Scottish Grand Committee
Wednesday 8 May 2002
[Mr. Jimmy Hood in the Chair]
The Financial Secretary to the Treasury (Mr. Paul Boateng): It is a pleasure to appear before the Committee this morning to make a statement on the implications of the Budget for Scotland.
Five years ago our first Budget set out our objectives, our plans for reform and the disciplines to achieve economic stability, higher employment and sustained improvement in the level of prosperity, indivisible and enjoyed by all throughout England, Scotland, Wales and Northern Ireland. In his Budget statement this year, my right hon. Friend the Chancellor was able to report that the United Kingdom has enjoyed the lowest inflation and interest rates for 40 years. For the first time in half a century, unemployment is lower than in America, Japan and Europe. During the year just ended, we had the highest growth rate of any of our major competitors.
In Scotland, thanks to the successful partnership between the Government and the Scottish Executive, unemployment is the lowest for a generation. Employment is close to historic highs and long-term unemployment is down by 75 per cent. since 1997. Families are benefiting from the working families tax credit and pensioners are benefiting from the minimum income guarantee. Progress is being made.
In the past, when the main economies of the industrialised world had fallen, the United Kingdom entered weaker and suffered longer, unable to act because of higher inflation and borrowing. We have faced the current world downturn with low inflation and sound public finances delivered by our new monetary and fiscal frameworks. This time, the Bank of England has been able to adjust policy at the right time and in the right way. Last year, it cut interest rates seven times. With the support of fiscal policy, we have been able to safeguard both economic stability and growth.
Stability is not an economic abstraction. Households and businesses in all our constituencies have felt the concrete benefits. The latest data shows that Scotland has avoided recession and recent surveys point to increasing optimism in the business community. We should all take pride in that. On the platform of stability, our shared long-term challenge is to build a stronger enterprise culture with balanced growth throughout all regions and countries of the United Kingdom.
In this Budget, we are building on a platform of low taxation and introducing a package of targeted reforms aimed at encouraging innovation, updating the tax system and enabling business throughout the UK to compete in an increasingly dynamic world market. Industries operating in and out of Scotland,
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the financial services industry in Edinburgh, the electronics industry and the growth companies in pharmaceuticals, biotechnology and film have all entered into our considerations. We have encouraged investment in research and development, which is an investment in all our futures.
We have introduced a tax credit for larger companies and up to 100 larger companies in Scotland stand to benefit. Many more are already taking advantage of the tax credit for smaller companies. To enable companies to restructure without that essential decision being constrained by the tax system, we have established relief for companies disposing of substantial shareholdings. In the constituencies of hon. Members here today, 340 companies stand to benefit. To encourage businesses to take advantage of opportunities in the knowledge economy, we have introduced tax relief on the cost of intangible assets, including intellectual property and goodwill. Around 2,300 companies in Scotland will benefit from that.
The North sea oil industry is no stranger to innovation. The Budget sets out important proposals to support its sustainable growth. I know that all hon. Members will welcome that. [Interruption.] I very much sense that welcome from those sitting behind me, although there is a certain churlish scepticism from those on the Benches opposite. Hon. Members present must be used to that, but it is a new experience for me in relation to some of them.
Our shared aim must surely be to promote long-term investment in the North sea while giving a fair return to our people. The Budget includes two changes to the tax regime to raise revenues. We are introducing a supplementary charge at the rate of 10 per cent. on North sea profits and, to support new investment, we are establishing 100 per cent. first-year allowances for capital expenditure in the North sea. We are enabling the industry to invest in the long term and to ensure that the whole country feels the benefit of its ongoing success.
I should like to draw the Committee's attention to our decisions on the Scottish whisky industry. [Hon. Members: ''Hear, hear''.] That at least unites the whole Committee. We have decided to freeze the duty on whisky and other spirits for the fifth successive year. We are determined to support the competitiveness of the Scottish whisky industry. This is the longest period without an increase in spirits duty since the 1950s. Without the freezes, the cost of a bottle of whisky would now be 73p higher. As a result of this Government's actions, it is not. We should get some credit for that from Opposition Members.
After close consultation with the industry, we have also decided not to impose tax stamps on bottles of whisky and other spirits. We are genuinely concerned about the damage that such a measure could do to the industry's productivity and competitiveness, impacting adversely on an important section of the Scottish economy. Instead, we have decided that, as well as strengthening our front-line controls at ports and warehouses, we will work with the industry in a joint strategy to tackle fraud.
