It is a pleasure to serve under your chairmanship, Mr Stringer, for what I believe is the first time. I congratulate Lee Rowley on securing this important debate, and I thank all Members for their input and their erudite performances. They have caused me to think quite clearly, and at length, about what they were saying.
[Steve McCabe in the Chair]
The hon. Gentleman is passionate in his beliefs about balancing budgets, and used one quote that I find particularly apposite: that according to President Madison,
“a Public Debt is a Public curse”.
I do not think we need to go back that far to see the difficulties with balancing budgets. The hon. Gentleman wants a hard rule, and at some point he mentioned a referendum that could take place if that hard rule were broken; he also promised not to refer to Brexit. Unfortunately, I am going to break that rule: I think Brexit is important, as it has huge implications for the direction of our budget process. He also spoke about inter-generational fairness, a matter that is close to my heart, and I take his point. He is many years younger than I am, and I think I am allowed to say that he has the passion of youth in his ideology, which I do not always agree with.
My hon. Friend Stewart Hosie made an erudite speech, especially in his description of the difficulties of forecasting when trying to get a balanced budget. He is absolutely right that past performances have shown how difficult it is to make accurate forecasts, and about how that will impact on this idea in its entirety. He referred to the New Zealand model, and we have also heard about models from the United States, Canada and Chile, as well as Greece, mentioned by Alex Chalk. There are lots of models and lots of places we could look to when considering this idea, but none seems to have the absolute answer.
The hon. Gentleman spoke briefly—for which I am grateful—but appositely. I have not forgotten Damien Moore, but as he mainly went on the attack against the Opposition, I will leave it to Peter Dowd to sum up what he said.
The Tories keep imposing deadlines for balancing budgets which they are missing. As far as the Scottish National party is concerned, their only interest is ideological cuts. Those cuts have not taken full account of circumstances at any given time, and in order to balance the budget, it has been impossible not to hurt those people whom some Members have already mentioned as needing the most from the public purse.
The Institute for Fiscal Studies has warned that wages have still not recovered to pre-crisis levels, and annual earnings are more than 3% lower than in 2008, with millennials the worst hit. Median earnings fell to £23,327 last year, 3.2% lower than in 2008, when the average wage was £24,088. People in their 20s and 30s have taken the biggest hit: those aged 30 to 39 have seen their earnings fall by 7.2%, to an average of £26,442, but I am not going to go on ceaselessly producing numbers. My children are affected by what has happened. It has not been a good idea to balance the budget on the backs of those people, and it is even more difficult for the Government when folk like Jonathan Cribb, a senior economist at the IFS, and Paul Johnson, director of the IFS, say as they did last year:
“The UK economy has broken record after record, and not generally in a good way: record low earnings growth, record low interest rates, record low productivity growth, record public borrowing followed by record cuts in public spending.”
If the UK Government genuinely wanted a balanced budget, they would not be giving a major tax cut to high-income earners. In sharp contrast with the Scottish Government, who are helping those on low and modest incomes, the Tory Budget gave a tax cut to the better off: it gave basic rate taxpayers £21 a year, compared with £156 for those on higher rates. Where the SNP has powers over tax in Scotland, it has introduced a progressive tax system, and 70% of all income tax payers will pay less tax this year on a given income than they did in 2017-18. If that were carried out across the UK, that surely would be something.
Scotland continues to have the fairest income tax of anywhere in the UK, with 55% of taxpayers paying less in Scotland than they would elsewhere in the UK. The draft 2018-19 Scottish budget aims for 99% of income tax payers in Scotland to pay the same or less than last year. Polling found that the public supported the SNP’s progressive tax changes for this year by 2:1—not something that we often hear stated in the Chamber. Conversely, it is not acceptable that the UK’s 2018 Budget gave the better off tax cuts at a time when those on low incomes continue to face tax squeezes on their income. Interestingly, the Government have rowed back on some of their proposed cuts. The UK Government fail to meet the Resolution Foundation’s test of spending £31 billion more to end austerity by 2022-23.
Scotland’s fiscal position is comparable to other parts of the UK, and revenue per head is the fourth highest among the UK’s countries and regions—£913 higher per person than the UK average, excluding London. Scotland’s fiscal deficit relative to its population is also better than that of Wales, Northern Ireland, and north-east and north-west England. The majority of advanced economies run a deficit; Scotland is not unusual in that regard, nor is the UK. Twenty-four out of 36 OECD countries ran a deficit in 2016, including the UK. The UK’s deficit stood at £40 billion in 2017-18, and as has already been mentioned, it has been in deficit for 53 of the past 60 years. I know that the hon. Member for North East Derbyshire wants to put an end to that, but we cannot put an end to it at the expense of the poorest and most vulnerable in our society. Scotland also has a deficit, but that has fallen by £1 billion in the past year alone, and is projected to fall further in the coming years, from 7.9% of GDP in 2017-18 to 7.4% of GDP in 2022-23.
It is difficult for this Government to talk about balancing budgets when they have not included Brexit in many of their forecasts. The Governor of the Bank of England, Mark Carney, says that Brexit has cost households £900 on average already and the Fraser of Allander Institute estimates that leaving the single market and customs union would cost 80,000 Scottish jobs.
Tough times lie ahead. Even if the UK signs a free trade agreement with the EU, Scotland’s GDP will be 6.1%—£1,610 a person—lower by 2030. It is clear that cuts to public services have markedly reduced life expectancy, with an even more significant impact in disadvantaged communities. Office for National Statistics figures show that the Tories have presided over a slowing of life expectancy increases. Between 2011 to 2013 and 2014 to 2016, improvements in a measure of life expectancy were the smallest seen in the 21st century. Is that what their ideology should lead us to?
The destruction done to the UK economy will have lasting effects on poverty and child poverty rates. The only way to avoid economic catastrophe is to stay in the single market and customs union permanently, and the UK Government have rejected that outcome. The Joseph Rowntree Foundation said last September that while child poverty rates are set to increase in spite of Brexit, many of the worst hit areas are
“highly exposed to change in trade with the EU and any loss of regional funding.”
According to the JRF, the benefits freeze will make a couple with two children £832 a year worse off by 2020. In those circumstances, can we continue to cut public spending to balance the budget?
UK private sector debt is staggeringly high, which will be a major risk in the next recession. It is now 5% of GDP. That is the largest percentage in the G7. The debt is 60% funded by capital real estate and the buying of leveraged loans. It is entirely reliant on external input. With tariffs and barriers, it is not sustainable. The Finance Committee heard last week that we face a painful adjustment post Brexit. The Bank of England has noted that personal unsecured debt now accounts for 40% of risk in its stress tests. As a nation, we are spending more than we earn. I know that is the point the hon. Member for North East Derbyshire made, and we would all like to see a balanced budget, as my hon. Friend the Member for Dundee East said, but we cannot continue to do that on the backs of the poorest and most vulnerable members of our society.