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21 Mar 2007 : Column 876

The 2p cut in corporation tax will send out a message that the Government are business-friendly, that the economy will be looked after and that growth in employment and jobs will continue to be a feature.

Mr. Mark Hoban (Fareham) (Con): What message does the hon. Gentleman think the increase in the small companies rate of corporation tax to 22p will send to small businesses in his constituency?

Stephen Hesford: I am sure that the hon. Gentleman will tell me in due course in his winding-up speech.

Kitty Ussher: Is it not my hon. Friend’s understanding—this might help him out—that the changes in small company corporation tax are designed to prevent the loophole that allowed people to fudge the difference between being self-employed or working as a small company in order to gain advantage from the different tax rates?

Stephen Hesford: I am grateful to my hon. Friend . [Interruption.] My hon. Friend the Economic Secretary says that there is no net increase in taxation.

Mr. Hoban: The hon. Gentleman will find that the changes to which the hon. Member for Burnley (Kitty Ussher) referred were in the 2006 pre-Budget report, not in the Budget.

Stephen Hesford: As I say, I am sure that the hon. Gentleman can make his point in due course.

Mr. Deputy Speaker: Order. I should make it plain to the hon. Gentleman, and to the House in general in case it is not aware of the situation, that there are no wind-up speeches on the first day of the Budget debates.

Stephen Hesford: I am obliged, Mr. Deputy Speaker. We will therefore have to wait with bated breath for a few days for the answer.

Sammy Wilson (East Antrim) (DUP): Does the hon. Gentleman accept that the 2 per cent. increase in corporation tax for small businesses, which represents a net gain of £820 million for the Exchequer, will have a significant impact on small businesses, especially at a time when the Government are trying to encourage growth in the private sector?

Stephen Hesford: My hon. Friend the Economic Secretary is shaking his head, so that cannot be right.

Sammy Wilson: Read the book!

Stephen Hesford: The hon. Gentleman can make his speech if he catches your eye, Mr. Deputy Speaker.

My constituents were looking for real assistance, and I believe that they got it—not gimmicks or unworkable policies such as VAT on air travel that would punish hard-working people who take their holidays as they well might and should not necessarily be interfered with.

I come to the final piece of the jigsaw in my little tour d’horizon of journalism. Tim Hames—he is not a
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financial journalist but a well-respected commentator in The Times—had a piece last week in which he suggested, in the context of the idea of reconnecting, that my right hon. Friend the Chancellor should cut income tax by 1p. I thought, “Yes, I can see why that would reconnect.” As the House now knows, my right hon. Friend was better than that and cut income tax by 2p. That will be very welcome in my constituency.

Mr. Evans: Could the hon. Gentleman remind the House of what Tim Hames said about the abolition of the 10p rate?

Stephen Hesford: No.

My right hon. Friend the Chancellor rescued my speech for me. I had been ordering my thoughts on how the various unsettling issues that had unwound over the past six to nine months would be dealt with, but he more than met most of those worries. I thoroughly look forward to going back to my constituency and proselytising—

Ed Balls: Lest there is any possibility that my hon. Friend might have been unsettled by some of the interventions from Opposition Members, he may recall that the Chancellor said in his speech that he is taking action to address the issue of small companies avoiding paying their due through artificially incorporating in a way that will not raise the tax burden on the self-employed and small businesses overall, and that the small companies rate will be raised in three stages from 20p to 22p in 2009, recycling all these revenues to legitimate small businesses investing for the future. Does my hon. Friend agree that if Opposition Members had listened to the Chancellor’s speech more carefully they might have understood the point the first time?

Stephen Hesford: I do agree. Of course, I had that in the back of my mind.

I will not detain the House overlong but leave that to other hon. Members who want to speak. I welcome the Budget and the chance to go back and tell my constituents that many of their worries have been settled by today’s Budget.

4.25 pm

Stewart Hosie (Dundee, East) (SNP): May I comment first on the corporation tax change? It should have been greatly welcomed, as a cut in corporation tax is something that we have called for, although I am not sure whether the 2p cut will be sufficient to give Scottish business the competitive advantage it needs in order to close the 25-year 30 per cent. growth gap with the rest of the UK. When I see that in two years’ time the change to capital allowances on plant and machinery will generate £2.27 billion-worth of yield, yet the corporation tax change will only generate £2.23 billion, I am not sure whether, rather, it is a case of robbing Peter to pay Paul.

I welcome the additional investment of £8 billion in the pension financial assistance scheme. I will look into the detail, of course, but I very much hope that there will be enough money for it to work to assist many of
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my constituents who have suffered from the failure or collapse of their occupational pension schemes. We all recognise that the biggest threat that we face globally is from terrorism, so I very much welcome the increase in the security budget to £2.25 billion.