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In Scotland, small and medium-sized enterprises account for 57 per cent. of all private sector jobs—more than 1 million jobs in all—and 43 per cent. of total turnover. In 1997, we cut the small companies tax rate from 23p to 21p. In 1998, we cut it again to 20p, with a starting rate of 10p. Now, in 2002, it is going down again—to 19p—with immediate effect. Some 23,000 small businesses in Scotland will benefit from that. We are reducing the starting rate of corporation tax, also with immediate effect, from 10p to zero. That means that companies with profits of up to £10,000 will pay no corporation tax. Some 10,000 enterprises in and around the constituencies of hon. Members present will pay no tax at all on their profits.
In our most disadvantaged areas, enterprise is more, not less, important. We need more businesses in the inner cities and in rural communities, creating jobs, moving money around and engaging in regeneration. In designated enterprise neighbourhoods, our small business tax cuts will be supported with further measures.
I should like to draw the attention of the Committee to our proposals on stamp duty. In the pre-Budget report, we abolished stamp duty on home and business property transactions worth up to £150,000. Now, we are seeking state aid approval to abolish the limit altogether for commercial transactions. The stamp duty measures apply to 135 postcode areas in Scotland, identified using the Scottish Executive's index of deprivation.
Economic growth is not an end in itself. The end must be better public services and a higher standard of life for all our citizens—opportunity for all and no one left behind. This Budget begins and ends with the people, building access and opportunity into the system from cradle to grave. In it we have set out our plans to support parents, as they work to give all children the best possible start in life. The working tax credit will be introduced in April 2003 to help make work pay for those on low incomes.
We are integrating the current system of support and extending assistance to those without children or a disability. A family with one child and one earner working full time on a minimum wage can expect to take home £237 a week. The child tax credit will provide a single, seamless system of income-related support for families. Taken together, the child tax credit and universal child benefit will guarantee support of £26.50 a week for the first child of the 85 per cent. of families with an income below £50,000 a year and £54.25 a week for the first child of families with an income below £13,000. Research by the Scottish Executive based on Treasury models shows that, as a result of the measures announced in the Budget, the poorest 20 per cent. of Scottish households with children will be £630 better off and the poorest 20 per cent. of Scottish single-parent families will be £670 better off.
Support in childhood and policies that make work pay must be followed by dignity in old age. The Budget also sets out policies that respect retirement and promote pensioner prosperity. Regardless of the rate of inflation, the pension will rise by at least £100 a year every year. This year we are doing even more,
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with an increase of £3 a week for singles and £4.80 for couples. More than 910,000 pensioners in Scotland will benefit. From 2003, 350,000 pensioner households in Scotland stand to gain on average £400 a year from the pensioner credit.
Targeted support for families, children and pensioners must be reinforced by improved public services. In the Budget for England, we have chosen to increase investment in the NHS. Scotland will receive substantial annual increases in the period 2003–04 to 2007–08, rising from £224 million in 2003–04 to £3.2 billion extra a year in 2007–08. These measures are in addition to those already announced in Budget 2001 and Spending Review 2000.
Budget and Spending Review 2000 settlements for Scotland were based on the Barnett formula, which ensures that increases in devolved Administrations' settlements reflect population shares of comparable spending in England. The formula has produced fair settlements and has allowed the devolved Administrations to determine their spending decisions in accordance with their needs and priorities.
However, extra investment comes at a price. The Budget sets out proposals to raise national insurance contributions. Employees and the self-employed will pay an extra 1 per cent. of all their earnings over £89 a week. As employers have a strong interest in better public services—the infrastructure of enterprise—they will make an equivalent additional contribution.
There have been no broken promises in this Budget. We gave no assurances on the future of national insurance. Indeed, it would have been irresponsible of us to have done so. The increase is the fairest way to fund the increased investment that we all agree is essential.
The United Kingdom will remain a low-tax environment, favourable to business, favourable to enterprise. The overall tax burden is lower than the European Union average and lower than each of our four main EU competitors: the atmosphere is right for economic growth. We have made our choices. We will work together with the Scottish Executive, as we have in the past, to build for the future a stable, productive and equitable society.
That is the vision; that is the goal; that is what we are working to achieve. I commend the Budget to the Committee.