Orders of the Day — Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 8:10 pm on 10th March 1999.

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Photo of John Swinney John Swinney Scottish National Party, North Tayside 8:10 pm, 10th March 1999

The hon. Member for Lincoln (Gillian Merron) commented earlier that newspaper headlines had been broadly favourable to the Budget. Of course that must be conceded—the Government have had a great day in the press. However, one press headline might not have cheered up one of the households in Downing street, because it stated that "The future's Brown". That might have gone down well at No. 11, but I suspect that it would not be the centre of attention at No. 10.

I welcome some of the measures in the Chancellor's Budget, especially the adoption of the l0p starting rate of taxation, a measure which clearly supports the position of low-income households.

The moves on pensioners, particularly the winter payment of £100 and the Chancellor's guarantee yesterday that that would be sustained throughout the term of this Parliament, are welcome, but I urge the Chancellor to ensure that that is protected against inflation.

The more direct and targeted support for children is equally welcome and shows a willingness by the Government to tackle direct support in the most effective way.

The measures on lower corporation tax, to which I shall return, are also welcome. The Government expressed scepticism when the argument for lower corporation tax was advanced by my party before the election. Their change of heart is welcome.

The Chancellor's growth assumptions have been the subject of debate today, and I join in the scepticism about them. The sweep of independent forecasters believe that the 1999 forecast adopted by the Chancellor is broadly double the mainstream position. The forecasts for the year 2000 settle at about half a per cent. lower than that made by the Chancellor. It is stretching credibility to assume that there will be such a lively bounce-back from the close proximity of recession as the Chancellor implies by his growth assumptions.

As we survey various economic information relating to the volume of job losses that have taken place in Scotland since the general election—there have been 14,000 job losses since May 1997, and only yesterday further job losses were announced in manufacturing in Scotland—the Red Book commentary on the position of the manufacturing sector and the downturn in manufacturing output illustrates the severity of the problem.

The Chancellor's growth assumptions are not just a point of academic interest—they are fundamental to the plans that he has announced. At column 175 of Hansard yesterday, the Chancellor gave an assurance that the delivery of the £40 billion of public expenditure envisaged in the comprehensive spending review was safe within the fiscal rules and assured as a result of the assumptions that underpinned the Budget. A great deal hangs on the Chancellor's ability to deliver those growth assumptions, especially in relation to valuable public expenditure programmes.

I am concerned about the fiscal and monetary balance that has been struck by the Chancellor in the Budget. The delivery of further fiscal loosening is clearly part of his judgment, but I fear that that may jeopardise the ability of the Monetary Policy Committee to deliver further interest rate cuts that will take our level to one comparable with European short-term interest rates, which are such an important factor in the competitive position of British companies. If that disparity continues, it will create a competitive disadvantage for our companies. Some of the beneficial business measures that the Chancellor announced yesterday will be undermined by this fiscal stance.

On the proposals for enterprise, I welcome the cuts in corporation tax, as I said. We should learn from some of our European counterparts that, by lowering the rates of corporation tax, we can expand the yield of tax generated to the economy.

I welcome the measures on small and medium enterprises, but I caution that new initiatives should not be allowed to clutter the existing SME support initiatives. Additional bureaucracy should not prevent resources from reaching front-line companies that could benefit from the new services.

Let me comment briefly on particular industries. In the Chancellor's statement yesterday, there was cursory reference to the whisky industry, which is fundamental to the economy of parts of Scotland. The £2.54 billion a year trade in the whisky sector underpins 12,5000 direct jobs in Scotland and 50,000 indirect jobs.

Hon. Members have commented extensively on the importance of spin doctors in the presentation of the Government's Budget programme. One of the national newspapers in Scotland ran a front-page story on Tuesday, speculating with a high degree of certainty that there was to be a 4 per cent. cut in the duty on whisky, and suggesting that that was due to intensive lobbying by the Secretary of State for Scotland.

That cut did not materialise. Whisky is still the most heavily taxed spirit in this country. Is it any wonder that sales of that important commodity are depressed? There was a 7 per cent. fall in sales in the UK last year, and declining revenues as a result of the depressed sales. In 1991–92, more than £1.7 billion in tax revenues were generated from sales of whisky, but, last year, the comparable figure was £1.5 billion. The opportunity to solve some of the problems in that sector have been missed in the Budget.

The other sector on which I shall comment is road haulage and the more general issue of fuel duty. I thought that the hon. Member for Ochil (Mr. O'Neill) was about to get himself into serious trouble with some of his remarks about road hauliers, but he saved himself. Road fuel duty is becoming an enormous problem to the economic health not just of rural and county constituencies, such as the one that I represent, but more widely across the economy.

I refer to comments made by Mrs. Pat Grant, the managing director of Norfrost Ltd., an important manufacturing company in the north of Scotland. The company manufacturers what used to be called white goods—refrigerators—at its factory at Thurso in the north of Scotland, and transports them for distribution throughout the world. Mrs. Grant estimates that the last increase in the fuel duty escalator put her company's costs up by £100,000. It is a large company which employs many people. The increase in fuel prices is becoming a serious issue in the manufacturing sector in Scotland. Mrs. Grant reckons that the fuel duty escalator is as big a competitive impediment to her business as the overvalued pound.

The compensatory measures from the rural transport fund announced by the Government—a 20 per cent. increase—do not address the problem for rural areas. In my constituency, a large rural part of Scotland, three rural petrol stations have been defined as being capable of benefiting from additional support from the rural transport fund, but one of them has already closed. What help is that to car users in the rural areas of Scotland? The Government must think carefully about future initiatives in the sector. We will oppose them on Monday night on that issue.

The Chancellor boasted in his Budget statement that he had delivered a public expenditure position that was £2 billion lower than the spending plans that he inherited. No wonder. The Government have confirmed that £211 million has been cut from Scottish education in the past two years. I can see no new money for public services in the Budget. If the Chancellor had £2 billion for tax cuts in the future, the public would have expected that to be directed towards public services. Even under the Government's current plans in Scotland, public expenditure will not recover to its level under the Conservative Government in 1994–95. The expectations of the Scottish people will be diminished by the Budget.