Budget Resolutions and Economic Situation

Part of Oral Answers to Questions — Electoral Commission Committee – in the House of Commons at 5:19 pm on 22 June 2010.

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Photo of Stewart Hosie Stewart Hosie SNP Chief Whip, SNP Deputy Leader, Shadow SNP Spokesperson (Treasury) 5:19, 22 June 2010

I appreciate that this is an emergency Budget. The emergency has been going on for some years. It was foretold by this Government, who said in opposition that they would introduce this Budget. They have had plenty of time to prepare, and they have done so as well as they possibly could. My criticism is that, if the Labour party did not have a comprehensive spending review with the pre-Budget report last autumn and if it did not have one with the Fiscal Responsibility Act 2010, in which it set out £57 billion of cuts in a single year, and if it did not have a CSR with the March Budget, which imposed real-terms cuts on the UK and Scotland this year-that criticism was made by the Tories in opposition, as well as by the Scottish National party, having heard the Chief Secretary's announcement of £6 billion in early cuts a month ago-perhaps we could have had one with this Budget, but I take the hon. Gentleman's point that the Government have been in power for only a few weeks.

Given the cuts that we have seen and the growth forecasts that have been laid out by the OBR, my assessment is that they can only add to the cumulative £25 billion shortfall in available public expenditure in Scotland over the next 13 years that is a consequence of the previous Government's plans. With an accelerated attack on the structural deficit, I fear that that cumulative figure may become worse.

The Chartered Institute of Personnel and Development has warned of overall UK unemployment pushing past 3 million. I genuinely hope that the OBR is right and that unemployment will peak this year at 8.1%. Time will tell, but I suspect that the cuts that we are likely to see will mean that that figure is optimistic. Of course, we hope that those who are in jobs will stay in jobs and that unemployment will not push beyond the forecast peak of 8.1%, because if it does, there will be a reduced tax yield, higher benefit costs and less spending in local economies. In short, today's plans, like Labour's at the previous Budget, might make the task of tackling the deficit and debt more difficult.

I suppose that my criticism of this Government is similar to that of the previous Government. We needed a credible deficit consolidation plan that took account of all economic circumstances, rather than a high-risk assault on public sector spending. Given that market confidence is based on the credibility of the deficit consolidation plan, rather than simply the speed of the cuts, I do not understand why the Government chose to use the Canadian model of perhaps 20% reductions over three years, rather than the New Zealand model over the medium term. The New Zealand model was equally successful, and such an approach would have allowed the UK Government to choose to take advantage of £50 billion of medium-term savings by cancelling Trident and its replacement.

Austin Mitchell made the point that sustained, above-trend growth in the economy is the real solution to the deficit and the debt. Given the tough situation that we are in, we need a proper, serious and sensible discussion about actions that have been taken, and indeed those that have not. Although I recognise that the Budget includes cuts in business tax and I welcome the move to reduce corporation tax, the decrease in capital allowances and the annual investment allowance will take £7 billion from business over the next four years. I wonder whether that approach will have a disproportionate impact on growing businesses that use the investment allowances, while benefiting firms that get on with their business and enjoy the corporation tax benefits but do not necessarily invest and recruit more people.

When the Government took the appalling decision to scrap video games tax relief, why did they not take their own advice, which was published only this month in the spending review framework, to

"Protect, as far as possible, the spending that generates high economic returns"?

One would have thought that we should be protecting and growing investment in that field, because it is exactly the kind of area that could generate the high economic returns demanded in the framework. When the money from the fossil fuel levy is sitting in an Ofgem account, why did the Government not decide to free it up for investment in Scotland's green future, instead of simply reviewing the position? Why, given that it was Conservative party policy, did the Government not move to introduce quickly a fuel duty regulator that would deliver fairness to business and stability to allow them to plan transport and haulage costs, instead of punting the proposal into the long grass?

It is clear that ordinary people will pay the price for the recession, as we see from today's announcements on VAT and benefits. The jobs and necessary spending power of ordinary people in the public sector will be lost. Many in the private sector might come under huge pressure when the public sector contracts awarded to the private sector dry up or end.

Much of the Budget might represent short-term thinking. The Public and Commercial Services Union estimates that there is some £123 billion in uncollected tax, yet this Government's plans, like those of Labour before them, could well lead to a reduction in the head count at Her Majesty's Revenue and Customs just when such people are needed most to maximise the revenue yield. Although I hope that I am wrong, there is a clear risk that the plan set out in the Budget will lead to a stagnation of growth. Perhaps Lord Mandelson's threat of 10 years of austerity under Labour will come true, albeit with different parties at the helm.

Whoever is in charge, it is obvious that Scotland can no longer afford to be tied to an economic policy set out in successive UK Budgets that could undermine public services when we need them most, lead to the loss of spending power as public sector employees lose their jobs, and result in public sector contracts in the private sector drying up, and still also be tied to a fiscal regime that, at least under this Budget, fails to deliver the agenda for long-term growth that Scotland and the Scottish economy desperately need.

It is time to take full fiscal responsibility for reshaping and growing the Scottish economy, with the transfer of fiscal powers and responsibility from Westminster to Holyrood; to give the games industry a chance to grow and prosper; to use the fossil fuel levy to invest in our green future; to ensure both that the deficit is tackled properly over the medium term and that we do not take risks with a short-term consolidation. My great fear about the Budget, as was the case with Labour's plans, is that while recovery is fragile, to suck out consumption, clearly in excess of 3%, 4% or, indeed, 5% of GDP in single years, almost certainly runs the serious risk of tipping the economy back into recession and, as I have said, of making tackling the deficit and the debt, which is important, more difficult rather than more straightforward.