I also welcome the announcement of extra money for shared equity. Again, we will have to look into it in more detail, but I hope that it will provide new affordable homes. I have been through the Red Book and cannot see any forecast future revenue from planning gain supplement. I mention that in the context of the shared equity scheme and the Budget. Many hon. Members are very worried that, if the PGS were to proceed and increase the price of land by, say, 30 per cent., even the shared equity scheme announced today might not be able to deliver the number of affordable houses that the Government may expect.

I should also like to comment on the announcement to sell off the student loan debt. That will certainly generate quick revenue for the Treasury, but it is my understanding that to keep the interest rates charged to ex-students low, there will still be a cost of about £1 billion to the taxpayer. Although, as I say, it will generate some quick revenue for the Exchequer this year, there will be a long-term liability to the UK, while it does nothing, of course, to help those paying off the loans for the time being.

The Budget is supposed to lay out to the House and the country the economic position in which we find ourselves, to measure the success or otherwise of economic policy and to map out the Government’s future plans, expected revenue, spending, inflation, debt and so forth. It underpins the social and economic policy that the Government intend to deliver in the year ahead.

The Chancellor has set out today what he expects in terms of future investment in—and, indeed, reform of—the public sector. He talked about discipline in public sector pay, but he ignored any real assessment of the many economic reforms and savings that he has made. We now know from the National Audit Office that only £3.5 billion of the claimed £13.3 billion of savings can definitely be said to represent efficiencies. Some of the rest may, but the NAO says that more than £3 billion of those savings do not demonstrate efficiency or may be substantially incorrect.

In previous Budgets, the Chancellor has spoken more about his reform of the public sector, particularly the loss of jobs. That was not mentioned at all today and I wonder whether the balance has been struck correctly in terms of losing jobs. For example, at the moment HMRC currently has a million pieces of unopened mail and has spent £160 million on agency staff to cover some of the manpower gaps that appear to exist.

Ed Balls: Did the hon. Gentleman hear the comment from his colleague, the leader of Plaid Cymru, this afternoon, who said that the only reference to Wales in the Budget speech was to 5,000 shelf-stacking jobs in Tesco? Does he reflect the same disdain for those jobs and share the views of his nationalist colleague, or does he join me in believing that that was a very unfair slur on hard-working people—often Union of Shop, Distributive and Allied Workers members—in our country?

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Stewart Hosie: It is for Plaid Cymru to make its own points, and I think the spokesman was referring to the fact that there was only a single reference to Wales in the Budget statement. Perhaps he was also referring to the provision of certain kinds of jobs in the retail sector. However, every job is to be welcomed, and I am sure that none of my colleagues in Plaid Cymru would be dismissive of any jobs—

Ed Balls: Well, they were.

Stewart Hosie: The hon. Gentleman might say that, but I think that my colleagues were being critical of the fact that the Chancellor mentioned Wales on only one occasion in the Budget statement. I think that he mentioned Scotland twice. That is about average for the past 10 Budgets.

The Chancellor said last year that inflation had been virtually halved to 2 per cent., and that long-term interest rates were at their lowest for 40 years at just 4 per cent. Over the past few months, the consumer prices index reached 3 per cent. in December and 2.7 per cent. in January, and the retail prices index hit 4.4 per cent., moving down to 4.2 per cent. In January, however, The Scotsman, quoting the Capital Economics consultancy, identified that pensioner inflation was actually running at 9 per cent., and that real inflation for households on a modest income was hitting 4.6 per cent. We know that today the RPI has hit 4.6 per cent. and that the CPI has hit 2.8 per cent. I am troubled that, when the Chancellor is looking at pension increases and forecasts, he is basing those rises on inflation rates of 2.8 per cent.—or 4.6 per cent. if we are lucky—when real inflation, especially for pensioners, is certainly hitting 9 per cent.

No Budget would be complete without the repetition of the assertion that there have now been 59 quarters of unbroken economic growth, and no Budget would be complete without me saying, “Except in Scotland.” In Scotland, under this Chancellor, there have been four quarters of falling growth, a full-blown manufacturing recession and only six quarters in which growth outstripped that of the UK. To look at that another way, since the second quarter of 1999 and the start of 2006, manufacturing GVA—gross value added—in Scotland has fallen by 12 per cent. against a modest rise in the UK.

The Chancellor also said, as usual, that the UK was doing very well economically. I think that he said that its economy was growing faster than those of the EU and the G7. However, information published today says that the economies of the UK, the G7 and the eurozone all grew by 2.75 per cent. in 2006; so, at best, the UK is marking time; it is not powering ahead as the Chancellor would have us believe.

