SNP supporters want a referendum. He needs to get in touch with his grassroots.

The Economy

Stewart Hosie Excerpts

Thursday 4th June 2015 Commons Chamber

[Stewart Hosie (Dundee East) (SNP)]

It is a pleasure to propose the amendment in my name and those of my right hon. and hon. Friends. It is also a great pleasure to follow the right hon. and learned Member for Rushcliffe (Mr Clarke). He talked earlier in his contribution about the bizarre events in Scotland. We tend to call it democracy. In the same way as the Chancellor spoke about the good sense of the British people, I might say that, with 56 out of 59 MPs and half the vote, we celebrate very much the good sense of the Scottish people—a true one nation in every sense.

The Chancellor spoke about the challenges the Scottish economy may face. He spoke about fiscal autonomy and what he called a massive hole. I just say gently to him that any challenges on the Scottish current account are as nothing compared with a £1.6 trillion UK national debt built up by Labour and Tory alike.

The Chancellor laid out his plans today. For our part, the last thing that the country needs, that the economy can afford and that those who have suffered most over the past five years should be expected to bear is another austerity Government. Yet that is exactly the direction of travel laid out today: a continuation of vague talk about a long-term economic plan, where none really exists; hubris about so-called economic success, most of which is contradicted by fact and a litany of broken promises; and a complete disregard of the impact his policies have had, are having and will have over the next five years on people through the UK—and that is before we even start to talk about the impact on investment for growth and on our vital public services.

We know the impact those policies have had throughout the UK. We know what has happened in Scotland specifically since 2010. We have seen the budget cut by about 11% in real terms and capital expenditure down by 34%. As a result of decisions taken by this Chancellor, the budget in Scotland has been cut by a staggering £3.5 billion in real terms. The plans announced throughout the election and reiterated today—before the bombshell of in-year cuts, which we will analyse further later—will result in a cumulative share of cuts to day-to-day spending over the next five years for Scotland worth about £12 billion at today’s levels. Those cuts to Scotland and elsewhere are the consequence of the Chancellor’s economic failure.

It is worth reminding ourselves what the Chancellor said when he took office: debt would begin to fall as a share of GDP by last year; the current account should be in balance this year; and public sector net borrowing would fall to £20 billion in the same year. Debt did not fall as a share of GDP in 2014-15, the current account will not be back in the black until 2017-18, and public sector net borrowing—the Chancellor can smirk all he likes—was not the barely £20 billion he promised: it was almost four times that at £75 billion. The Chancellor failed to meet every one of the key targets he set himself. Tory policy stifled recovery from 2010 for years into the previous Parliament. With a cumulative £146 billion of cuts still to come, we are all on track for a decade of austerity.

We know where the pain of this has been felt and we know where the pain of it will be felt. In Scotland, 145,000 households affected by changes to incapacity benefit will lose about £2,000 each.

[Mr Osborne]

If the hon. Gentleman, who speaks for the Scottish nationalists, opposes these spending cuts, why does he not increase taxes and use the powers available to the Scottish Government? He could then spend more money.

[Stewart Hosie]

We do not need to increase taxes in the way the Chancellor describes. He knows perfectly well, and I will come on to it shortly, that there is a way of managing the economy in a fiscally responsible way that allows an increase in spending while the debt and the deficit continue to fall. He may disagree with me—I respect that—but he had better respect that this is a genuine alternative vision to the cuts coming from his party.

The pain will be felt by the 145,000 households affected by changes to incapacity benefit, the 370,000 who have seen tax credits reduced, and the 620,000 families hit by child benefit freezes. It will be felt by the 120,000 people who have lost an average of £2,600 as disability living allowance was removed. I am glad the Secretary of State for Work and Pensions is here to hear this. He can perhaps begin to understand that this is not a theoretical cut in a back office, but a real cut to real people’s living standards throughout the UK. It will be felt by the 835,000 households hit by the increase in the benefit cap. Why are these decisions wrong? There is now a substantial growing body of opinion, as the right hon. Member for Doncaster North (Edward Miliband) said, that we do not simply need a growing economy to fund our welfare provision; we need to squeeze inequality out of the system to provide a solid platform to grow the economy.

[Andrew Bridgen]

The hon. Gentleman rightly basks in his electoral success and that of his party. Is he as relieved as I am that the right hon. Member for Doncaster North saved the best speech I have heard him give until after the general election? Will he join me in offering the right hon. Gentleman some solace, regardless of the right hon. Gentleman’s son’s remarks that he used to be famous? He will be very successful again in the future and it is far better to have been a has-been than a never-was.

[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.

[Several hon. Members]

rose—

Finance (No. 2) Bill

Stewart Hosie Excerpts

Wednesday 25th March 2015 Commons Chamber

[Stewart Hosie (Dundee East) (SNP)]

The hon. Lady is absolutely right that that rate of tax should have gone up to 50p during the downturn and that it should not have been cut. She is equally right to compare the tax cut for millionaires with the poverty of ordinary people, so why did Labour Members sit on their hands when we had the one opportunity not to have a tax cut for millionaires?

[Shabana Mahmood]

One of the things about the annual debate on the 50p rate is that the usual suspects make the same points in exactly the same way. We have heard that point from several members of the hon. Gentleman’s party. I say to him what I have always said—that we have had a consistent approach to the top rate of tax. There has been no change to that, and we will put it up to 50p if we are elected in a few short weeks’ time.