The Chancellor also talked a lot about his various golden rules and fiscal rules, and in particular about keeping debt below 40 per cent. of GDP over the economic cycle. The problem is that the debt is being hidden. In particular, the Government’s private finance initiative debt is off balance sheet. We know that there are 48 major private finance initiative and public-private partnership projects, with a capital value of £2.7 billion, in Scotland. The Edinburgh royal infirmary project had a capital cost of £184 million, but a repayment of £1.26 billion over its lifetime. We also know about the spectacular
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failure, in terms of value for money, that led to the Inverness airport terminal—with a capital cost of £9.6 million—being bought out with taxpayers’ money to the tune of £36 million. The problem with PPP/PFI is that the cost of borrowing—at rates of between 2.5 and 4 per cent. above public borrowing rates—costs the Scottish taxpayer about £110 million a year extra, which is enough to fund about £2 billion-worth of new public investment.

The UK position is even worse. The 2006 pre-Budget report showed total outstanding PFI payments, over 30 years or so, of £158 billion, which is up 11 per cent. from the £142 billion reported nine months earlier in the 2006 Budget. The cumulative effect today is that payments of £169 billion are to be made up to 2032. These are huge, frightening numbers.

The Chancellor repeated his claims of improving research and development in business, and I welcome the extra £100 million for R and D tax credits. I have raised this issue on a number of occasions and I am glad that that extra money is being put in. It is worth noting, however, that the rates of spend on R and D as a proportion of GDP still pale into insignificance compared with those in our major competitor countries.

The Chancellor also made great play of those who are in work, but it is worth reminding ourselves that, in Scotland, we have lost 90,000 manufacturing jobs since Labour came to power. The figure is about 1 million in the UK.

Mr. Jim Devine (Livingston) (Lab): Will the hon. Gentleman give way?

Stewart Hosie: The hon. Gentleman has only just come into the Chamber, but I will give way to him.

Mr. Devine: I thank the hon. Gentleman, and I apologise. Has not the Chancellor shot the Scottish National party fox this afternoon? If the SNP is voted into power in Scotland next year, and we have independence, people in work will be paying 3p on their local income tax and not getting the benefit of the 2p cut in income tax. That is a difference of 5p in the pound.

Stewart Hosie: When we are talking about the loss of 1 million manufacturing jobs, it is disappointing to be subjected to a question that ignores the net increase in personal taxation because of the removal of the 10p rate. I do not expect the hon. Gentleman to understand that, but the rest of us do. When the general public in Scotland and elsewhere open their newspapers tomorrow and find out that they have been conned, he might be left with egg on his face.

We have lost 1 million jobs. To localise that, Dundee is currently seeing 600 job losses at NCR, which are part of 1,100 manufacturing and distribution job losses announced in the city over the past year. While I concede that there have been some successes, the heart of the economy—the modern manufacturing base—remains under serious pressure.

Kitty Ussher: The hon. Gentleman mentions that manufacturing job losses have been greater, unfortunately, in Scotland than in England. Does he
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think that that is in any way owing to the fact that industrial policy is devolved?

Stewart Hosie: No, I do not, because many of the drivers of investment, particularly in manufacturing, are reserved matters: the R and D tax credit, corporation tax levels and so on. I understand the hon. Lady’s question but I disagree with her premise.

Mr. Jeremy Browne (Taunton) (LD): May I caution the hon. Gentleman against saying that the 10p rate has been abolished? Is it not much more accurate to say that it has been doubled?

Stewart Hosie: I am almost underwhelmed by such wonderful Liberal semantics. The 10p rate has been abolished, and people will pay more tax.

The manufacturing base remains under serious pressure, and while the corporation tax cut of 2p is to be welcomed, some of the other changes are not. There was no hint at support for a reduction in business rates for smaller growing firms, whose tax rate has risen.

There was mention of the creative industries, which I was pleased about, and a clear reference to intellectual capital, about which I am very pleased and have been talking for some time. Important measures must be taken to protect intellectual property. Enforcement raises specific issues in Scotland, although primary legislation is reserved. We must further tighten copyright legislation, not just to avoid losses of profit to business but losses of yield to the Exchequer.

On that point, I want to mention the whisky industry. I am glad that there was no change to duty on spirits, but more protection could be offered to an industry that generates £2.4 billion in exports, supports 40,000 jobs, and if my memory serves, generates about £800 million in duty alone. By protecting its trademarks, descriptions and regional names in law in the UK, we would be seeking the same protection in the overseas market on a much firmer basis. The Government could consider that to protect revenue yield, too.

Willie Rennie (Dunfermline and West Fife) (LD): On the issue of research funding and R and D investment, did you not think that when the Chancellor talked about investment in R and D—

Mr. Deputy Speaker: Order. I remind the hon. Gentleman that he should not be using the second person. By doing so, he is referring to me, and I am sure that he does not mean to do that.

Willie Rennie: When the Chancellor referred to research funding, he neglected to inform the House that there has been a huge cut in research council funding, which is having a huge impact on the science community in universities and the rest of the UK. Does not the hon. Gentleman think that that is a disgrace?

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